From 1 July 2025, interest charged by the ATO on outstanding tax debts will no longer be tax deductible. This includes both the General Interest Charge (GIC) and Shortfall Interest Charge (SIC) that the Australian Taxation Office applies when tax is paid late or underpaid.
Until 30 June 2025, you can still claim these ATO interest charges as part of your cost of managing tax affairs. But from the 2025–26 financial year onwards, that deduction will be removed. This means any ATO interest incurred after 1 July 2025 will become a non-deductible expense, increasing the after-tax cost of carrying ATO debt.
For business owners, one potential strategy is to refinance the ATO debt using a business or equity loan. The interest on a genuine business loan remains tax deductible if the borrowed funds are used for an income-producing purpose, such as paying down ATO liabilities. In addition, commercial loan interest rates are usually much lower than ATO interest rates, which makes refinancing both tax-effective and cost-efficient.
If you’re unsure how this change affects your business or whether refinancing makes sense in your case, speak with the tax specialists at Investax Group. Our accountants can help you assess your options and implement the most effective tax strategy for your outstanding ATO tax debts.
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