Mr says
From 1 July 2025, you can't claim a deduction for general interest charge (GIC) or shortfall interest charge that accrues from that date — and it doesn't matter which year the original debt came from. GIC compounds every day on whatever is overdue. That makes carrying an ATO debt more expensive in after-tax terms than it used to be, which strengthens the case for clearing tax debt sooner — through a plan, a loan or both.
Key points
- GIC and SIC incurred from 1 July 2025 aren't deductible.
- It applies even where the debt relates to an earlier year.
- GIC compounds daily on overdue amounts.
- Interest charged before 1 July 2025 could still be claimed.
- Clearing debt sooner is now worth more than it used to be.
What changed?
For a long time, the interest the ATO charged on overdue tax had a silver lining: you could claim it as a tax deduction. The ATO’s general interest charge (GIC) and shortfall interest charge (SIC) reduced your taxable income, so their real, after-tax cost was lower than the headline.
That ended on 1 July 2025. In a June 2025 reminder, the ATO said that any GIC incurred on or after 1 July 2025, regardless of whether the debt relates to an earlier income year, would no longer be tax deductible. Interest charged before that date could still be claimed.
So a business carrying an old tax debt into the 2025–26 year and beyond pays GIC on it with no deduction to soften it.
How does GIC work?
Put simply, GIC builds up every single day on whatever you still owe. Every day a debt sits unpaid, interest is added — and from then on, interest is charged on that interest too. The ATO reviews the rate quarterly.
Mr won’t quote the rate here; check the ATO’s current figure. The point isn’t the precise number, it’s the mechanics: daily compounding, no deduction, for as long as the debt remains.
Why does losing the deduction matter so much?
Because a deduction is worth your tax rate. Illustratively, if a business’s tax rate were 25 cents in the dollar, every $1,000 of deductible GIC used to cost about $750 after tax. Now it costs $1,000. The bill didn’t change; the discount disappeared.
For a business carrying a meaningful ATO debt for a year or more, that difference adds up. And it compounds alongside the interest itself.
Illustrative only — your tax rate depends on your structure and income.
Who is most affected?
- Businesses on long payment plans. GIC generally keeps accruing on the outstanding balance while the plan runs.
- Businesses with old debts they’ve been “parking”. The interest on a parked debt is now a pure cost.
- Businesses with amended assessments, where shortfall interest applies.
- Directors with company tax debts, where director penalty exposure adds a second reason to act. See director penalty notices.
What did the ATO suggest?
The ATO’s message was practical. It urged taxpayers to pay in full and on time to avoid GIC accruing, recommended setting up a payment plan if you can’t pay immediately, and suggested talking to your accountant or tax agent about alternative ways of funding the payment of tax debts.
That last point is where a business loan comes in.
What are the options now?
Option 1: Pay it off from cash flow
If the business can clear the debt quickly from trading, do. Every day sooner saves compounding interest.
Option 2: A payment plan
For debts up to $200,000, the ATO’s online services may let you arrange the plan yourself. A plan stops escalation and counts as engaging with the ATO — important because a business that ignores a debt of $100,000-plus for more than three months risks the ATO disclosing it to the credit bureaus, whereas one on a plan is engaging. But GIC keeps running, and it’s no longer deductible.
Option 3: A business loan to clear the debt
Borrowing to pay the ATO replaces a daily-compounding, non-deductible charge with a loan whose interest — when the money is used for business purposes — is generally deductible. It also gives a fixed schedule and an end date. The trade-off: loan costs, fees, and sometimes security or guarantees.
Option 4: A combination
Start a plan to stop escalation, then refinance the balance with a loan once documents are ready. Or borrow for the largest, oldest debt and plan the rest.
Mr compares options 2 and 3 in detail on ATO payment plan or business loan.
How do I compare the cost properly?
Put both in after-tax dollars over the same period:
| Payment plan | Business loan | |
|---|---|---|
| Interest charge | GIC, compounding daily | Loan interest per the agreement |
| Deductibility | Not deductible (incurred from 1 July 2025) | Generally deductible when used for business |
| Fees | None from the ATO for the plan itself | Establishment, legal, valuation, etc. |
| End date | When the plan is completed | Fixed term |
| Risk if you slip | Plan cancelled, firmer ATO action | Lender’s default process |
| Director penalty exposure | Remains until debt cleared | Cleared at settlement |
Ask your accountant to put real numbers in both columns — your tax rate, the expected time to clear under a plan, and the full cost of any loan offer, fees included. Then compare.
An illustrative example
A Darwin hospitality business owes $165k in GST and PAYG withholding. It set up a two-year ATO plan in mid-2025. Under the old rules, the GIC would have been deductible; now it isn’t. The owners ask their accountant to compare: keep the plan, or borrow against their investment property to clear the debt now. With the GIC non-deductible and the business loan interest generally deductible, the loan comes out cheaper over the period they’d need — and it removes director penalty exposure for PAYG and GST. They borrow, the lender pays the ATO directly at settlement, and the plan is closed.
Illustrative only — the result depends entirely on your numbers.
What should I do this month?
- Get your ATO statement of account and see how much GIC is accruing.
- Lodge anything outstanding — lodgement matters to the ATO and to lenders.
- Ask your accountant what the GIC is costing you after tax under the new rules.
- Get a loan option on the table to compare, before the ATO escalates.
- Make sure the business isn’t running up a new debt — separate GST, PAYG and super as they come in. See borrowing to pay your BAS.
What lenders think of tax debt
Owing the ATO is common and considered case by case. Lenders mostly want lodgements current, the debt managed, and a business that can carry the new repayments. Read can I get a business loan with an ATO debt? and, for the tax side of loan interest, is a business loan tax deductible?.
What about shortfall interest charge?
Shortfall interest charge (SIC) applies when the ATO amends an assessment and you owe more tax than originally assessed. The ATO’s guidance is direct: you can no longer claim a deduction for GIC or SIC incurred on or after 1 July 2025. If you’ve received an amended assessment, check with your accountant how SIC and any GIC that follows have been calculated, and include both in any comparison of payment options.
Can the ATO reduce the interest?
The ATO can remit GIC in some circumstances — for example, where the delay in paying wasn’t your fault and you took reasonable steps to fix it. Requests need to be specific and supported. One wrinkle: where interest you previously deducted is later remitted, the remitted amount is generally included as income; for GIC and SIC that could never be deducted, the ATO says a later remission doesn’t need to be included as assessable income. It’s worth asking your tax agent whether a remission request makes sense for your situation, but it isn’t a substitute for clearing the debt.
Will this change again?
Tax rules change, so check the ATO’s current guidance and talk to your accountant each year. As at the time of writing, the ATO’s position is clear: GIC and SIC incurred on or after 1 July 2025 can’t be claimed as deductions. Plan on that basis.
Want to stop the clock on ATO interest?
Ask Mr in about 60 seconds — tell us roughly what’s owed, whether there’s a plan, whether lodgements are up to date and any property you could offer. There’s no credit check to enquire, your details aren’t circulated to a list of lenders, and a real person will help you compare clearing the debt now against carrying it. Accurate ATO figures on the form make that comparison honest. See if you qualify.
Frequently asked questions
When did ATO interest stop being deductible?
For GIC and shortfall interest charge incurred on or after 1 July 2025. It doesn't matter which year the original tax debt came from.
Can I still claim interest the ATO charged before 1 July 2025?
The ATO said interest incurred before 1 July 2025 could still be claimed as a deduction. Your accountant will know how that applied to your returns.
Is interest on a business loan used to pay the ATO deductible?
Interest on money borrowed and used for business purposes is generally deductible, and paying business tax debts is commonly treated that way. Confirm the treatment for your situation with your accountant.
Does a payment plan stop GIC?
No. GIC generally keeps accruing on the outstanding balance while a payment plan runs, so the debt still grows in cost until it's cleared.
What if GIC is remitted?
Remitted interest that was previously deducted is generally assessable income. For GIC and SIC that can no longer be deducted, the ATO says any amount later remitted does not need to be included as assessable income.