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No More Deductions on Interest: ATO Interest No Longer Tax-Deductible from 1 July 2025

If you’re a business owner who sometimes falls behind on tax payments, there’s a big change coming that you need to know about.

From 1 July 2025, the Australian Taxation Office (ATO) has confirmed that interest charged on unpaid tax debts will no longer be tax deductible. This includes the commonly known General Interest Charge (GIC) and Shortfall Interest Charge (SIC).

So, what does this mean for your bottom line—and how can you get ahead of it? Let’s break it down.

What Is ATO Interest?

When you don’t pay your tax by the due date, the ATO charges interest on what you owe. This is called the:

General Interest Charge (GIC) – applied to unpaid tax debts.
Shortfall Interest Charge (SIC) – applied when there’s an underpayment after an amendment or correction to a return.

Up until now, businesses could claim these interest charges as a tax deduction—which helped soften the blow when things got tight. But not for long.

What’s Changing from 1 July 2025?

Starting 1 July 2025, you can no longer claim ATO interest charges as a tax deduction.

That’s right. Even if you’re paying interest on tax debt because of timing issues or cash flow struggles, that extra cost will now be fully out-of-pocket with no tax relief.

The change applies across the board—to companies, trusts, partnerships, and sole traders.

Source: ATO Treasury Laws Amendment (Making Multinationals Pay Their Fair Share—Integrity and Transparency) Bill 2023 (check Schedule 2 for the specific amendments to interest deductibility).

Why Is This Happening?

This change is part of a broader push to ensure fairness in the tax system and reduce any “incentive” to delay tax payments just because the interest was deductible.

It also aligns with the ATO’s focus on tightening compliance and improving the integrity of the tax system—especially for large multinationals, but it affects all businesses.

How This Might Impact Your Business

Here’s what to consider:

Less wiggle room for tax debt: You’ll now feel the full cost of ATO interest in your profit margins.
Cash flow planning is crucial: With no tax deduction offset, ATO interest can eat into your working capital.
Higher real cost of being late: A missed BAS lodgment or late income tax payment could now hit harder than before.

What Can You Do to Prepare?

Here’s how you can stay ahead:

1. Prioritise staying up to date with tax payments
Don’t let things slip. Make your BAS, PAYG, and super obligations a non-negotiable.

2. Get strategic with your cash flow
We use the Profit First method to help clients plan their tax in advance—so there are no nasty surprises.

3. Talk to your accountant early
If you’re struggling with tax debts or need help managing payment plans, it’s better to reach out sooner rather than later.

4. Review your systems and reminders
Use tools like Xero to automate reminders and make lodgment deadlines easier to track.

Need Help Navigating the Changes?

At Amarose Accounting, we specialise in helping business owners manage their cash flow, meet compliance, and reduce overwhelm—without judgement. We’re also Profit First Certified, CPA qualified, and committed to helping you build real profit (in your bank account, not just on paper).

Unsure how these changes affect your business?

Let’s talk through it.