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From 1 July 2025 ATO Interest is no longer tax deductible

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On 26 March, the government passed legislation denying tax deductions for ATO interest. This change takes effect on 1 July 2025.

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These amendments deny deductions for ATO interest charges (being the general interest charge (GIC) and the shortfall interest charge (SIC)).

This means that taxpayers can no longer deduct GIC or SIC incurred on or after 1 July 2025.

 

Who is affected?

• Personal Tax Debts: ATO Interest on personal tax debts will no longer be deductible. Interest on externally borrowed funds to pay personal tax debts has never been deductible and won’t be in the future. To avoid non-deductible ATO interest, tax debts must be paid on time. If personal tax debts cannot be paid on time it may be best to seek out alternative funding sources with lower interest rates (ATO GIC rate for Mar 2025 quarter: 11.42%).

• Business Entities (Sole Traders, Companies, Trusts): ATO interest will no longer be deductible, but interest on bank loans or overdrafts used to pay tax liabilities for businesses will remain deductible. To maintain interest deductibility, consider arranging finance to cover business tax payments if necessary.

 

The ATO has drastically changed its behaviour and stance in regard to timely payment of debts, debt collection and leniency with interest and penalty remissions

• Interest & Penalty Remissions are now rarely granted, except in extreme cases.

• Aggressive Debt Collection—The ATO is chasing even small debts early and debt collection actions are escalating quickly.

 

What You Should Do

• Pay all ATO debts on time and in full whenever possible to minimise the risk of non-deductible interest or ATO penalties being applied.

• If prompt payment in full is not possible, request an extension of time or ask us to request an extension for you.

• Plan ahead—Engage with us early to manage your tax liabilities efficiently and give you maximum notice of upcoming payments.

 

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Late & Problem Returns

This is when people or businesses are late with their BAS statements, Tax Returns and have been accruing debts such as fines and interest to the ATO as they have ignored the ATO.

I have been extremely successful in reducing tax debts in these instances. Two examples:

One client came to us owing $220,000 and 3 years behind. I brought all their BAS and tax return up-to-date and obtained a reduction of $160,000 in penalties and interest. We then entered them into a repayment program for the $60,000 which they have just finished paying off.

Another client had 18 months BAS outstanding and two years of tax returns. He had a tax debt of $62,000 with penalties. I was able to get a reduction of $37,000 in fines and penalties leaving him with a debt of $25,000 of which he still owes $5,000.

Both clients are very happy with these outcomes. Also, after I obtained the reductions and kept them up-to-date with their BAS and Tax Returns they have not only kept up repayments but have managed to ensure that all current BAS and payments have been kept up to date as well.

If you find yourself in a similar position then we are most likely able to help.

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