Is ATO interest still tax deductible?
Short answer
No. General interest charge (GIC) and shortfall interest charge (SIC) incurred on or after 1 July 2025 cannot be claimed as a tax deduction. Interest charged before that date was deductible in the year it was incurred, and that still applies to old amounts. The change makes an ATO debt one of the most expensive debts you can carry, which is why GIC remission matters more than it used to.
What changed on 1 July 2025
Until 30 June 2025, GIC and SIC sat under the cost of managing tax affairs and could be deducted like accounting fees. From 1 July 2025 the law denies the deduction for any GIC or SIC incurred on or after that date. The test is when the interest is incurred, not when the underlying tax was due. Interest running on a 2023 debt is still deductible up to 30 June 2025 and not deductible from 1 July 2025 onwards.
Penalties, including the failure to lodge penalty, were never deductible. The 2025 change simply brings interest into line with them. There is a fuller explanation on our page about ATO interest no longer being deductible.
What it does to the real cost of a tax debt
When interest was deductible, part of the cost came back as a tax saving. Now the whole charge comes out of after-tax money. At the current GIC rate of 11.43%, the pre-tax equivalent looks like this:
- Company at 25%: about 15.2% before tax.
- Individual at 32.5% plus Medicare: roughly 17.5% before tax.
- Individual on the top marginal rate: over 21% before tax.
In other words, a bank loan with a deductible interest rate in the high single digits can be cheaper than leaving a debt with the ATO. That comparison is worth making before you assume a payment plan is the cheapest path, and it is one of the questions covered in tax debt loan versus payment plan.
Paying non deductible interest to the ATO?
A specialist can work out whether remission or refinancing makes sense for you.
Interest you already claimed
If you deducted GIC or SIC in an earlier year and the ATO later remits it, the remitted amount is treated as income in the year of the remission. That only bites on pre-July 2025 interest. Interest incurred since then was never deducted, so if the ATO remits it there is nothing to add back. Remission of recent interest is a clean saving.
Your accountant should also check that no GIC incurred after 30 June 2025 has slipped into the 2026 return as a deduction. The ATO can see the interest it charged you, and a mismatch is an easy thing for its systems to pick up.
What to do next
- Check your statement of account and note how much GIC or SIC was incurred on or after 1 July 2025.
- Make sure your 2026 return does not claim any of that interest as a deduction.
- If the underlying tax is paid or under a plan, put in a remission request for the interest.
Related questions
Is the failure to lodge penalty tax deductible?
No. Penalties imposed under a tax law have never been deductible. That includes the failure to lodge penalty, penalties for false or misleading statements and the super guarantee charge for quarters before payday super. The only path to reducing them is remission.
Is interest on a loan used to pay the ATO deductible?
It depends on what the tax relates to. Interest on money borrowed to pay a business tax liability, such as GST or PAYG withholding, is generally deductible as a business expense. Interest on a loan to pay personal income tax is generally not. Confirm your own position with a registered tax agent before relying on it.
Paying non deductible interest to the ATO?
A specialist can work out whether remission or refinancing makes sense for you.
Get help nowMore questions: 15 ATO interest and penalties questions answered · Full guide: GIC remission