ATO Debt Interest No Longer Tax Deductible: What You Need to Know

What’s Changed?

Previously, interest charges such as the General Interest Charge (GIC) and Shortfall Interest Charge (SIC) were tax deductible. This meant that if you had an outstanding tax debt, the interest you paid could be claimed as a deduction, reducing your overall tax liability.

From the 2025–26 income year onward, this is no longer the case. The ATO has removed the deductibility of these interest charges for all taxpayers, including:

• Individuals
• Sole traders
• Companies
• Trusts

This change applies regardless of when the debt was incurred—even if it relates to a prior income year.

What’s the Cost?

The ATO’s General Interest Charge (GIC) rate as of June 2025 is 11.17%, and it compounds daily. With the loss of deductibility, this interest becomes a real, after-tax cost to your business or household.

What Should You Do?

There is some good news. If you’re facing a tax debt, using a commercial loan to repay it could be a financially savvy alternative.

Many unsecured business loans or lines of credit offer interest rates significantly lower than the ATO’s 11.17%. By consolidating your ATO debt into a loan with a lower rate, you can reduce your monthly repayments and free up cash flow for your business.

In addition to this, Tax deductibility of the interest charges of the captioned business loan could still applies.

Unlike ATO interest, interest paid on a business loan used to repay tax debt remains tax deductible—as long as the loan is directly connected to your income-producing activities.

This means you may still claim the interest expense on your tax return, reducing your overall tax liability.

Speak to your local TaxAssist Accountant today to review the loan terms and ensure the interest remains deductible under current tax law, and for help transferring your ATO debt to a Business Loan today.

Published 24 Jul 2025

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