From 1 July 2025, a major change in tax law took effect: ATO interest charges — including General Interest Charge (GIC) and Shortfall Interest Charge (SIC) — are no longer deductible, regardless of whether the debt relates to past or future years.
This change impacts thousands of businesses and individuals who have historically relied on the deductibility of these charges to soften the financial blow of delayed payments.
Why This Matters
The current GIC rate is 11.17%, making ATO debt one of the most expensive forms of finance in the market. Without deductibility, this interest hits your bottom line harder than ever before.
For many, this signals the end of casually leaving ATO debts to be paid off later via instalments or payment plans.
Refinancing ATO Debt: When It Makes Sense
Where appropriate, businesses can refinance tax debts through a bank or private lender, particularly if the debt relates to income from business activities.
Refinanced interest may still be deductible, but only when:
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The debt being refinanced is related to business activities (e.g. GST, PAYG, FBT).
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The loan is in the name of the entity that incurred the tax debt (company, trust, partnership, etc.).
Who Can Still Claim a Deduction?
Sole traders may claim interest if the debt arose from genuine business activities.
Companies and trusts can also deduct interest if the debt belongs to them and is business-related.
Partners in partnerships must be cautious — personal borrowing to pay tax liabilities on partnership profit shares is not deductible.
Employees and individual investors generally cannot deduct interest on loans used to pay tax on salary, wages, dividends, or rental income.
Practical Example
Sam, a sole trader, borrows $30,000 to cover tax debt from his café business. The interest is deductible.
However, if $10,000 of that tax debt relates to income from his part-time job, only two-thirds of the loan interest is deductible.
Takeaway
Leaving ATO debt unpaid now has no tax benefit and exposes you to high interest. Consider refinancing if:
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You qualify for deductible interest
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You can lock in a lower interest rate elsewhere
Unsure whether your tax debt is eligible? Speak to your adviser before taking action.
