ATO interest is no longer tax deductible: what it means for your tax debt

ATO interest is the general interest charge (GIC) the tax office adds to tax paid late, and the shortfall interest charge (SIC) it adds when an assessment is amended upward. Until mid-2025 both could be claimed as a tax deduction, which softened their sting. For charges incurred on or after 1 July 2025 that deduction is gone, so every dollar of ATO interest now comes out of after-tax profit.

This is one of the quieter changes of recent years, but for the hundreds of thousands of small businesses carrying a tax balance it changes the arithmetic of whether to pay the ATO slowly, refinance, or restructure. Here is what changed, how to measure the effect on your own debt, and how lenders look at it.

What exactly changed on 1 July 2025?

The deduction for GIC and SIC was removed for amounts incurred from that date. The ATO lists the measure as law under the Treasury Laws Amendment (Tax Incentives and Integrity) Act 2025. Its key points:

• No deduction for GIC or SIC incurred on or after 1 July 2025, regardless of which earlier period the underlying tax relates to.
• Earlier charges are unaffected. GIC or SIC incurred before 1 July 2025 stays deductible in the 2024–25 or earlier year in which it was incurred.
• Remissions get simpler. If GIC or SIC incurred from 1 July 2025 is later remitted, the remitted amount doesn’t need to be included as assessable income. Under the old rules, a remission had to be added back.
• Everyone is covered: individuals, sole traders, partnerships, trusts and companies. Entities with a substituted accounting period lose the deduction from their first accounting period starting after 1 July 2025.

For a business carrying an overdue balance, that means the interest component of the debt is now paid entirely from after-tax money.

Why does losing the deduction make such a difference?

Because the deduction used to hand part of the cost back. If your business paid tax, each dollar of deductible GIC reduced taxable income by a dollar, so the net cost was a dollar less the tax saved at your company or marginal rate. Now there is no saving. The full charge is the full cost.

At the same time, GIC has three features that make it expensive to leave running:

1. It compounds daily on the overdue amount, according to the ATO, so interest is charged on interest.
2. The rate is reset every quarter and announced roughly two weeks before each quarter begins. The ATO publishes it on its GIC rates page; we don’t reproduce it here.
3. It keeps running on a payment plan. The ATO is explicit that debts on a plan continue to accrue GIC.

How does GIC compare with interest on a business loan?

They are different kinds of cost, and the differences now cut more sharply.

Feature	ATO general interest charge	Interest on a business loan
Tax deductible?	No, if incurred from 1 July 2025	Generally yes, when the borrowing is for a business purpose
How it accrues	Compounds daily on the overdue balance	Set by the loan contract (often calculated daily, charged monthly)
Who sets the price	Legislated formula, updated quarterly	Priced on your security, file and term
Consequence of falling behind	Firmer ATO action, possible credit reporting, director penalty notices for some debts	Default under the contract and enforcement against security
Can it be negotiated?	Remission only in extenuating circumstances	Structure, term and security can be shopped

Whether loan interest is deductible in your case depends on your structure and how the money is used. Our explainer on whether business loan interest is tax deductible covers the general principles; your accountant should confirm the position before you rely on it.

Does an ATO payment plan stop the interest?

No. A payment plan stops the ATO escalating collection while you keep to it, but it doesn’t stop GIC. The ATO’s own guidance says plans that finish sooner cost less in interest.

What a plan does require:

• Self-serve set-up for debts of $200,000 or less through online services or the self-help phone line; larger debts need a phone call with income, expense and asset details.
• Lodge every obligation on time while the plan runs.
• Pay new tax debts in full and on time, or set up a separate plan for them.
• Default consequences: miss the terms and the full overdue balance can become immediately payable.

A plan is often the right first step. It is rarely the cheapest place to leave a large balance for long now that the interest has no deduction.

Carrying a balance with the tax office and wondering whether refinancing would cost less? Get a specialist’s view on your numbers before the next quarter’s interest lands.

When can the ATO report your tax debt to credit bureaus?

When all of the following are true:

1. the business has an ABN and is not an excluded entity (such as a registered charity or complying super fund);
2. it owes at least $100,000 overdue by more than 90 days;
3. it is not effectively engaging with the ATO to manage the debt;
4. there is no open Tax Ombudsman complaint about the proposed disclosure.

The ATO sends written notice first and allows 28 days to act. The listing is removed once the debt is paid or the business is effectively engaging, which includes keeping to a payment plan. Six credit reporting bureaus are registered to receive the data, and lenders draw on several of them. A reported tax debt doesn’t end your borrowing options, but it narrows them quickly.

Should you refinance a tax debt with a loan?

Sometimes. Refinancing works when it genuinely lowers the total cost and closes the ATO account, rather than moving the problem. Work through it in this order:

1. Get an exact payoff figure from the ATO, including GIC to a chosen settlement date.
2. Estimate the GIC you would pay if you stayed on the plan to the end, using the ATO’s current rate and your plan length.
3. Get the total cost of the loan in dollars: interest, establishment, valuation and legal fees, and any exit costs.
4. Adjust for tax with your accountant: the loan interest may be deductible; the GIC from 1 July 2025 is not.
5. Check the cash-flow fit. A longer loan term may lower the monthly load but must still be affordable alongside your current BAS.
6. Fix the cause. If the debt built up because GST and PAYG withholding were used as working capital, set up a separate tax account before refinancing.

Where the sums are large, property-secured structures from the wider business loans market such as a second mortgage business loan or a short-term caveat loan are common ways to clear the ATO quickly. Our page on ATO tax debt finance covers lender appetite in more detail.

Can you get GIC remitted instead?

You can ask. The ATO says it may remit GIC where there are extenuating circumstances, and a request is worth making if the debt arose from events outside your control. From 1 July 2025, any remitted GIC or SIC doesn’t have to be counted as assessable income, so a successful remission is now cleaner than before. Don’t plan around a remission, though; treat it as a bonus.

An illustrative example

Illustrative only. The figures are invented round numbers and are not ATO rates or a lender’s pricing.

A trading company owes the ATO $150,000 and sets up a two-year payment plan. Suppose the GIC accruing over those two years would total around $30,000. Under the old rules, the company could deduct that interest, so its after-tax cost was materially lower. Now the whole $30,000 is borne from after-tax profit.

The directors get a secured loan quote with a total cost of finance, including fees, of $24,000 over the same period, and their accountant confirms the interest is likely deductible. On those numbers the loan is cheaper before tax and cheaper again after tax, and it closes the ATO account immediately, removing any risk of credit reporting. If the loan’s total cost had been $40,000, staying on the plan and paying it down quickly would have been the better choice. The method matters more than the answer.

What do lenders want to see when you refinance a tax debt?

• An ATO integrated client account statement and any payment plan correspondence.
• All lodgements up to date, or a clear timetable to bring them current.
• Recent BAS and bank statements showing trading has recovered or is stable.
• An explanation of why the debt arose and what has changed.
• For secured loans, property details and current debts against it.

A tax debt with a clear cause, a fix in place and lodgements current is a routine refinance. One with missed lodgements and no explanation is not. For broader options when debts overlap, see refinancing business debt.

Ready to stop paying non-deductible interest?

If your ATO balance has been sitting on a plan, now is a good time to test whether clearing it would cost less. Tell us about the debt and your security in about a minute. There’s no credit check at the enquiry stage, your file goes to one specialist rather than a list of lenders, and you’ll talk to a person, not a sorting algorithm. Please give the real ATO balance and plan status; accurate figures are what let us find the right structure the first time.