ATO Interest Charges Aren't Deductible from 1 July 2025

The change in one paragraph. General Interest Charge (GIC) and Shortfall Interest Charge (SIC) accrued on or after 1 July 2025 are no longer deductible (Treasury Laws Amendment (Tax Incentives and Integrity) Act 2025, repealing the s25-5 deduction for these charges). Interest accrued before that date is still deductible on its original terms. For anyone carrying ATO debt into FY26, the after-tax cost of that debt has roughly doubled.

Quick reference — what a $50,000 ATO debt now costs you

GIC rate of 11.17% p.a. (April–June 2026 quarter; the ATO updates the rate quarterly). Annual interest on $50,000 = $5,585.

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The headline isn't "47% more expensive" — that's just the marginal rate. The honest number is: for a top-bracket sole trader, the after-tax cost of carrying ATO debt almost doubles. CPA Australia flagged the same effect in its submission on the Bill, calling out a meaningful jump in the effective penalty rate across most taxpayer types.

1. GIC vs SIC — they aren't the same thing

• General Interest Charge (GIC) — applied to unpaid liabilities, late lodgements, and underestimated PAYG instalments. Daily compounding. Higher rate.
• Shortfall Interest Charge (SIC) — applied only to shortfalls from amended assessments (e.g. an audit finding under-reported income). Typically several percentage points below GIC.

Both lose deductibility from 1 July 2025. If you've been audited and have legacy SIC, the lower rate plus pre-July deductibility makes that debt cheaper than newer GIC — clear newer balances first.

2. Remission — when the ATO will say yes

The Tax Ombudsman's recent review of GIC administration ("Redefining Concessions") pushed the ATO toward a more consistent remission framework. The principle is integrity with empathy: remission is available if the delay was outside your control and you took reasonable steps once you knew.

Likely accepted

• Natural disasters affecting you, your premises, or your tax agent
• Sudden serious illness — taxpayer, key personnel, or agent
• Theft or critical damage to trading assets
• Unforeseen debtor collapse (e.g. a major customer in receivership)
• Bereavement
• Vulnerability — domestic violence, financial abuse, coercive control

Likely declined

• General economic conditions (rate rises, supply costs)
• Using ATO funds as working capital to grow the business
• Personal choice — holidays, late paperwork to your agent
• A history of late lodgement or non-compliance

A clean compliance history is the single biggest lever. If this debt is a one-off in an otherwise on-time pattern, remission odds rise materially.

ATO Example 7 (real outcome). A taxpayer sold a property, incurred CGT, and chose to reinvest the proceeds rather than pay the ATO. She later requested GIC remission after completing a payment plan. Declined — she had the funds; she chose to use the ATO as a low-cost (then-deductible) lender. That option is gone from FY26.

See Key Tax Dates for the lodgement deadlines that drive most GIC exposure in the first place.

3. Reducing the cost — what actually works

There are three levers. They stack.

Lever 1 — Apply for remission on legacy GIC

If you have GIC that accrued before 1 July 2025, it is still deductible and potentially remittable. Apply now. The Ombudsman review means the ATO is under more pressure than usual to be consistent on remission, and the "Redefining Concessions" framework is the clearest articulation of the test we've had.

Lever 2 — Clear the principal before further compounding

GIC compounds daily. Every week the balance survives, the cost goes up — and now without any tax shield. Liquidating a non-strategic asset, drawing on a redraw, or using offset cash to clear the ATO balance is, on the numbers, the cleanest play for most balance-sheet-strong taxpayers.

Lever 3 — Refinancing — depends on what the tax debt is

This is the area where the wrong rule of thumb gets quoted. The position is more nuanced than "loan interest to pay tax is never deductible":

• Individuals — personal income tax debt: interest on money borrowed to pay personal income tax is generally not deductible. The ATO treats it as a private expense. FCT v Munro (1926) and the line of cases since are the long-standing authority.
• Businesses — business-related tax debt (GST, PAYG withholding, FBT, super guarantee): interest on a loan taken to pay these liabilities is typically deductible, because the underlying liabilities are incurred in carrying on the business and the borrowing preserves working capital. ATO Tax Ruling TR 95/25 sets this out.
• Businesses — income tax debt of the entity: the grey zone. The general position is that interest on borrowings to pay an entity's own income tax is not deductible, but the answer turns on the structure and the purpose of the borrowing. Get advice before relying on it.

In short: if the debt you're refinancing is GST or PAYG, refinancing has a real tax case as well as a cash-flow case. If it's personal income tax, refinancing is a cash-flow play only — lower headline rate, longer term — not a tax play. Aggressive tracing arguments outside this framework are exactly what the ATO's Top 500 / Next 5,000 programs flag.

4. SMSF — a particular trap

For SMSFs, this change is sharper than it looks. Three reasons:

1. The 15% concessional rate already made the GIC deduction worth less, so the relative loss of deductibility is smaller — but
2. SMSFs run on tight liquidity, so any sustained ATO debt threatens the fund's ability to meet pension payments or contribution caps,
3. and unpaid ATO liabilities are exactly the kind of compliance failure that puts pressure on the sole purpose test.

If your SMSF carries ATO debt, the priority is liquidity planning, not interest optimisation. See SMSF Reference for trustee obligations.

5. Submitting a remission request — the mechanics

The ATO's online process for GIC remission is form-driven and non-negotiable on format.

1. Use the right form. The ATO requires its GIC remission application in Excel (.xlsx) format. Other formats won't be processed for GIC.
2. Log in to Online Services for Business (or for Agents).
3. New secure mail message.
4. Topic: Income Tax (or the relevant account).
5. Subject: Remission of general interest charge.
6. Attach the completed Excel form plus your evidence — medical certificates, police reports, insurance claims, bank correspondence, statements from counsellors.
7. Send.

For amounts under $2,500, a phone request can work — faster, but no formal evidence trail.

6. EOFY 2026 action plan

If you're carrying ATO debt into 30 June 2026:

1. Audit. Pull your ATO statement of account and see what's owing and how much GIC has been charged.
2. Apply for remission on the deductible legacy balance first — that's the lower-effort win.
3. Clear the post-July balance if you have the liquidity. Compounding is the real enemy now.
4. Lodge everything. GIC accrues on unlodged returns from the original due date, in the dark. You can't manage what you haven't measured.
5. Plan the next instalment cycle so this doesn't recur — PAYG instalments, BAS, super guarantee.

Talk to us

If you're carrying ATO debt and want to know whether remission is realistic for your circumstances, book a 15-minute GIC review. We'll look at your compliance history and tell you, plainly, whether a remission application is worth filing.

This article is general information based on rates and rules current at the time of writing (FY26). It isn't tax advice for your specific situation. Talk to a registered tax agent — like us — before acting. The ATO assesses every remission request on its own merits under PS LA 2011/12.

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