Written by Cameron Paul

Starting from 1 July 2025, significant changes will take effect regarding the deductibility of interest charges imposed by the Australian Taxation Office (ATO).

Late last year, the government announced as part of the 2023–24 Mid-Year Economic and Fiscal Outlook (MYEFO) that it would amend the tax law to deny income tax deductions for ATO interest charges incurred in income years starting on or after 1 July 2025.

This measure has recently been legislated and will affect both the general interest charge (GIC) and the shortfall interest charge (SIC).

What Are ATO Interest Charges?

ATO interest charges are imposed on unpaid tax liabilities and income tax shortfalls. The general interest charge (GIC) is applied on a daily basis to unpaid tax liabilities, while the shortfall interest charge (SIC) is imposed on unpaid income tax shortfalls from the date a notice of amended assessment is served.

Key Changes

From 1 July 2025, taxpayers will no longer be able to claim an income tax deduction for ATO interest charges incurred on or after this date. 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

• Interest Charges Incurred On or After 1 July 2025: Any GIC or SIC incurred on or after this date will not be deductible. This means that taxpayers can no longer deduct these interest charges from their taxable income.
• Interest Charges Incurred Before 1 July 2025: Any GIC or SIC incurred prior to 1 July 2025 will continue to be deductible for the 2024-25 and earlier income years. If these charges are later remitted, the amount that is remitted will need to be included in the taxpayer’s assessable income in the year in which the remission occurred

Implications for Taxpayers

The denial of deductions for ATO interest charges will have several implications for taxpayers:

1. Increased Tax Liability: Taxpayers will no longer be able to reduce their taxable income by deducting ATO interest charges, potentially leading to higher tax liabilities.
2. Compliance: It will be important for taxpayers to stay compliant with tax payment deadlines to avoid incurring non-deductible interest charges.
3. ATO Payment Plans: taxpayers with payment plans now or are considering payment plans in the future will need to be aware of the following impacts on their cash flow:
   • Generally higher ATO interest rates on ATO debt.
   • ATO interest being no longer deductible.

Conclusion

The changes to the deductibility of ATO interest charges mark a significant shift in tax policy. Taxpayers should be aware of these changes and plan accordingly to manage their tax liabilities effectively.

For anyone wishing to discuss the potential impact of the changes to the deductibility of ATO General Interest Charges, please contact your Hall Chadwick QLD advisor.