Important tax law change affecting ATO debt from 1 July 2025
ATO tax debt interest deduction changes from 1 July 2025
From 1 July 2025, interest charged by the Australian Taxation Office (ATO) on unpaid tax debts will no longer be tax deductible.
This change applies to:
- General Interest Charge (GIC), and
- Shortfall Interest Charge (SIC)
The removal of deductibility increases the after‑tax cost of carrying an ATO tax debt and has important cash‑flow implications for businesses.
What has changed?
Prior to 1 July 2025, businesses and individuals could generally claim a tax deduction for interest charged by the ATO on unpaid tax liabilities.
From 1 July 2025 onwards, GIC and SIC incurred will no longer be deductible, regardless of when the underlying tax debt arose.
Interest incurred before 1 July 2025 may still be deductible in the relevant income year.
Why this matters for businesses
The ATO’s interest rates are significantly higher than most commercial borrowing rates and compound daily.
With interest no longer deductible, the full cost of carrying an ATO debt now directly impacts after‑tax profit and cash flow.
For businesses operating with tight margins or managing multiple tax obligations (GST, PAYG withholding, income tax), this change increases the importance of proactive tax planning.
Common situations affected
- Businesses on ATO payment plans
- Late BAS or income tax lodgements
- Unexpected tax assessments or amendments
- Cash‑flow pressures leading to delayed tax payments
While payment arrangements with the ATO remain available, they should no longer be viewed as a low‑cost form of finance.
What should businesses consider now?
Depending on circumstances, businesses may need to:
- Review existing ATO tax debts and interest exposure
- Prioritise timely lodgement and payment of tax obligations
- Avoid using the ATO as a source of ongoing working capital
- Review cash‑flow planning around GST and PAYG withholding
Early advice allows more options to be considered before interest costs escalate.
Business tax advice
If your business is managing ATO debt or facing cash‑flow pressure, professional advice can help you understand the impact of these changes and assess appropriate next steps.