From 1 July 2025, taxpayers will no longer be able to claim tax deductions for general interest charges (GIC) and shortfall interest charges (SIC) imposed by the ATO.
Currently, taxpayers can claim a deduction for these charges, but from 1 July 2025, that benefit disappears. GIC applies when tax liabilities aren’t paid on time, while SIC is imposed when a tax shortfall arises due to an incorrect self-assessment.
For reference, GIC and SIC rates for June 2025 quarter are are 11.17% and 7.17%, respectively – highlighting how costly these charges can be.
Who Is Affected and How?
The impact will depend on the taxpayer’s structure and tax rate:
Individuals: If you have an ATO debt and have been deducting ATO interest charges, your taxable income will increase by the amount if interest harged by the ATO resulting in a higher tax liability. For some tax payers this can place them in the top marginal rate of 47%.
Companies: (Base Rate Entities): For base rate entities (BRE), losing this deduction means losing a 25% tax saving on interest expenses. For non BRE’s, will see 30% loss.
Regardless of entity type, the key takeaway is that the after-tax cost of paying ATO interest from 1 July 2025 will rise significantly. With high interest rates and no tax offset, businesses and individuals need to reconsider how they fund tax obligations and cashflow.
Rethinking Tax Debt Strategy
Previously, some individuals opted to pay ATO interest rather than securing external finance, as personal loans used for tax payments are not tax-deductible. From 1 July 2025, ATO interest will be treated the same way – meaning it’s crucial to secure tax funding at the lowest possible cost. In most cases, relying on the ATO as a lender will be the least cost-effective option.
Preparing for the Change
Now is the time to review your tax strategies and financing options to minimise unnecessary interest costs. Consider:
- Assessing your cash flow and tax payment plans.
- Exploring lower-cost funding options instead of relying on ATO interest-bearing liabilities.
- Ensuring you don’t carry excessive ATO tax debts at high interest rates.
With this change on the horizon, taking proactive steps now could save you significant amounts in tax and interest in the future.
Need help with understanding how this will impact you? Feel free to get in touch with us at hello@fourtwelve.com.au. We can also be reached here.
This information is current as at the date of publication and is subject to change. It does not account for any amendments to legislation that may be enacted after this date.
