ATO Interest No Longer Tax Deductible from 1 July 2025: What It Means for Taxpayers
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Starting 1 July 2025, the Australian Taxation Office (ATO) will deny income tax deductions for interest charges imposed on unpaid tax liabilities. This includes both the General Interest Charge (GIC) and the Shortfall Interest Charge (SIC), regardless of when the tax shortfall originally arose.
Key Implications for Taxpayers with Overdue Tax Liabilities
1. ATO Interest Charges Will Increase Your After-Tax Cost
Until now, businesses and individuals could claim deductions for GIC and SIC, reducing the taxable income attributable to ATO debts. From 1 July 2025, any interest charges incurred will become non-deductible interest charges, increasing the real financial burden of tax arrears.
For Example: A business with a 30% tax rate effectively paid 8% interest on ATO debt after deductions. Once deductibility is removed, the full GIC rate—currently 11.42%—applies in full.
2. Existing and Future ATO Payment Plans Affected
Even if your ATO payment plan relates to a tax liability from an earlier income year, any interest charges incurred on or after 1 July 2025 will not be deductible. This change applies across the board—there’s no grandfathering of amended assessments or old liabilities.
3. Limited Relief Through Interest Remissions
The ATO has become more selective about granting remissions for GIC and SIC. Remissions are typically only approved in exceptional cases like natural disasters or severe financial hardship, not as a routine solution.
Consider Alternative Lending Options
With the deductions for ATO interest being removed, you will likely save considerably on interest payments by opting to refinance outstanding tax debts through a deductible commercial loan. This will allow you to secure a much lower rate than the ATO’s GIC.
ATO Interest No Longer Tax Deductible from 1 July 2025: What It Means for Taxpayers
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Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
Starting 1 July 2025, the Australian Taxation Office (ATO) will deny income tax deductions for interest charges imposed on unpaid tax liabilities. This includes both the General Interest Charge (GIC) and the Shortfall Interest Charge (SIC), regardless of when the tax shortfall originally arose.
Key Implications for Taxpayers with Overdue Tax Liabilities
1. ATO Interest Charges Will Increase Your After-Tax Cost
Until now, businesses and individuals could claim deductions for GIC and SIC, reducing the taxable income attributable to ATO debts. From 1 July 2025, any interest charges incurred will become non-deductible interest charges, increasing the real financial burden of tax arrears.
For Example: A business with a 30% tax rate effectively paid 8% interest on ATO debt after deductions. Once deductibility is removed, the full GIC rate—currently 11.42%—applies in full.
2. Existing and Future ATO Payment Plans Affected
Even if your ATO payment plan relates to a tax liability from an earlier income year, any interest charges incurred on or after 1 July 2025 will not be deductible. This change applies across the board—there’s no grandfathering of amended assessments or old liabilities.
3. Limited Relief Through Interest Remissions
The ATO has become more selective about granting remissions for GIC and SIC. Remissions are typically only approved in exceptional cases like natural disasters or severe financial hardship, not as a routine solution.
Consider Alternative Lending Options
With the deductions for ATO interest being removed, you will likely save considerably on interest payments by opting to refinance outstanding tax debts through a deductible commercial loan. This will allow you to secure a much lower rate than the ATO’s GIC.
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Recommended Actions
Settle Outstanding Tax Liabilities Before 1 July 2025
Pay off any unpaid tax liabilities before 1 July to ensure all associated interest charges remain deductible. Interest charged after this date will no longer reduce your overall tax liability.
Review Your Payment Plans
If your existing ATO payment arrangement runs beyond the cut-off date, consider:
- Accelerating repayments
- Restructuring the debt
- Exploring refinancing through a business or personal loan
This category can cover various topics related to taxation, such as changes in tax laws, how to file taxes, common tax mistakes, and tax planning strategies.
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Disclaimer
The content of this article is general in nature and is presented for informative purposes only. It is not intended to constitute tax or financial advice. All lending services are rendered by Zelos Finance Group, which is a Credit Representative (CRN 566666) of Finsure Finance and Insurance Pty Ltd (ABN 72 068 153 926). Lending services are authorised by Finsure Finance and Insurance Pty Ltd, Australian Credit Licence Number 384704.
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