Can I claim the interest the ATO charges on my tax debt? Not anymore — from 1 July 2025

If you run a business, freelance under an ABN, or hold an investment property, there's a fair chance you've carried a tax debt at some point — a bill you paid a few months late, or a payment plan with the ATO to spread it out. Whenever there's an amount outstanding, the ATO charges you interest on it, and for years that interest was at least deductible: an annoying cost, but one you could claim back on your next return. From 1 July 2025, that's no longer true. The interest is still charged. It just isn't deductible anymore.

What GIC and SIC actually are

Two charges are affected, and both have unfriendly acronyms. The general interest charge (GIC) is the interest the ATO adds to any tax you haven't paid by its due date — it accrues on a daily basis for as long as the amount is outstanding. The shortfall interest charge (SIC) is narrower: it applies when the ATO amends your assessment upwards and finds you underpaid, covering the gap between what you originally paid and what you should have. If you've ever been late paying a BAS or an income tax bill, or had an assessment corrected after the fact, you've met one of them.

The change is straightforward, and it's law: under the Treasury Laws Amendment (Tax Incentives and Integrity) Act 2025, you can no longer claim an income tax deduction for GIC or SIC incurred on or after 1 July 2025. The 2025–26 return most business owners are working on now is the first one where this bites.

The date that matters is when it's 'incurred' — not when you pay

Here's the part that trips people up. The line isn't drawn on the year your debt relates to, and it isn't drawn on the day you finally pay. It's drawn on when the interest is incurred — the day you become liable for it. GIC on an unpaid income tax debt is incurred daily; SIC is incurred in the year the ATO serves you the notice of amended assessment. Any GIC or SIC incurred on or after 1 July 2025 is not deductible, regardless of whether the underlying debt relates to an earlier income year.

So the common assumption — 'this interest is on my 2023 tax bill, so it's an old, deductible cost' — doesn't hold. If the interest kept ticking over into 1 July 2025 and beyond, that portion isn't deductible, even though the tax it's attached to is years old. The flip side is the one piece of relief: any GIC or SIC you incurred before 1 July 2025 stays deductible in your 2024–25 and earlier returns, so there's nothing to unwind from prior years.

What it quietly costs — and the one offset

There is a small trade-off built into the change. Because the interest is no longer deductible, the corresponding rule is that if the ATO later remits (waives) a GIC or SIC charge you incurred on or after 1 July 2025, you don't have to include that remitted amount as income. Under the old rules, a waived charge you'd already deducted had to be added back as assessable income; that headache goes away for the new charges.

But the real message is about cost. The GIC annual rate for the July to September 2026 quarter is 11.43%. When that interest was deductible, its true cost to a business was lower, because the deduction clawed some of it back. Now there's no clawback: 11.43% is the flat, after-tax cost of leaving a debt sitting with the ATO. That makes carrying a tax debt materially more expensive than it looked a year ago, and often more expensive than other, deductible forms of finance.

For a general taxpayer, the practical takeaways are simple. Don't claim GIC or SIC on your 2025–26 return if it was incurred on or after 1 July 2025 — that deduction is gone, and claiming it is exactly the kind of error the ATO watches for. If you're sitting on an ATO debt or a payment plan, it's worth doing the maths again now that the interest bites at full rate, and comparing it against other ways to fund the gap. And the cheapest interest is the interest you never trigger: lodging and paying on time is now worth more than it used to be.

This is general information current as at July 2026, not advice for your circumstances — how these rules apply depends on your entity, your debts and when each charge was incurred. If you're carrying a tax debt, on a payment plan, or facing an amended assessment, working out exactly which interest is still deductible and which isn't is worth a proper look before you lodge. That's what our business and sole trader accounting service is for.