Article highlights
- GIC and SIC incurred from 1 July 2025 are no longer tax deductible.
- ATO payment plans do not stop GIC from accruing on unpaid tax debt.
- GIC compounds daily on unpaid tax debt, so carrying an outstanding ATO balance can become costly.
From 1 July 2025, an important tax rule changed for businesses carrying ATO debt. General interest charge (GIC) and shortfall interest charge (SIC) incurred on or after this date are no longer tax deductible, even if the original tax debt relates to an earlier income year.
At Advanced Bookkeeping and BAS, we help Australian businesses stay on top of their bookkeeping, BAS and financial records. In this guide, we explain what has changed with the ATO interest deduction, how the new rules affect GIC and SIC, what happens to interest incurred before 1 July 2025, and what businesses should know moving forward.
What changed to the ATO interest deduction from 1 July 2025?
| Factor | Before 1 July 2025 | From 1 July 2025 |
|---|---|---|
| GIC | Could generally be deductible where eligible | No longer tax deductible |
| SIC | Could generally be deductible where eligible | No longer tax deductible |
| Earlier tax debts | Deductibility depended on when the interest was incurred | Interest incurred from 1 July 2025 is not deductible, even if the debt relates to an earlier year |
GIC and SIC incurred before 1 July 2025 can still be deductible under the previous rules. What matters is when the interest was incurred, not when the underlying tax debt arose or when the interest was eventually paid.
What are GIC and SIC?
ATO interest charges can arise for different reasons, so it helps to understand what each one is actually for.
General interest charge (GIC)
General interest charge, or GIC, applies when an amount owing to the ATO is not paid by its due date. It is calculated daily on the outstanding balance, which means the longer the debt remains unpaid, the more the charge can build up.
Shortfall interest charge (SIC)
Shortfall interest charge, or SIC, is different. It generally applies when the ATO amends an assessment and finds that not enough tax was originally paid.
SIC usually applies from the original payment due date until the day before the amended assessment is issued. It has a lower interest rate than GIC, but GIC can then apply if the amended tax amount is not paid by its new due date.
Both charges are designed to stop taxpayers from gaining an unfair financial advantage by delaying tax payments.
What does this change mean for businesses with ATO debt?
The biggest impact is simple: carrying an unpaid tax debt is now more expensive because GIC and SIC incurred from 1 July 2025 can no longer be claimed as a tax deduction.
If your business has an outstanding ATO balance, interest can continue to build until the debt is paid. Even if you enter into an ATO payment plan, GIC generally continues to accrue on the remaining balance and compounds daily.
This means businesses should think carefully about how long they carry ATO debt. Depending on your circumstances, it may be worth considering:
- Paying down the debt sooner where cash flow allows
- Setting aside money for GST, PAYG and other tax obligations in a separate bank account
- Speaking with your accountant or finance provider about whether another source of funding has a lower interest rate
- Keeping future BAS and tax payments up to date while paying off existing debt
The ATO also recommends setting aside tax amounts separately where possible, which can help make sure the funds are available when payments fall due.
What are the current ATO interest charge rates?
The ATO general interest charge and shortfall interest charge rates are reviewed every quarter, so the amount charged on an unpaid tax debt can change throughout the year.
For the quarter from 1 July to 30 September 2026, the current rates are:
| Interest charge | Annual rate | Daily rate |
|---|---|---|
| General interest charge (GIC) | 11.43% | 0.0313% |
| Shortfall interest charge (SIC) | 7.43% | 0.0204% |
GIC is calculated daily and compounds on the outstanding balance, while SIC applies at a lower rate. These rates are reviewed quarterly, so the figures above only apply from 1 July to 30 September 2026. Daily rates have been rounded for readability.
Can the ATO remit general interest charge?
In some circumstances, the ATO may reduce or remove part or all of the GIC charged on an unpaid tax debt. This is known as GIC remission, but it is not automatic and each request is considered individually.
When reviewing a GIC remission request, the ATO may look at factors such as:
- what caused the late payment
- whether circumstances were outside your control
- how those circumstances affected your ability to pay
- what steps you took to reduce the delay or outstanding debt
- whether you have taken reasonable steps to meet your tax obligations
A remission request does not remove the underlying tax debt, so you will still need to deal with the amount owing. Keeping your business finances under control can also make it easier to plan for upcoming tax payments and avoid additional interest charges building up.
Could a commercial loan be cheaper than carrying ATO debt?
With GIC and SIC no longer tax deductible from 1 July 2025, some businesses may compare the cost of leaving a debt with the ATO against using a commercial loan or other business finance to pay it off.
Before making that decision, it’s worth comparing:
- the interest rate
- establishment and ongoing fees
- repayment terms
- the impact repayments could have on your cash flow
- whether the borrowed funds are being used for a genuine business purpose
- whether any interest on the new loan may be deductible
The tax treatment of interest on a commercial loan depends on how the borrowed funds are used. Where a business taxpayer borrows money to pay a business-related income tax liability and the borrowing is connected with carrying on the business, the interest may be deductible. Interest relating to private tax liabilities or private use of borrowed funds is treated differently, and mixed-purpose borrowing may need to be apportioned.
It’s also worth looking at the bigger picture rather than focusing only on the interest rate. Your cash flow still needs to support the repayments, so speak with your accountant, tax adviser or finance provider before replacing ATO debt with another form of borrowing.
What should businesses do now?
With ATO interest charges no longer tax deductible, staying ahead of tax obligations is more important than ever. A few practical steps can help reduce the risk of interest building up:
- Check your current ATO balance
Make sure you know what tax debt is outstanding, when payments are due and whether GIC is already accruing. - Keep upcoming tax obligations separate from existing debt
Falling behind on new GST, PAYG or income tax amounts while paying off an older debt can make the situation harder to manage. - Stay on top of your BAS lodgements
Accurate and timely BAS reporting gives you a clearer idea of what you owe and when payment is due. - Review your payment arrangement regularly
If you already have an ATO payment plan, check whether the repayments are still manageable and whether you have room to reduce the balance faster. - Keep your financial records current
Up-to-date bookkeeping makes it easier to see upcoming liabilities, monitor cash available and plan for tax payments before they become overdue. - Get advice early if you’re struggling to pay
Speak with your accountant, tax adviser or finance provider before the debt becomes harder to manage. The sooner you understand your options, the more time you have to act.
Need help staying on top of your tax obligations?
ATO interest changes make it even more important to keep your bookkeeping, BAS and upcoming payments organised before they become overdue.
At Advanced Bookkeeping and BAS, we help Australian businesses stay on top of their day-to-day finances and keep their records accurate. Our bookkeeping packages can be tailored to the level of support your business needs.
If you’re falling behind or want a clearer view of what’s coming up, get in touch with our team and we’ll help you get your books back on track.
Questions Meet Answers
Does the ATO interest deduction change apply to sole traders?
Yes. The change applies to taxpayers generally, including sole traders. GIC and SIC incurred on or after 1 July 2025 can no longer be claimed as a deduction, regardless of whether the underlying tax debt relates to an earlier income year.
What if ATO interest was incurred before 1 July 2025 but paid later?
The important date is when the interest was incurred, not when you paid it. GIC or SIC incurred before 1 July 2025 can still be claimed as a deduction in the relevant tax return under the previous rules, even if you pay the amount after that date.
What happens if deductible ATO interest is later remitted?
If you claimed a deduction for GIC or SIC incurred before 1 July 2025 and the ATO later remits that interest, the remitted amount generally needs to be reported as interest income in your tax return for the income year the remission was granted.
