ATO debt? The ATO’s days as a friendly informal lender are over
From 1 July 2025, interest the ATO charges on late payments or shortfalls is not tax-deductible. This covers General Interest Charge (GIC) and Shortfall Interest Charge (SIC), even if the debt relates to an earlier income year. The new rule applies from the date the interest is incurred. Australian Taxation Office
What Changed
Some ATO debt such as on a personal tax return was never deductible but other interest was deductible. Legislation has now changed that so GIC and SIC incurred on or after 1 July 2025 is not deductible in any scenario.
Amounts incurred before 1 July 2025 remain deductible and flow through the 2024–25 return as normal. If later remitted, the remitted amount is assessable interest income in the year of remission.
- This applies across individuals, trusts, companies and super funds—anyone whose account attracts GIC or SIC after 30 June 2025 will no longer get a tax deduction for those interest amounts.
A hard line on Penalties and Remission
The ATO has stepped up collection. Expect faster outreach after due dates, daily-compounding GIC on unpaid amounts, and firmer action (external collection, garnishees, director penalty notices, legal action) if you don’t engage. Remission of interest may be available but across the board we hear the ATO has flipped – anecdotally we would say this has gone from an 80% approval rate to an 80% rejection rate and even in deserving cases it can be difficult to find someone at the ATO to listen. Late and failure to lodge penalties can apply and scale up by entity size and time overdue with the ATO far more likely to take action.
Practical Implications & Next Steps
ATO debt is now more expensive because interest is non-deductible and compounds daily (GIC recently around 11%). Bank or commercial finance will often be cheaper on an after-tax basis; if structured as a business facility, the interest may be deductible.
Lodge on time to avoid Failure to Lodge penalties and extra interest.
If you can’t pay in full, contact the ATO early to set a realistic payment plan.
For funding needs, speak with your bank rather than running an ATO balance.
Treat the ATO as a creditor to clear and not a source of finance. During Covid the ATO presented a supportive and friendly face and unfortunately those days are behind us.
