ATO tax debt to become more expensive from July 2025

If you currently owe money to the ATO, it’s about to get more costly. From 1 July 2025, the two most common interest charges the ATO applies to late or underpaid tax will no longer be tax deductible. That means both individuals and businesses will soon face a higher real cost of holding tax debt.

What types of ATO interest will no longer be deductible?

1. General Interest Charge (GIC)
   This is charged daily when tax payments are overdue. It compounds, which means the longer it’s unpaid, the faster it grows.
2. Shortfall Interest Charge (SIC)
   This applies when there’s been an underpayment due to an amended tax return or error, also calculated daily and compounded.

What’s changing?

Up until now, both GIC and SIC were generally tax deductible, so while they still hurt, you at least got some relief through your tax return.

From 1 July 2025, that’s no longer the case. You won’t be able to claim any tax deduction on these interest charges, regardless of when the debt originated. That means more out-of-pocket cost and a bigger hit to your cash flow.

How can you prepare and reduce the cost?

Here are a few steps you can take now:

• Don’t let balances linger. The longer your ATO debt sits unpaid, the more interest you’ll accumulate. Prioritise clearing it as soon as you can.
• Refinance tax debt if necessary. If your ATO interest rate is higher than what you’d pay on a business loan or line of credit, consider consolidating the debt. For businesses, the interest on the loan itself may still be deductible, unlike GIC/SIC from 1 July 2025.
• Understand the fine print on ATO payment plans. While the ATO does offer instalment options, interest charges continue to accrue. Use payment plans with caution and calculate the true cost.
• Plan for future tax obligations. Set aside funds for upcoming BAS, PAYG, or annual income tax payments. Treat these like fixed costs in your business, not optional extras.

Need support managing ATO tax debt or improving your tax planning strategy?

If you’re carrying an outstanding balance or want to set up better systems to stay on top of tax, we can help. We’ll work with you to build a proactive strategy that avoids unnecessary interest charges and keeps your business on strong financial footing. Contact Curve on 03 9588 9000 or [email protected]