If you’ve got an outstanding tax bill with the ATO, now’s the time to take a closer look. Because from 1 July 2025, it might cost you more than you expect.
The government has officially scrapped the tax deductibility of interest charges applied to ATO debts. That means two common interest charges, General Interest Charge (GIC) and Shortfall Interest Charge (SIC), will no longer be deductible for tax purposes if they’re incurred on or after that date. Even if the original debt arose earlier, any new interest charges from 1 July 2025 won’t reduce your taxable income.
What are they?
When you pay your tax late, the ATO applies General Interest Charge (GIC), essentially a penalty to encourage timely payment and maintain fairness among taxpayers. GIC is calculated daily and compounds, meaning the longer it takes to pay, the more you’ll owe. As of the July–September 2025 quarter, the GIC annual rate is a hefty 10.78%.
Then there’s Shortfall Interest Charge (SIC), which applies when your tax return is amended and reveals that you underpaid your taxes. SIC also compounds daily and applies to the shortfall for the period between when the tax should have been paid and when the shortfall is corrected. The SIC rate for the same quarter sits at 6.78%.
What’s in change?
Until now, businesses and individuals could claim these interest charges as deductions, softening the blow by lowering the effective after-tax cost. That benefit is about to disappear.
From 1 July 2025 onwards, GIC and SIC will no longer be deductible, regardless of when the underlying tax debt was incurred. This means that many taxpayers, especially those in higher tax brackets, will feel the full impact of these interest charges.
In practical terms, the end of deductibility translates to higher real costs. You’ll still be hit with the interest, but without the tax deduction that used to ease the sting.
What can you do about it?
The best move is simple: pay down your tax debt as soon as you can. With interest rates this high and compounding daily, the cost of delay adds up fast.
If that’s not financially feasible in the short term, there are other options worth exploring. For example, you might consider refinancing the tax debt through a loan with a lower interest rate. In some cases, the interest on such a loan could still be deductible—particularly if the tax debt relates to business income. That said, interest on loans used to pay personal or investment-related tax debts generally won’t be deductible, so it’s important to get proper advice before taking that route.
Another path is to negotiate a payment plan with the ATO. While this spreads out repayments, it doesn’t stop GIC from accruing. So even if a plan offers breathing room, it’s still better to pay the debt off faster if you can.
Plan ahead
More importantly, this is a good reminder to think ahead when it comes to managing your tax obligations. Setting aside funds regularly for GST, PAYG, and other liabilities can make a world of difference. Keeping these amounts separate, almost like a mini tax savings account, helps avoid nasty surprises when the ATO bill arrives.
If you’re carrying tax debt or unsure about how these changes might affect you, now is the time to act. The rules are shifting, but with some smart planning and the right support, you can stay ahead of the curve and avoid unnecessary interest costs.
Let’s talk if you need help navigating the changes or putting a plan in place—we’re here to make sure you stay compliant and in control.
Pitt Martin Group is a firm of Chartered Accountants, providing services including taxation, accounting, business consulting, self-managed superannuation funds, auditing and mortgage & finance. We spend hundreds of hours each year on training and researching new tax laws to ensure our clients can maximize legitimate tax benefit. Our contact information are phone +61292213345 or email info@pittmartingroup.com.au. Pitt Martin Group is located in the convenient transportation hub of Sydney’s central business district. Our honours include the 2018 CPA NSW President’s Award for Excellence, the 2020 Australian Small Business Champion Award Finalist, the 2021 Australia’s well-known media ‘Accountants Daily’ the Accounting Firm of the Year Award Finalist and the 2022 Start-up Firm of the Year Award Finalist, and the 2023 Hong Kong-Australia Business Association Business Award Finalist.
Pitt Martin Group qualifications include over fifteen years of professional experience in accounting industry, membership certification of the Chartered Accountants Australia and New Zealand (CA ANZ), membership certification of the Australian Society of Certified Practising Accountants (CPA), Registered Australia Tax Agents, certified External Examiner of the Law Societies of New South Wales, Victoria, and Western Australia Law Trust Accounts, membership certification of the Finance Brokers Association of Australia Limited (FBAA), Registered Agents of the Australian Securities and Investments Commission (ASIC), certified Advisor of accounting software such as XERO, QUICKBOOKS, MYOB, etc.
This content is for reference only and does not constitute advice on any individual or group’s specific situation. Any individual or group should take action only after consulting with professionals. Due to the timeliness of tax laws, we have endeavoured to provide timely and accurate information at the time of publication, but cannot guarantee that the content stated will remain applicable in the future. Please indicate the source when forwarding this content.
By Yvonne Shao @ Pitt Martin Tax
