Important Tax Update: ATO Interest No Longer Deductible from 1 July 2025

The Australian Government has introduced a Bill proposing that from 1 July 2025, general interest charges (GIC) and shortfall interest charges (SIC) will no longer be tax-deductible. If enacted, this will increase the after-tax cost of delayed or underpaid tax liabilities.

ATO interest will therefore be treated like a penalty or fine, with every dollar paid coming straight off your bottom line.

Key Takeouts

• ATO interest (GIC/SIC) will no longer be tax-deductible from 1 July 2025.
• This increases the real cost of late or underpaid taxes.
• Businesses may maintain deductibility by refinancing ATO debt through commercial loans.
• Strict documentation and a clear business-use link are essential.
• Improved tax planning and cash flow management are now critical.

Key Considerations

• Be aware of ATO payment deadlines and ensure timely payments.
• Improve cash flow planning and tax compliance ahead of the 1 July 2025 start date.
• Review any existing ATO payment arrangements and consider proactive engagement to manage liabilities early.

Refinancing ATO Debt: Making Interest Potentially Deductible

While ATO interest will no longer be deductible, businesses may still achieve deductibility by refinancing ATO debt through commercial working capital loans.

1. Refinance ATO Debt with a Commercial/Working Capital Loan

Subject to approval, businesses may use a commercial loan or line of credit to repay existing ATO debts. The new borrowing should clearly relate to business activity.

To support deductibility under section 8-1 of the Income Tax Assessment Act 1997:

• Keep detailed records of the loan’s purpose and use.
• Ensure loan agreements and bank transactions show clear links to business-related expenses.

2. Speak to a Tax Adviser Before Proceeding

Not all ATO debts will qualify for deductibility after refinancing. Seek tailored advice to ensure the structure aligns with ATO expectations and tax law.

3. Enhance Tax Planning

Work closely with your tax adviser to anticipate liabilities, plan ahead, and lodge on time to avoid interest charges altogether.

The ATO’s Shift in Focus

The ATO has signalled a move away from the post-COVID supportive approach, and is now placing stronger emphasis on timely lodgement and payment compliance.

This means:

• Less flexibility around lodgement extensions for businesses.
• Greater pressure on accountants and tax agents to meet deadlines.
• A general expectation of proactive tax planning and on-time compliance.

Tighter Rules on Interest Remission

Historically, ATO staff had more discretion to remit GIC and SIC. Moving forward, remission will follow stricter guidelines.

Remission may apply only when:

• The delay was outside the taxpayer’s control and they took reasonable steps to resolve it.
• The delay was caused by the taxpayer, but they took reasonable action and remission is fair and reasonable.
• Special circumstances exist that justify full or partial remission.

With stricter remission policies, businesses should no longer rely on interest relief and should instead focus on minimising exposure to ATO interest charges.

Next Steps

We will continue to monitor the progress of this Bill and provide updates as more details emerge.

If you have questions about how this change may affect your situation or would like to explore strategies to reduce its impact, please contact us.