New Law Denies Tax Deductions for ATO Interest Charges from 1 July 2025
As part of the 2023–24 Mid-Year Economic and Fiscal Outlook (MYEFO), the Australian Government announced a significant change to the tax treatment of Australian Taxation Office (ATO) interest charges. Now officially law, this measure will deny income tax deductions for certain ATO interest charges incurred on or after 1 July 2025.
What’s Changing?
Under the new law, taxpayers will no longer be able to claim deductions for the General Interest Charge (GIC) and Shortfall Interest Charge (SIC) incurred from 1 July 2025 onward. These interest charges are typically applied to unpaid tax liabilities and underpaid tax amounts.
Which Charges Are Affected?
GIC (General Interest Charge): Applied to unpaid tax liabilities and calculated daily.
SIC (Shortfall Interest Charge): Applied when the ATO issues an amended assessment that increases a taxpayer’s liability.
If these charges are incurred on or after 1 July 2025, they will no longer be deductible—even if the related tax debt or shortfall relates to an earlier income year.
What Does ‘Incurred’ Mean?
Whether you can deduct a GIC or SIC depends on when the interest is incurred, not the year to which the underlying tax liability relates.
GIC is incurred daily as long as a tax debt remains unpaid.
SIC is incurred in the year you receive a notice of amended assessment.
This means that any GIC or SIC incurred after 1 July 2025—regardless of when the underlying tax issue arose—is not deductible.
What About Pre-1 July 2025 Interest?
The changes are not retrospective. GIC or SIC incurred before 1 July 2025 remains deductible under current tax law. However, if a previously claimed deduction for GIC or SIC is later remitted by the ATO, the remitted amount must be included in assessable income in the year of the remission.
What Are the Practical Implications?
Taxpayers and advisors should carefully track when interest charges are incurred.
There may be a financial incentive to resolve tax liabilities before 1 July 2025, to preserve deductibility.
From 1 July 2025, remitted interest will not need to be included in assessable income, as it will not have been deductible in the first place.
Conclusion
This change reflects a broader trend by the Government to tighten the tax treatment of administrative penalties and interest. Taxpayers should review their current tax positions and consult advisors to ensure they are not caught out by these changes, particularly in planning payments and potential disputes with the ATO.