If you have an existing tax debt with the ATO, it may soon cost you more. From 1 July 2025, two common ATO interest charges will no longer be tax deductible, meaning the after-tax cost of carrying tax debt will rise for many individuals and businesses.
Which Interest Charges Are Affected?
1. General Interest Charge (GIC)
GIC applies when a tax payment is made after its due date. It is calculated daily on a compounding basis to discourage late payments.
- The GIC rate for July–September 2025 is 10.78% annually.
2. Shortfall Interest Charge (SIC)
SIC applies when there is a shortfall in tax due to an amendment or correction to an earlier tax assessment. Like GIC, it compounds daily.
- The SIC rate for July–September 2025 is 6.78% annually.
What’s Changing from 1 July 2025?
Historically, both GIC and SIC were tax deductible, reducing the effective cost for taxpayers with a tax liability.
From 1 July 2025, these interest charges will no longer be deductible, regardless of whether the original debt arose before or after that date. This means the full amount of interest will now come out of pocket—with no offset against your tax bill.
Impact Example
Let’s look at two taxpayers who each incur $1,000 in GIC:
Sally
- Marginal tax rate: 45%
- Before 1 July 2025: She could claim a $450 deduction, reducing her net cost to $550
- After 1 July 2025: No deduction available — her full cost is $1,000
Adam
- Marginal tax rate: 30%
- Before 1 July 2025: He could reduce his tax by $300, making his net cost $700
- After 1 July 2025: Full GIC of $1,000 applies
The higher your tax rate, the greater the impact of this change.
What Can You Do to Minimise the Impact?
- Pay ATO debts as quickly as possible. GIC accrues daily, so reducing your balance promptly lowers future interest costs.
- Consider refinancing. In some cases, borrowing funds at a lower commercial interest rate to pay down ATO debt may be a more cost-effective option—especially for business-related tax debts, where interest on the loan might be deductible.
- Be cautious with payment plans. While the ATO offers instalment options, GIC still accrues on balances under payment arrangements.
- Plan ahead. Establish separate savings for expected tax obligations—such as BAS, PAYG withholding, and income tax—to avoid late payments altogether.
Need Help Managing or Reducing ATO Debt?
Whether you’re carrying existing debt or want to put better tax cash flow systems in place, Fortis can help you design a strategy that keeps you compliant—and protects your bottom line.
Let’s talk about how we can proactively manage your tax obligations in light of this change.
Please do not hesitate to contact our office to speak to one of our team.
