No. Not since 1 July 2025. Both the general interest charge and the shortfall interest charge stopped being deductible from that date, and the change applies to interest incurred on or after it regardless of which income year the underlying debt came from.
That last clause is the part people skim past. A 2021 tax debt still sitting there is accruing interest today that you cannot claim, even though the debt itself predates the law change by 4 years.
I am writing this up properly because the cost of the change is bigger than the headline suggests, and because I keep seeing payment plans that were sensible in 2024 and are not sensible now.
What changed, and exactly when it bites
The measure was announced in the December 2023 MYEFO and became law through the Treasury Laws Amendment (Tax Incentives and Integrity) Act 2025. It applies in relation to assessments for income years starting on or after 1 July 2025.
The ATO’s position is stated plainly in its guidance on the change: any GIC or SIC incurred on or after 1 July 2025 is not deductible regardless of whether the debt relates to an earlier income year. Anything incurred before that date remains deductible for the 2024-25 and earlier income years.
So the dividing line is the word incurred, and that word does real work here.
- GIC is incurred on a daily basis. Every day your debt sits there, a fresh non-deductible amount arises.
- SIC is incurred in the year you are served the notice of amended assessment, not the year the shortfall relates to. An amendment served in 2026-27 for a 2022-23 shortfall produces SIC that is not deductible.
Substituted accounting period entities get a slightly different line. They lose the deduction from their next accounting period starting after 1 July 2025. A December balancer, on that reading, kept deducting until the accounting period that started on 1 January 2026.
Remission now cuts both ways, and the old tail is still live
This is the piece almost nobody mentions and it is worth 5 minutes of anyone’s time.
Before the change, GIC you deducted and later got remitted came back as assessable income in the year of remission. That symmetry still applies to the old amounts. If you deducted GIC in 2024-25 or earlier and the ATO remits it in 2026-27, the remitted amount goes into your assessable income for 2026-27.
For amounts incurred on or after 1 July 2025 the symmetry is restored in the other direction. Since you never got a deduction, a later remission does not have to be included as assessable income at all.
Which means a remission application on a long running debt can produce 2 different tax outcomes on the same account, split by 1 July 2025. Worth knowing before you tell a client the remission is tax free.
The remission rules themselves did not change. You can still ask, and the ATO still assesses those requests on their merits.
What it actually costs now
For the quarter from 1 July 2026 the GIC annual rate is 11.43%, with a daily rate of 0.03131507%. From 1 October 2026 it rises to 11.51%, daily 0.03153425%. The SIC rate for the same 2 quarters is 7.43% and then 7.51%.
GIC compounds daily, which the headline rate does not show. Carry a debt for a full year at 11.51% nominal and the effective cost is closer to 12.2%.
Now gross it up. A non-deductible cost has to be compared against a deductible one at your marginal rate, and the table is uncomfortable.
- Company at 25%: an 11.51% non-deductible charge is equivalent to a deductible 15.35%
- Company at 30%: equivalent to 16.44%
- Individual at 39% including Medicare: equivalent to 18.87%
- Individual at 47% including Medicare: equivalent to 21.72%
A high income sole trader carrying ATO debt is now paying the equivalent of a 21.72% deductible loan. There is very little in the commercial market that bad.
Whether your company sits at 25% or 30% changes the number, and so does whether the debt sits in a company or in an individual’s name, which is one more reason the sole trader versus company decision keeps mattering long after the structure is set up.
A payment plan does not slow the meter
Entering a payment arrangement does not pause GIC, reduce the rate, or freeze the balance. Interest keeps compounding daily on whatever is outstanding for the life of the plan.
Before the change, a payment plan was an expensive but partly subsidised form of credit. The deduction gave a company at 25% back a quarter of the interest cost. That subsidy is gone and nothing replaced it.
GIC also reaches further than income tax, applying to unpaid BAS amounts, GST, PAYG instalments and withholding, and FBT, all of it now on the same non-deductible footing.
And it sits alongside a charge that was already non-deductible. The super guarantee charge has never been deductible, which is exactly what makes being one day late on payday super more expensive than the interest component alone would suggest. ATO debt has now joined it.
Borrowing to pay the debt: the answer depends on who owes it
The obvious response is to refinance the ATO out. Interest on a commercial borrowing is still deductible under the ordinary rules, so replacing 11.51% of non-deductible charge with, say, 9% of deductible interest is a large improvement.
It is not automatic, and this is where I would want the analysis written down rather than assumed.
Where a company or trust borrows to pay its own tax debts, and those debts arose from carrying on a business, interest on the borrowing has long been accepted as deductible. IT 2582 is the ruling that deals with companies borrowing to pay income tax. A sole trader genuinely carrying on a business is generally in the same position for tax debts arising from that business.
Where the tax debt relates to salary, rental income, dividends or other investment income, the interest is not deductible. A director who borrows personally to clear the company’s debt is generally in the same position, because the borrowing is not theirs to connect to their own income producing activity.
The security you offer does not decide it. TD 93/13 makes the point that the purpose and use of the borrowed funds is what matters, not what the loan is secured against. Borrowing against the family home to pay a company tax debt does not make the interest private. Borrowing against a commercial property to pay a personal debt does not make it deductible either. Both of those come up constantly and both are answered the same way, by tracing the money rather than the mortgage.
Which is exactly the sort of thing that needs to be documented at the time, not reconstructed 3 years later during a review.
What I would do with an ATO debt right now
- Work out the real after tax cost at the client’s actual marginal rate, not the headline 11.51%.
- Compare it against every genuine credit line available, including ones that looked expensive in 2024.
- If refinancing, get the borrowing entity and the purpose right before the money moves, and write the reasoning on the file.
- Check whether any GIC on the account was incurred before 1 July 2025, because the remission consequences differ on either side of that date.
- If there is a remission case, make it. The rules on remission did not change.
- Stop treating the ATO as the lender of last resort. On these numbers it is the lender of last resort in the literal sense.
If you want the interest exposure sitting on the same screen as the lodgment position rather than in a separate spreadsheet, that is what HPLedger is for.
Frequently asked questions
When did ATO interest stop being deductible?
From 1 July 2025. The change applies in relation to assessments for income years starting on or after that date, and any GIC or SIC incurred on or after 1 July 2025 is not deductible regardless of which income year the debt relates to. Interest incurred before that date remains deductible for 2024-25 and earlier income years.
Does the change apply to both GIC and SIC?
Yes, both. General interest charge applies to amounts unpaid after their due date and shortfall interest charge applies where an amended assessment reveals a shortfall. The deduction was removed for both at the same time.
If the ATO remits my interest, is the remission taxable?
It depends which side of 1 July 2025 the interest was incurred. Interest incurred on or after that date was never deductible, so a remission does not need to be included in assessable income. Interest incurred before that date and claimed as a deduction is assessable in the year the remission occurs.
Is interest on a loan used to pay a tax debt deductible?
It can be, and it turns on whose debt it is and where it came from. A company or trust borrowing to pay its own business related tax debts is generally deductible, and so is a sole trader borrowing for tax debts from a genuine business. Interest on borrowings to pay a personal income tax debt from salary or investment income is generally not deductible.
Does a payment plan reduce the interest?
No. GIC continues to accrue and compound daily on the outstanding balance throughout a payment arrangement. The plan changes when you pay, not what it costs.
Can I still ask the ATO to remit interest?
Yes. The remission rules were not affected by the deductibility change, and requests are still considered on their merits. Since the charge is no longer softened by a deduction, a remission is now worth more than it used to be.
The technical detail
Law. Treasury Laws Amendment (Tax Incentives and Integrity) Act 2025 (Cth), giving effect to the measure announced in the 2023-24 Mid-Year Economic and Fiscal Outlook on 13 December 2023. Applies in relation to assessments for income years starting on or after 1 July 2025. Entities with a substituted accounting period lose the deduction from their next accounting period starting after 1 July 2025.
Scope. GIC and SIC incurred on or after 1 July 2025 are not deductible, regardless of the income year to which the underlying debt relates. GIC is incurred on a daily basis. SIC on an unpaid income tax shortfall is incurred in the year the taxpayer is served a notice of amended assessment.
Remission. Amounts incurred on or after 1 July 2025 that are later remitted do not need to be included in assessable income. Amounts incurred before 1 July 2025 that were deducted, and are later remitted, are assessable in the year of remission. The remission provisions themselves are unchanged.
GIC rates. Quarter from 1 July 2026: annual 11.43%, daily 0.03131507%. Quarter from 1 October 2026: annual 11.51%, daily 0.03153425%. Prior year comparison: 10.96% for April to June 2026, 10.65% for January to March 2026, 10.61% for October to December 2025, 10.78% for July to September 2025. Rate calculated under section 8AAD of the Taxation Administration Act 1953 as the 90 day Bank Accepted Bill rate plus an uplift factor of 7%.
SIC rates. Quarter from 1 July 2026: annual 7.43%, daily 0.02035616%. Quarter from 1 October 2026: annual 7.51%, daily 0.02057534%. Rate calculated under section 280-105 of Schedule 1 to the Taxation Administration Act 1953 using the same base rate with an uplift factor of 3%. Both rates are updated quarterly and generally announced 2 weeks before the quarter starts.
Grossed up equivalents at an 11.51% non-deductible rate. 15.35% at a 25% company rate; 16.44% at 30%; 18.87% at a 39% individual rate including Medicare levy; 21.72% at 47%. Daily compounding brings the effective annual cost of an 11.51% nominal charge to approximately 12.2% before any gross up.
Borrowing to pay tax debts. IT 2582 addresses interest on money borrowed by companies to pay income tax. TD 93/13 confirms that deductibility turns on the purpose and use of borrowed funds rather than the security given. General deductibility is determined under section 8-1 of the Income Tax Assessment Act 1997.
Scope of GIC. Applies where an amount of tax or other liability remains unpaid after its due date, including where there is a shortfall from an amendment or correction, an instalment of tax is underestimated, or a return is lodged late. Covers income tax, GST, FBT, PAYG instalments and withholding, and superannuation guarantee charge amounts.
