New Law: ATO Interest Charges No Longer Deductible from 1 July 2025

Written By Liz Lindner

As part of the Federal Government’s 2023–24 Mid-Year Economic and Fiscal Outlook (MYEFO), a legislative change has been introduced that denies income tax deductions for ATO interest charges incurred on or after 1 July 2025. This change is now law and has important implications for individual taxpayers, businesses, and tax agents alike.

What Has Changed?

From 1 July 2025, taxpayers will no longer be able to claim deductions for:

  • General Interest Charge (GIC) – typically applied to unpaid tax liabilities.

  • Shortfall Interest Charge (SIC) – typically applied to unpaid shortfalls following amended assessments.

This change applies to interest incurred on or after 1 July 2025, regardless of which income year the underlying tax debt relates to.

When Is Interest Considered Incurred?

Interest is incurred when you become legally liable to pay it. Common scenarios include:

  • GIC is incurred daily on outstanding tax debts (e.g., unpaid income tax).

  • SIC is incurred in the year a notice of amended assessment is issued, relating to an underpaid tax amount.

What About Interest Incurred Before 1 July 2025?

There is no change to interest incurred prior to 1 July 2025:

  • GIC and SIC incurred before 1 July 2025 remain tax-deductible.

  • For these earlier years, standard ATO guidance on calculating and reporting interest deductions continues to apply.

If you claim a deduction for GIC or SIC in a prior year and the amount is later remitted by the ATO, the remitted portion must be included in your assessable income in the year of remission.

What If Interest Is Remitted After 1 July 2025?

If the GIC or SIC incurred after 1 July 2025 is remitted by the ATO, there will be no tax consequences—the remitted amount will not be included in assessable income, as the interest was never deductible in the first place.

 

Key Takeaways for Taxpayers

  • From 1 July 2025, ATO interest charges are no longer deductible.

  • Interest incurred before this date can still be deducted, subject to existing rules.

  • Plan ahead to avoid incurring GIC or SIC post-30 June 2025, particularly for overdue debts.

  • Ensure accurate and timely lodgement and payment of tax obligations to minimise non-deductible costs.

Liz Lindner