ATO interest charges will no longer be deductible from 1 July 2025
Amended legislation under ss 25-5 and 26-5 of the ITAA 1997 will deny deductions for Australian Taxation Office (ATO) interest charges, specifically the general interest charge (GIC) and shortfall interest charge (SIC), incurred in income years starting on or after 1 July 2025. GIC is incurred when tax debts have not been paid on time. SIC is incurred when a tax liability has been incorrectly self-assessed and resulted in a shortfall of tax paid. Removing these deductions is intended to encourage taxpayers to correctly self-assess their tax liabilities and pay on time.
This measure was announced in the Mid-Year Economic and Fiscal Outlook 2023–24 and received Parliamentary approval in March 2025 to become law.
The ATO imposes interest in specific situations, including:
- late payment of taxes and penalties
- an increase in tax liability as a result of an amended assessment, and
- an increase in other tax liabilities, such as goods and services tax or pay as you go amounts.
The Commissioner may remit the interest charges in circumstances where it is fair and reasonable to do so. As they are no longer deductible, the remittance of the interest charges will no longer be considered an assessable recoupment.
If you are SAP taxpayer, then the denial of deduction for SIC and GIC incurred starts from the first day of your SAP that begins after 1 July 2025.
We encourage you to consider paying off or setting up payment plans for any overdue tax debts before 1 July 2025. Any partial payments will also help reduce non-deductible GIC charged post 1 July 2025.
Any GIC or SIC incurred prior to 1 July 2025 is not impacted by the changes to the law and will continue to be deductible for your 2024-25 and earlier tax returns.
If you (have) or plan to deduct GIC or SIC for the 2024–25 or an earlier income year and it is later remitted, the amount that is remitted will need to be included in your assessable income in the year in which the remission occurred.
We can assist you in managing your tax liabilities in a timely manner or engage with the ATO on your behalf to avoid interest and penalties.
