A significant change in tax legislation will take effect from 1 July 2025, directly impacting how interest charges from the ATO are treated. If you or your entities are late in paying a tax debt or discovers a tax shortfall, any interest imposed by the ATO will no longer be tax deductible from that date.
This change affects two types of interest:
- General Interest Charge (GIC) – Charged on unpaid tax liabilities after their due date.
- Shortfall Interest Charge (SIC) – Imposed when a tax shortfall arises, often due to an amended assessment.
Previously, both of these interest charges were deductible under section 25-5 of the Income Tax Assessment Act 1997. This provided some relief for businesses and individuals dealing with timing issues or corrections. However, this relief is now being removed.
🔍 Summary of the Legislative Changes
From 1 July 2025:
- Deductions for GIC and SIC will no longer be allowed, regardless of how or why the charge arises.
- This includes interest incurred as a result of late payments, amended assessments, or underreported income.
- The relevant legislation—paragraph 25‑5(1)(c)—is being repealed to effect this change.
- Taxpayers will not be able to claim a deduction for interest that is subsequently remitted, even if the charge was initially imposed. Any amounts that have already been claimed as a deduction prior to 1 July 2025, and are subsequently remitted post 1 July 2025, will need to be included as assessable income.
💡 Why This Matters
ATO interest charges are generally well above commercial interest rates—currently around 11% p.a. and updated quarterly. Up until now, the tax deduction helped to offset the financial impact. But from 1 July 2025, taxpayers will bear the full cost.
This means:
- Late tax payments will cost more.
- Corrections or amendments to lodged returns will have a greater financial impact.
- Cashflow planning becomes more critical, particularly for businesses with variable income or complex tax positions.
📌 Practical Example
If your company discovers a tax shortfall in the 2025–26 financial year and is charged $10,000 in SIC:
- Before 1 July 2025: You could deduct this amount, potentially reducing your tax payable by up to $3,000 (assuming a 30% corporate tax rate).
- On or after 1 July 2025: That deduction is no longer available. The $10,000 is a real, after-tax cost.
✅ Key Takeaways
- Review cashflow practices: Ensuring you have funds available for tax payments will help avoid costly interest.
- Lodge returns and pay on time: Timely compliance is more valuable than ever.
- Minimise amendments and shortfalls: Ensure tax returns are accurate upfront to reduce the chance of triggering SIC.
- Consult early with us if you foresee timing issues with tax obligations.
👥 How We Can Help
Our team is ready to assist you with:
- Tax planning and cashflow forecasting
- Review of payment arrangements and ATO engagement strategies
- Early identification of potential tax shortfalls
- Navigating amendments, objections, and remission requests
This change underscores the importance of proactive tax management. If you have any questions about these upcoming changes, please contact your dedicated Johnson Partners representative.
