ATO interest is no longer deductible: what changed on 1 July 2025

What exactly changed?

Until 30 June 2025, a business that paid interest to the ATO on overdue tax could generally claim that interest as a tax deduction. It softened the cost of carrying tax debt and, for some businesses, made the ATO feel like a convenient source of credit.

From 1 July 2025, that ended. In its reminder to taxpayers, the ATO confirmed that any general interest charge incurred on or after 1 July 2025 is no longer tax deductible, regardless of whether the debt relates to an earlier income year. The same applies to the shortfall interest charge (SIC), which arises when an assessment is amended and more tax is payable.

Interest incurred before 1 July 2025 can still be claimed in the usual way.

Who does it affect?

Practically every business with an overdue ATO balance after 1 July 2025, including:

• businesses on ATO payment plans — GIC keeps accruing on the plan balance;
• businesses with debt but no plan;
• businesses whose returns are amended and incur SIC;
• sole traders as well as companies and trusts.

It doesn’t change the GIC rate itself, which the ATO still resets each quarter and publishes on its website. It changes what that interest costs you after tax.

Why does this make carrying ATO debt more expensive?

Think of it in two steps. Before the change, the cost of GIC to a profitable business was the interest less the tax saved by deducting it. After the change, the cost is the full interest. Nothing about the debt is different, but its after-tax cost is higher.

	Before 1 July 2025	From 1 July 2025
GIC charged	Daily compounding, quarterly rate	Daily compounding, quarterly rate
Deductible?	Generally yes	No
After-tax cost	Interest less the tax saving	The full interest
SIC	Generally deductible	Not deductible

That’s why many accountants now encourage clients not to treat the ATO as a lender of first resort, and to compare options before letting a balance sit.

What happens to remitted GIC?

The ATO has said there’s no change to the laws about remission — you can still ask for interest to be remitted where your circumstances justify it. And because post-1 July 2025 GIC isn’t deductible, remitted amounts of that GIC don’t need to be included as income. Our GIC remission guide explains how to make a request with the 2026 form.

Is interest on a loan to pay tax deductible?

This is where the comparison gets interesting. Interest on a business loan may be deductible where the borrowing is connected to the business’s income-earning activities — so refinancing a tax debt can, in some structures, turn non-deductible GIC into potentially deductible loan interest. But it depends on who borrows, how the money flows and what it’s used for. For example, the ATO’s long-standing view is that a partner who borrows personally to pay tax on partnership profits generally can’t deduct the interest.

So: ask your accountant before you borrow. Don’t rely on a lender’s or a website’s view, including ours.

What should you do now?

1. Check your ATO balance and how much of it is GIC.
2. Look at the plan term you’d realistically need, and estimate the GIC over that period at the current published rate.
3. Get a written loan quote showing the total cost if you’re considering funding.
4. Compare after tax with your accountant’s help — our payment plan vs loan tool does the GIC arithmetic.
5. Ask for remission of GIC already charged if circumstances justify it.

A note on interest rates

You’ll notice we don’t print the GIC rate on this site, and we don’t publish our own loan rates either. The GIC rate changes every quarter and is always available on the ATO’s GIC rates page; loan pricing depends on each business’s circumstances. Comparing real numbers from real sources is the only fair way to decide.

How does this change the maths on a payment plan? (illustrative)

Consider an illustrative company with a profitable year and an ATO payment plan running for 18 months. Before 1 July 2025, the GIC it paid on that plan would generally have reduced its taxable income, so part of the interest was effectively offset by a lower tax bill. From 1 July 2025, there’s no deduction for that GIC. Same plan, same balance, same rate — but a higher real cost.

The longer the plan and the larger the balance, the bigger that difference becomes. That’s why the change matters most for:

• businesses on long plans for large balances;
• businesses that habitually let BAS amounts sit on account;
• profitable companies, which would otherwise have benefited most from the deduction.

Does it apply to the super guarantee charge too?

Different rules apply to different charges, which can be confusing. Under Payday Super, the ATO says the components of the super guarantee charge for qualifying earnings days from 1 July 2026 are deductible — but GIC and late payment penalties are not. So a business catching up on super can deduct the SG charge itself, but not the interest the ATO adds if it’s paid late. Your accountant can confirm how each amount on your statement is treated.

Would paying the ATO out cost you less?

If GIC is building on a large or long-running balance, it may be time to compare. See if you qualify — there’s no credit check to enquire, your details stay with one team rather than being shared with a crowd of lenders, and a real person will help you look at the numbers honestly, including whether staying on the ATO plan is cheaper. Accurate figures make the comparison worth having.