From 1 July 2025, a key change to Australia’s tax laws will take effect: you’ll no longer be able to claim a tax deduction for interest charges imposed by the ATO—specifically the General Interest Charge (GIC) and Shortfall Interest Charge (SIC).
This change was passed by Parliament on 26 March 2025, and it could significantly impact how you manage any outstanding tax debts with the ATO.
Here’s what you need to know and how to prepare.
What’s Changing?
Up until now, if you owed money to the ATO and were charged interest, that interest was tax-deductible. From 1 July 2025, that’s no longer the case.
You’ll still be charged interest on unpaid or underpaid tax, but you won’t be able to claim it on your tax return—even if the amount is substantial.
However, in some situations, the ATO may still choose to remit (waive or reduce) these charges, especially where there are fair and reasonable circumstances behind the delay.
A Quick Explanation: GIC vs SIC
General Interest Charge (GIC)
- Applies when you pay your tax late
- The interest compounds daily until the debt is paid
- Current rate (Jan–Mar 2025): 11.42%
Shortfall Interest Charge (SIC)
- Applies when your self-assessed tax return is incorrect, and you owe more after the ATO adjusts it
- Applies from the due date to the date the amended assessment is issued
- Current rate (Jan–Mar 2025): 7.42%
Once your assessment is amended, the GIC kicks in until the balance is cleared.
Why This Matters
If you’ve been treating the ATO like a flexible payment option for your tax obligations, this change makes that approach more expensive. Without the ability to deduct interest charges, your overall tax bill could be higher.
A Smarter Option: Consider Bank Finance
If you have ATO debt, it might be time to rethink how you manage it. One smart strategy is to speak to your bank or financial advisor about taking out a loan to cover the tax debt.
Why?
- Interest on bank loans is usually tax-deductible
- Bank rates are often lower than the ATO’s GIC rate
- You gain better predictability and control over repayments
This change means the ATO will likely no longer be the cheapest option when managing cash flow.
What You Can Do Now
- Check if you have any existing ATO debt
- Review any current payment plans or tax shortfalls
- Talk to us about strategies to reduce your exposure before 1 July 2025
- Consider refinancing options with your bank or broker