ATO Interest Charges Are No Longer Deductible – What You Can Do
From 1 July 2025, leaving your tax debts unpaid are more expensive.
The ATO’s General Interest Charge (GIC) and Shortfall Interest Charge (SIC) are no longer be tax-deductible.
Right now, the GIC rate is 11.17% (very high)… with no chance of a tax break to soften the blow.
If you have unpaid tax or use ATO payment plans, here’s how to stop paying more than you need to.
Why This Change Matters
If you’re a small to medium business owner in Brisbane trying to grow, every dollar counts.
For years, ATO payment plans helped businesses manage cash flow when tax bills hit hard.
But with this change, that same payment plan could now cost you thousands more each year.
Quietly draining profits in the background and destroying decades of wealth.
So, here’s how to plan around this.
The Short Answer
Consider refinancing your tax debt through a bank or business lender.
In many cases the interest rate will be lower than the non-deductible ATO interest.
You may also be able to claim deductions on the bank loan interest.
More details on this below.
Sole Traders
If you take a loan to pay business tax, then the interest is a business expense. You can claim it in your taxes.
But you cannot claim this deduction for taxes on income from wages, rent, or dividends.
Sole Trader Example
Sam owns a small café and also works part-time.
He owes $20,000 tax from his café income and $10,000 from his job.
If Sam uses the ATO payment plan, he’d pay $3,351/year in non deductible interest.
So, he borrows $30,000 to pay his tax bill (at a modest 7%). Now his interest is $2,100/year.
The ATO says ⅔ of the interest is business expense, and the rest a personal expense.
So, he can only deduct two-thirds of his interest payments ($1,400) from his taxes. This Sam saves about $420/year in tax.
By refinancing, Sam saves $1,671 per year.
And he gets the ATO off his case and improves his peace of mind.
Businesses
If the business borrows to pay for things like its…
- GST
- PAYG instalments or withholding
- FBT (Fringe Benefits Tax)
… then interest on the loan is a business expense. This is usually tax deductible.
Business Example
A Brisbane construction business owes $40,000 in GST and PAYG.
If they use the ATO payment plan they’d pay $4,468 in non-deductible interest per year.
So, they refinance through a business loan at 7%.
Because the debt is tied to business activities, the full interest is deductible.
They pay $2,800 interest and save $840 tax.
In total they save $2,508 per year and protect cash flow without the ATO hanging over them.
Companies and Trusts
✅ If a company borrows to pay their tax debts (GST, PAYG or FBT), the interest is usually deductible.
❌ BUT if the director or beneficiary used a personal loan, they can’t claim it.
Partnerships
✅ If the partnership itself borrows to pay business tax, the interest is usually deductible.
❌ BUT if a partner uses a personal loan to pay their share, they can’t claim it.
Do you know if you owe the ATO?
Many business owners end up in ATO debt not because they’re careless, but because they’re busy.
The rules change often, and it’s hard to keep up.
Here’s what we’re recommending all business owners do
- Review your current ATO payment plans.
Check if you’re paying interest that you can’t claim anymore.
- Work out where your tax debts come from.
Separate business-related and personal debts — it makes a big difference.
- Talk to your accountant early.
A short review now can prevent a costly mistake later.
This new ATO change is another reminder to take control of your cash flow before it controls you.
With the right advice and timing, you can protect your wealth, stay compliant, and grow your business with confidence.
If you’d like help reviewing your tax position, contact us— your Brisbane accountant focused on building trust and long-term wealth for local business owners.
