The Australian Taxation Office (ATO) is reminding taxpayers that from 1 July this year, interest charged by the ATO for late payments or underpayments will no longer be tax deductible. Under the Treasury Laws Amendment (Tax Incentives and Integrity) Act 2025, any general interest charge (GIC) incurred on and after 1 July 2025, regardless of whether the debt relates to an earlier income year, will no longer be tax deductible. Interest charged by the ATO that was incurred before 1 July 2025 can still be claimed as a deduction this tax time. ATO assistant commissioner Anita Challen said the law change is designed to ensure that taxpayers who do the right thing and pay their tax in full and on time are not disadvantaged relative to those who do delay payment. "These changes will mean it will cost more to carry a tax debt and, while taxpayers won’t feel this change until next tax time, ATO general interest charge is currently charged at 11.17 per cent and compounds daily making it so important to get on top of your tax obligations," Ms Challen said. "If you have a tax debt you’ve been putting off paying – now is the time to pay. "Setting aside your GST, Pay as you go (PAYG) withholding and super from your business’s cash flow in a separate bank account can help ensure you have the funds available when it’s time to pay. "If you’re unable to pay on time and in full, you may be able to set up a payment plan with the ATO using our online services, or you can contact your registered tax professional. "While debts are under active management in an agreed payment plan with the ATO, you will avoid debt recovery actions "Interest will continue to accrue if you are paying your ATO debt off through a payment plan, but as you make payments, the amount of interest you are charged will also decrease. "If you cannot pay on time and in full, you should also discuss your financial position with your accountant or finance provider to understand if there are alternative methods of funding payment of tax debts that might have a lower interest rate. "If you are considering obtaining third party financing to pay your tax debt, you should discuss the tax implications with your registered tax agent or adviser." The ATO website (ato.gov.au) has a range of helpful tools and free resources to help taxpayers and business owners to plan ahead and manage their cash flow to prevent a tax debt - and also see what support options are available.
