Recent Changes to Deductibility of ATO Interest

Accounting, Australian Taxation Office, Human Resources, Superannuation, Taxation

Recent Changes to Deductibility of ATO Interest: What You Need to Know

Significant changes to the deductibility of Australian Taxation Office (ATO) interest charges are now law under the Treasury Laws Amendment (Tax Incentives and Integrity) Act 2025. These changes will impact taxpayers who incur general interest charges (GIC) and shortfall interest charges (SIC) on or after 1 July 2025.

What Has Changed?

From 1 July 2025, taxpayers will no longer be able to claim a tax deduction for GIC and SIC incurred in relation to outstanding or late payments of tax. This applies to tax liabilities for income years both before and after 1 July 2025.

However, any GIC and SIC incurred prior to 1 July 2025 will remain deductible for the 2024–25 and earlier income years.

The ATO interest rate is currently 11.17% (Apr-Jun2025) on debts so can result in a large interest charge that post 01.07.2025 will no longer be deductible.

Why Is This Change Important?

Previously, taxpayers could deduct interest charges imposed by the ATO, providing some financial relief when managing tax debts. The removal of deductibility means that interest charges will now represent a direct cost, increasing the financial burden on businesses and individuals who fail to pay their tax obligations on time.

Key Implications for Taxpayers

  • Higher Costs for Late Payments: Without the ability to deduct GIC and SIC, taxpayers will face higher after-tax costs when managing overdue tax debts.
  • Applies to All Late Payments: The change applies to all outstanding tax liabilities, regardless of whether they relate to income years before or after 1 July 2025.
  • Existing Interest Charges Still Deductible: Any GIC and SIC incurred before 1 July 2025 will remain deductible for the 2024–25 and earlier income years.

What Should Taxpayers Do?

With these changes now in effect, taxpayers should take proactive steps to minimize exposure to ATO interest charges:

  • Ensure timely tax payments to avoid incurring non-deductible interest charges.
  • Review outstanding tax debts and consider settling them before 1 July 2025 to retain deductibility for existing interest charges. You may even consider bank lending at lower interest rates to finalise the debts.
  • Consult with us, Welsh Tax to develop strategies for managing tax obligations efficiently.

This legislative change reinforces the importance of timely tax compliance and encourages taxpayers to avoid accumulating interest charges on overdue tax debts.

Are you ready for these changes? Now is the time to plan and stay on top of your tax obligations!  Please get in touch to discuss strategies to ensure you are prepared for the impact of non-deductible ATO interest charges, call us on 07 5494 9173.