ATO Interest Charges Tax Deduction Removed from July 2025

Effective 1 July 2025, the Australian Taxation Office (ATO) will no longer allow taxpayers to claim a tax deduction for interest charges it imposes.

What’s Changing?

Previously, interest charges levied by the ATO, such as the General Interest Charge (GIC) and Shortfall Interest Charge (SIC), were considered deductible expenses. This meant that taxpayers could offset some of the financial burden of late payments or underpaid tax by claiming these charges as deductions.
However, this deduction will no longer be allowed from 1 July 2025. The ATO’s revised position means that any interest incurred on outstanding tax liabilities will now be treated as a non-deductible expense, increasing the effective cost of non-compliance or delayed payments.
While the rules regarding remission of the GIC remain unchanged and taxpayers may still request the ATO to remit interest charges, it’s important to note that such requests are subject to careful assessment.

Why this Matters

According to ATO, this change is designed to promote fairness by ensuring that taxpayers who meet their obligations in full and on time are not placed at a disadvantage compared to those who defer payment.
For businesses and individuals who rely on payment arrangements or who occasionally face cash flow challenges, this change could result in higher net costs. Without the ability to deduct ATO interest, the financial impact of late payments becomes more pronounced, especially for those with substantial liabilities or recurring delays.

This change also signals a broader shift in the ATO’s approach to encouraging timely compliance. By removing the tax offset, the ATO is reinforcing the importance of proactive tax management and discouraging reliance on deferred payments.

What You Can Do

• Review your payment arrangements: If you currently have an ATO payment plan, consider accelerating repayments to minimise exposure to non-deductible interest.
• Improve cash flow forecasting: Ensure your tax obligations are factored into your financial planning to avoid unexpected shortfalls.
• Consult your adviser: Speak with your Perks adviser to explore strategies for managing tax liabilities more efficiently and avoiding ATO interest charges altogether, including refinance with a banking institution (where interest charges remain tax deductible under normal rules).

Final Thoughts

While this change may not affect all taxpayers directly, it’s a timely reminder of the importance of staying ahead of your tax obligations. With the new financial year underway, now is the perfect time to review your tax strategy and ensure you’re up to date for policy shifts like this.