Have you ever thought, “I’ll deal with that ATO debt later; it’s deductible anyway”? That safety net has now been removed. From 1 July 2025, the General Interest Charge (GIC) and the Shortfall Interest Charge (SIC) are no longer tax-deductible.
If you’ve relied on deductions in the past to ease the impact of paying interest to the ATO, it is now a straight expense out of your pocket. The real cost of delaying payment has just gone up.
What are GIC and SIC?
The General Interest Charge (GIC) applies when you pay your tax bill late. It accrues daily, and for the July–September 2025 quarter, the rate is set at 10.78% per year.
The Shortfall Interest Charge (SIC) is applied when you have underpaid tax due to an error or amendment to your return. This also accrues daily, with a current rate of 6.78% per year for the same quarter.
Until 30 June 2025, both charges were tax-deductible, meaning you could claim them back at tax time and reduce the impact. From 1 July 2025, that option no longer exists. These interest costs must now be absorbed in full.
Why this matters
The change is significant because it increases the financial impact of carrying an ATO debt. For higher-income earners, the difference is especially noticeable.
For example:
Sandra, on a 45% tax rate, previously reduced a $1,000 GIC down to $550 after deductions. From 1 July 2025, she pays the full $1,000.
Clark, on a 30% rate, used to reduce a $1,000 charge to $700. He, too, now pays the full $1,000.
The mindset of “at least I’ll get some back at tax time” no longer applies.
The practical impact
Carrying ATO debt is now more expensive than ever. Treating the ATO like a lender is risky, particularly given their high daily compounding rates. A 10%+ interest rate is not something to ignore, especially when there may be more affordable financing options available elsewhere.
How to manage the change
The most effective way to minimise costs is straightforward: pay off ATO debts as quickly as possible. Every day you delay, interest continues to build.
If paying immediately is not realistic, there are still strategies you can consider:
- Explore cheaper funding sources. Business loans or lines of credit often carry lower rates than the ATO’s daily interest. In some cases, interest on these may remain deductible.
- Set up a payment plan with the ATO. While this does not stop interest from accruing, it allows you to manage repayments more effectively.
- Plan ahead. Set aside funds regularly for tax, GST, PAYG and superannuation to avoid being caught short and incurring interest charges.
Why action is urgent
This change applies regardless of whether your debt arose before or after 1 July 2025. If you already had outstanding obligations, the impact is immediate.
In short, the days of claiming back some of the sting of ATO interest charges are over. From now on, these costs sit squarely with you.
Final thoughts
This is a timely reminder to review your tax position and take control of any ATO debt without delay. The GIC and SIC charges are no longer softened by deductions, and ignoring them will only make the problem worse.
Being proactive now can save you thousands in unnecessary costs and protect your cash flow moving forward.
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