A quiet change took effect on 1 July 2025 that makes carrying a tax debt noticeably more costly, and many business owners have not registered it yet.
The interest the ATO charges on overdue tax is no longer tax-deductible.
What changed
The ATO applies two interest charges to outstanding amounts: the general interest charge (GIC) on overdue debts, and the shortfall interest charge (SIC) where an amendment increases the tax you owe.
Until recently, those charges were deductible. If the ATO charged you interest, you could at least claim that interest as a deduction, which softened the cost.
For charges incurred on or after 1 July 2025, that deduction is gone. GIC and SIC are no longer deductible, regardless of which year the underlying tax debt relates to. There is a matching change on the other side: if the ATO later remits (cancels) interest it charged after 1 July 2025, that remission is no longer counted as assessable income.
Why it bites harder than it sounds
The general interest charge is not a token rate. It compounds daily and sits well above a typical commercial loan rate. Losing the deduction means the full sting now lands after tax.
Put simply, a dollar of ATO interest used to cost you less than a dollar after the deduction. Now it costs you the full dollar. For a business carrying a tax debt across a year, that difference adds up.
What it means in practice
The change shifts the maths on how you fund a tax debt.
- An ATO debt is now one of the more expensive forms of finance a business can carry, because the interest is both high and non-deductible.
- Commercial debt used for business purposes generally remains deductible. Refinancing an ATO debt into a deductible business facility may now compare more favourably than it once did.
- Staying current on lodgements and payments matters more than ever, because the cost of falling behind has gone up.
This is general information, not a recommendation about any particular loan or refinancing. The right move depends on your full position and should be worked through with your accountant, and where finance is involved, a licensed broker or your lender.
A reasonable EOFY check
As you move into the new financial year, it is worth knowing exactly what you owe the ATO and what interest is accruing on it. If there is a debt sitting there quietly compounding, the after-tax cost is now higher than it used to be, and that changes how urgent it is to deal with.
Before you act
Interest rates and the detail of these rules change, and your circumstances matter. Confirm the current general interest charge rate and your position with a registered tax agent, and check the rules on the ATO before acting.
General information only. This article provides general information about Australian tax concepts and is current as at 3 June 2026. It does not take into account your objectives, financial situation or needs, and it is not tax advice. Foothold Advisory is not a registered tax agent. Tax laws change and apply differently depending on your circumstances. Before acting, obtain advice tailored to your situation from a registered tax agent, and verify all figures against the ATO.