From 1 July 2025, Australian taxpayers will no longer be able to claim deductions for interest charges imposed by the Australian Taxation Office (ATO), such as General Interest Charge (GIC) and Shortfall Interest Charge (SIC).
This change, announced in the 2023–24 Mid-Year Economic and Fiscal Outlook (MYEFO) and now legislated, could impact individuals, businesses, and investors who typically claim these charges as deductible expenses when lodging their tax returns.
What’s Changing?
Under the new law:
- ATO interest charges incurred on or after 1 July 2025 are no longer tax-deductible.
- This applies to income years starting on or after 1 July 2025.
- If you use a substituted accounting period (SAP), the change applies from your next accounting period beginning after 1 July 2025.
This means taxpayers will need to exclude GIC and SIC from their tax deductions for the 2025–26 income year and beyond, even if the underlying tax debt relates to earlier income years.
What Are GIC and SIC?
- General Interest Charge (GIC): Charged daily on unpaid tax debts.
- Shortfall Interest Charge (SIC): Applied when the ATO issues an amended assessment because you underpaid tax in a previous return.
Interest is considered incurred at the time you become liable for it—not necessarily when it is paid. For example:
- GIC on unpaid tax starts accruing daily once the payment is overdue.
- SIC is incurred in the year you receive the amended assessment notice.
What Happens to Interest Incurred Before 1 July 2025?
If you’ve already incurred GIC or SIC before 1 July 2025, you can still claim a deduction for these charges in your 2024–25 or earlier tax returns.
Note: If you claim a deduction for GIC or SIC in a previous year and that interest is later remitted by the ATO, the remitted amount must be included as assessable income in the year the remission occurs.
Post-1 July 2025: No Deduction, No Income Inclusion
From 1 July 2025:
- GIC and SIC are not deductible, regardless of whether the underlying tax debt relates to a prior income year.
- If interest is later remitted, you do not need to include it in your assessable income.
This change simplifies reporting in some cases but removes a previously available tax benefit.
Impact on Businesses and Investors
This law change affects:
- Small business owners who manage tax payment plans or occasionally lodge late.
- Property investors dealing with amended assessments.
- Companies with complex or high-volume transactions where interest charges may accumulate.
For those with substituted accounting periods (SAPs), such as businesses using a financial year ending other than 30 June, this change takes effect from the first income year starting after 1 July 2025.
What You Should Do Now
- Review your tax planning strategies for 2024–25 and finalise any interest deductions before the cut-off date.
- Ensure your business or investment tax affairs are up to date to avoid unexpected ATO interest charges in future.
- If you’re unsure whether GIC or SIC applies—or how these changes impact you—speak with your tax adviser or accountant before the next income year begins.
FAQs: ATO Interest Deduction Changes
Q: Can I still claim interest charged by the ATO on past tax debts?
A: Yes, but only if the interest was incurred before 1 July 2025. After that, such charges are no longer deductible.
Q: What if my income year doesn’t start on 1 July?
A: If you use a substituted accounting period (SAP), the changes apply to your first income year starting after 1 July 2025.
Q: What happens if I claim a deduction now and the ATO later remits the interest?
A: For pre-1 July 2025 deductions, any remitted amount must be included as income in the year the remission happens.
Q: Do these changes apply to all types of tax interest?
A: Yes. The rule applies to both GIC and SIC imposed by the ATO.
If you’re unsure about anything, speak with a registered tax agent or visit ato.gov.au for the latest updates and tools.
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