While much of the media attention earlier this year centred on the Albanese Government’s announcement of the 2025 Federal Election, a key legislative change quietly passed through Parliament that could have direct financial implications for many taxpayers.
As part of the Treasury Laws Amendment Bill 2025, the tax deductibility of interest charged by the ATO on unpaid tax debts has changed. From 1 July 2025, general interest charges (GIC) and shortfall interest charges (SIC) will no longer be tax deductible. This means the cost of carrying forward an unpaid tax debt has increased.
Importantly, this change applies to GIC incurred on or after 1 July, even if the debt relates to an earlier income year. However, any GIC incurred before 1 July remains tax deductible.
Currently, the GIC rate is 11.17%, compounding daily – significantly higher than rates offered by major banks or traditional lenders. Unlike commercial interest, it accrues automatically and without negotiation. This highlights the importance of repaying tax debts promptly to avoid any unnecessary costs.
This change is intended to level the playing field ensuring that taxpayers who do pay on time are not disadvantaged compared to those who delay payment.
Small and Medium Enterprises (SMEs) that have previously relied on short-term ATO payment arrangements may feel the impact most. ATO Assistant Commissioner Anita Challen recommends: “Setting aside your GST, PAYG withholding and super in a separate bank account can help ensure you have the funds available when it’s time to pay.”
Please note that the rules around remission of GIC remain unchanged. Taxpayers can still request the ATO to remit interest charges, though these requests are assessed carefully and may not always be granted.
If you’re unsure how this change might affect your business or want to better understand your payment obligations, now is a good time to review your tax position and cash flow planning. Being proactive can reduce exposure to unnecessary interest costs. Speak with your adviser early to ensure your arrangements remain efficient under the new rules.
This article first appeared in the Spring 2025 issue of HLB Mann Judd’s Client Alert.