Many business owners are discovering this at tax time: interest the ATO charges on late or unpaid tax is no longer tax deductible.
Since 1 July 2025, the general interest charge (GIC) and shortfall interest charge (SIC) can’t be claimed as a deduction. That applies even if the debt relates to an earlier year. GIC also compounds daily, so the cost grows quickly.
The 2025–26 tax return is the first where most businesses will feel the change. If you’ve been using the ATO as a cheap overdraft, it isn’t cheap anymore.
What you can do
- Pay down the ATO debt first if you can. The sooner it’s paid, the less interest accrues.
- Keep any payment plan as short as possible. Interest keeps accruing while you’re on a plan, but a plan stops debt recovery action while it’s being managed.
- Compare a business loan. Interest on borrowings used in your business can still be deductible, so refinancing the debt may cost less after tax. Get advice first.
- Ask about remission. If something genuinely went wrong, you can still ask the ATO to reduce or cancel the interest.
Seasonal cash flow? Plan ahead
Tradies, builders and hospitality businesses on the Northern Beaches often have lumpy cash flow, which is when tax debts tend to build up. Setting aside GST and PAYG in a separate account each week, and planning for quieter months, is the simplest way to avoid paying non-deductible interest.
If you have an ATO debt and want a plan to deal with it, see our business services or get in touch with our team in Dee Why.
This article is general information only and isn’t personal tax or financial advice. Please speak with us about your own circumstances.
