Starting July 1, 2025, taxpayers lose the ability to claim tax deductions for ATO interest charges.
On 13 December 2023, as part of the 2023–24 Mid-Year Economic and Fiscal Outlook (MYEFO), the Federal Government announced it will amend the Tax Law to deny deductions for ATO interest charges.
This measure will mean that taxpayers, including business owners, will no longer be able to claim a deduction for general interest charges (GIC) and shortfall interest charges (SIC) incurred on or after 1 July 2025. A consequence of this change is that any GIC or SIC that is later remitted will no longer need to be included as assessable income.
Background
- ATO interest rates, designed to prompt timely tax payments, are currently set at 11.38%, compounded daily.
- Interest applies to all ATO debts, including those under payment arrangements.
- Currently, taxpayers can deduct such interest charges.
Implications
Taxpayers with unpaid ATO debts face an unfavourable outcome due to this change.
Taxpayers should consider these changes when:
- Making late payments, even if this is beyond the control of the taxpayer.
- Voluntarily amending tax returns, potentially increasing taxable positions.
- Responding to ATO requests to extend period of review during ATO audit.
- Dealing with ATO delays in processing or reviewing returns.
- Negotiating settlements with ATO which include an interest component.
- Any situation where the taxpayer has the opportunity to shift interest cost responsibility to the ATO or others.
While not yet law, this change is expected to take effect from July 1, 2025, affecting accrued or incurred interest charges and those under existing payment arrangements. More details can be found on the ATO website here. If you have questions or need guidance, feel free to contact us.
