ATO interest charges are no longer deductible: GIC and SIC from 1 July 2025

Until 30 June 2025, general interest charge and shortfall interest charge were deductible as a cost of managing your tax affairs. That deduction is gone. Schedule 2 of the Treasury Laws Amendment (Tax Incentives and Integrity) Act 2025 — No. 29 of 2025, royal assent 27 March 2025 — is titled “Denying deductions for interest charges”. It repeals paragraph 25-5(1)(c) and subsection 25-5(7) of the Income Tax Assessment Act 1997, and inserts into section 26-5 a provision that you cannot deduct GIC or SIC. Announced in the 2023-24 Mid-Year Economic and Fiscal Outlook on 13 December 2023, it made it all the way through: the ATO’s new-legislation page states plainly that this is now law.

For most taxpayers the 2025-26 income year — the returns being prepared now — is the first affected. Not every announcement gets this far: for the opposite situation, see our note on the instant asset write-off status for 2026-27, where an announced threshold is still before Parliament.

General interest charge applies to unpaid tax liabilities and is incurred daily, compounding as it goes. Shortfall interest charge applies instead of GIC to a tax shortfall, covering the period between when the tax would have been due and when the assessment is corrected — you usually do not know about a shortfall until an amended assessment arrives, which is why SIC runs at a lower rate. It is incurred in the income year you are served that notice. The extra tax and the SIC are due 21 days later; after that, GIC applies automatically to any unpaid tax and unpaid SIC.

Both rates reset every quarter. The GIC rate is worked out under section 8AAD of the Taxation Administration Act 1953; SIC uses the formula in section 280-105 of Schedule 1 to the same Act — the Reserve Bank’s 90-day Bank Accepted Bill rate plus a 3% uplift. The ATO generally announces the next quarter’s rates about two weeks before that quarter starts, so the figures above hold only for the September 2026 quarter.

That history is context, not a forecast: rates for the October–December 2026 quarter had not been published at the verification date, and we do not project them.

The headline is not the whole story. GIC and SIC incurred before 1 July 2025 remains deductible for the 2024-25 and earlier income years, claimed under cost of managing tax affairs as interest charged by the ATO. If you have an unlodged 2024-25 return, or an amendment to an earlier year, that deduction is still live for interest incurred in those periods. The remission consequence is the part most people miss, and it cuts both ways.

A payment plan spreads the debt; it does not switch off the interest. The ATO confirms that tax debts under a payment plan continue to accrue GIC, compounding daily, and that paying the debt over the shortest period reduces the GIC payable. Because that GIC is no longer deductible, a long plan is harsher than it was before 1 July 2025 — the same interest now costs you the full amount, not the amount net of a deduction at your marginal tax rate.

• Refunds and credits are offset against the debt — they reduce the balance, but do not replace an instalment you still have to pay.
• Accounts are treated separately. Income tax and activity statement accounts require separate payment plans, so an arrangement covering your BAS debt does not cover an income tax debt.
• Concessional plans exist, but are conditional. The ATO notes that interest-free payment plans may be available for overdue activity statement amounts, and secured plans in other cases. Eligibility conditions are set by the ATO, and availability cannot be assumed in any given case.

The ATO can, in certain circumstances, remit all or part of an interest charge — its policy is set out in PS LA 2011/12 for GIC and PS LA 2006/8 for SIC. Remission is a discretionary decision, so what follows is only the factors the ATO says it weighs; no outcome can be assured. It considers:

• The circumstances that caused the delayed payment, and whether they were within your control.
• The steps you took to mitigate the delay once those circumstances arose.
• Your compliance and payment history — where the GIC amount is relatively low (the ATO gives $2,500 or less as an example), a positive history strongly influences the decision.

Review rights differ between the two charges. A decision not to remit GIC cannot be objected against or reviewed by the Administrative Review Tribunal — though a fresh remission request can be made, and judicial review in the Federal Court under the Administrative Decisions (Judicial Review) Act 1977 may be available. For SIC, where the amount remaining payable is more than 20% of the shortfall, you can object to a refusal to remit, and that objection decision can go to the Tribunal.

The change does not alter the rate the ATO charges. It alters the after-tax cost of carrying an ATO debt: under the old rules a deduction absorbed part of the charge, and from 1 July 2025 the charge lands in full. That is why the ATO’s own framing is to pay the debt over the shortest period you can sustain.

The practical responses are unglamorous: get overdue lodgements current so the real balance is known rather than estimated; keep pay-as-you-go instalments realistic so a debt does not compound quietly; hold any payment plan to a term you can actually meet; and, where the facts support it, put a properly evidenced remission request to the ATO. A registered tax agent can do this work for you — and you can check any agent’s registration yourself.