ATO interest no longer deductible

We all know we get to claim any interest we have paid to the ATO for outstanding debt as a tax deduction. However, from 1 July 2025 you will no longer be able to claim an income tax deduction for ATO interest charges.

Back in December 2023, as part of the 2023/24 Mid-Year Economic and Fiscal Outlook (MYEFO), the government announced changes to the Tax law to decline any tax deductions for ATO interest incurred starting 1 July 2025. This is now Law.

What this means is any ATO interest being general interest charges (GIC) and shortfall interest charges (SIC) are no longer able to be claimed as a deduction.

Starting 1 July 2025  claiming a deduction will depend on when GIC or SIC is incurred. Any GIC or SIC incurred on or after 1 July 2025 it is not deductible.

This includes all GIC and SIC in respect of outstanding or late payments of tax for income years both before and after 1 July 2025.

As they are not deductible, any GIC or SIC that is later remitted will no longer need to be included as assessable income.

Any GIC or SIC incurred prior to 1 July 2025 is not impacted by the changes to the law and will continue to be deductible for the 2024-25 and earlier income years.

If you deduct GIC or SIC for the 2024-25 or an earlier income year and it is later remitted, the amount that is remitted will need to be included in your assessable income in the year in which the remission occurred.

 

Author

Natasa Briffa