If you’ve ever carried a balance with the ATO, you’ll know they charge interest on it: the general interest charge (GIC) and, on amended assessments, the shortfall interest charge (SIC). Until recently, that interest was tax-deductible, which softened the blow.
What changed
From 1 July 2025, GIC and SIC are no longer tax-deductible. The interest rate itself hasn’t gone away. You just can no longer claim a deduction for it, which means the real, after-tax cost of an ATO debt has gone up.
What it means for you
Previously, deductible ATO interest could reduce taxable income, depending on the taxpayer’s circumstances. Interest incurred on or after 1 July 2025 no longer provides that deduction, so the after-tax cost of carrying ATO debt is higher.
What you can do about it
- Prioritise paying down ATO debt ahead of other (deductible) finance where it makes sense.
- Lodge and pay on time so interest doesn’t start accruing in the first place.
- If cashflow is tight, contact the ATO early about a payment plan. A plan can spread repayments, but GIC continues to compound daily on the outstanding balance. The shortest affordable repayment period will generally reduce the total interest charged.