Tax deductions to be denied for interest charged by the ATO

After 1 July 2025, a proposed amendment to the tax law will mean that deductions will be denied for ATO interest charges — specifically the general interest charge (GIC) and shortfall interest charge (SIC) — incurred in income years starting on or after 1 July 2025.

Both GIC and SIC are currently tax-deductible for all entities, removing the deduction is intended to encourage entities to correctly self-assess their tax liabilities and pay on time.

The ATO also imposes a late payment interest, which is not tax deductible and excluded for the purpose of this announcement.

The ATO imposes interest in specific situations, including:

- late payment of taxes and penalties

- an increase in tax liability as a result of an amended assessment

- an increase in other tax liabilities, such as goods and services tax or pay as you go amounts.

Deductibility

A tax deduction can be claimed for the GIC and SIC that is imposed by the ATO in the year the interest charge is incurred, this depends on when the taxpayer actually becomes liable for the interest.

The amount of interest charged is normally pre-filled on the tax return.

This tax deduction will be denied for any ATO interest incurred by taxpayers on or after 1 July 2025.

Next steps

This is a 2023–24 Mid-Year Economic and Fiscal Outlook (MYEFO) measure and will come in effect from 1 July 2025, it may be crucial to account for the non-deductibility of ATO interest in the coming years.

We can assist you in managing your tax liabilities in a timely manner or engage with the ATO on your behalf to avoid interest and penalties.

Please contact our office if you have any queries in relation to this matter.

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