ATO Interest Is No Longer Deductible: Why Tax Debt Now Costs More for Australian Businesses

June 16, 2026

Why Tax Debt Now Costs More for Australian Businesses

Introduction

If you’ve ever leaned on an ATO payment plan to tide your business over, there’s something you need to know. The rules have changed, and not in your favour.

From 1 July 2025, the interest the ATO charges on overdue tax debts is no longer tax deductible. That’s it. No more claiming it back at tax time. No more softening the blow at year-end.

This is a much bigger deal than most business owners realise.

The ATO’s general interest charge is currently 10.96% for April to June 2026. That already makes it one of the more expensive forms of finance in Australia. But take away the tax deduction on top, and the real cost of carrying ATO tax debt has increased sharply.

To give you a sense of the numbers, for a company paying 25% tax on a $100,000 debt, the after-tax cost of that interest has jumped from around $8,220 to $10,960 a year. That’s roughly a 33% effective increase.

At Hughes O’Dea Corredig (HOC), we’ve spent the last few months fielding a lot of nervous phone calls about this. So let’s break it down properly: what’s changed, why it’s such a problem, and what you can actually do about it.

The Quick Version

Cut the jargon and the ATO general interest charge deduction change is actually pretty simple to follow.

Here’s the bones of it:

What changed: From 1 July 2025, the General Interest Charge (GIC) and Shortfall Interest Charge (SIC) you cop on overdue tax debt are no longer tax deductible.

The law behind it: Treasury Laws Amendment (Tax Incentives and Integrity) Act 2025, which got Royal Assent on 27 March 2025.

Who it affects: Pretty much every Australian business with a tax debt. Sole traders, companies, trusts the lot.

Current GIC rate: 10.96% for April to June 2026. Higher than many business loans.

What still counts: Any GIC or SIC you racked up before 1 July 2026 is still deductible. The new rules only apply to interest incurred from that date.

The headline takeaway? An ATO payment plan used to be an okay way to manage a short-term cash crunch. Not anymore. The maths has shifted, and not in a good way.

Why Business Owners Are Genuinely Worried

Honestly, you should be a bit worried. Plenty of business owners we speak with are.

For years, plenty of businesses treated the ATO like an unofficial line of credit. Cash a bit tight this quarter? Pay BAS late, wear the GIC, claim it back at year-end. Not ideal, but workable.

Those days are done.

Here are the conversations we’ve been having on repeat:

“My business cash flow is tight and I owe the ATO – what do I do now?”
The most common question we’re hearing in 2026. And the honest answer is, it depends on how big the debt is, how quickly you can clear it, and whether refinancing makes sense.

“I’m already on an ATO payment plan that runs into next year – am I getting hit by this?”
Yes. Any interest accruing on or after 1 July 2026 is non-deductible, even if the underlying debt is from years ago.

“How much is this really going to cost me?”
More than you think. We’ve run the numbers for clients and it’s pretty sobering. For a company on the full 30% tax rate, a $200,000 debt at 10.96% GIC has gone from costing about $15,344 net of tax to around $21,920 a year. A $6,576 hit, just from losing the deduction.

“Should I just pay it off with a credit card or business loan?”
Genuinely worth thinking about. Bank or business lender interest is usually deductible if the debt is connected to your business activities. ATO interest isn’t anymore.

“Will the ATO come after me harder now?”
They already are. The ATO issued more than 84,000 director penalty notices in 2024–25, covering billions in liabilities. Director Penalty Notices were up significantly in a single year.

The good news? You’ve got options. The bad news? Sticking your head in the sand isn’t one of them anymore. A proper sit-down with a registered tax agent for ATO debt help is honestly worth its weight right now.

So What’s Actually Changed?

The change came through the Treasury Laws Amendment (Tax Incentives and Integrity) Act 2025, which passed Parliament and got Royal Assent on 27 March 2025.

In plain English, here’s what it does. It removes the tax deduction for two specific charges the ATO applies to overdue tax debts:

General Interest Charge (GIC):
This is the interest that piles up on pretty much any unpaid tax liability. Late BAS, late income tax, unpaid PAYG – anything you owe the ATO that’s not paid on time gets GIC tacked onto it. It accrues daily and compounds. For April to June 2026, the GIC rate is 10.96%.

Shortfall Interest Charge (SIC):
This one hits when the ATO amends an assessment and finds you underpaid tax in a prior year. It’s a bit gentler than GIC, but still not cheap.

Both used to be deductible. Both no longer are.

The ATO’s own guidance on this is pretty clear. Any GIC or SIC incurred on or after 1 July 2026 can’t be claimed as a deduction in your tax return, regardless of whether the underlying debt relates to an earlier income year.

That last bit is important. Even if your tax debt is from 2023, the interest accruing on it today is non-deductible.

Why This Matters More Than You Think

Here’s where a lot of business owners shrug it off. “It’s just interest. How much can it really change?”

A fair bit, actually. Let me show you why.

The maths is genuinely brutal

Take a company sitting on a $100,000 ATO debt at the current GIC rate of 10.96%. That’s about $10,960 in interest a year. Under the old rules, you’d claim it back at 25% or 30%, depending on your company tax rate, making the after-tax cost roughly $8,220 or $7,672. Under the new rules, it costs you the full $10,960. No relief.

Now stretch that out over two or three years on a payment plan, and you’re looking at thousands of dollars in extra cost. Real money out of your business.

ATO interest is now more expensive than many bank finance options

A typical business loan from one of the majors may sit below the GIC rate, and the interest is usually deductible. So if you’re carrying an ATO debt, you’re effectively paying premium interest rates and getting no tax break on it.

Refinancing options are suddenly more attractive

This is where it gets interesting. If you can refinance an ATO debt with a regular business loan, the new loan’s interest will generally still be deductible, provided it’s connected to your business activities. That’s a potentially significant saving.

The ATO has gotten a lot more aggressive

Even without the deductibility change, the ATO has shifted gears. Total collectable debt remains a major focus area, with small businesses owing a large share of outstanding ATO debt. The ATO has also increased its compliance activity, and Director Penalty Notices are being issued at much higher levels.

If you’ve been quietly carrying an ATO debt and hoping nobody notices, the window for that approach is closing fast.

What This Looks Like in Real Numbers

Let me run a couple of quick examples so the impact lands properly.

Example 1: Sarah’s plumbing business

Sarah runs a plumbing business through a company structure. She fell behind on BAS during a tough quarter and racked up a $50,000 ATO debt. She’s on a payment plan stretching over 18 months.

At 10.96% GIC, she’s looking at around $5,480 in interest over the first year.

Under the old rules, with a 25% company tax rate, the after-tax cost was about $4,110. Under the new rules, it’s the full $5,480. An extra $1,370 out of pocket – money that could’ve gone toward paying down the actual debt.

Example 2: David’s consulting business

David has a much bigger problem. His business owes the ATO $300,000 after a difficult two years. He’s on a longer payment plan running across three years.

At GIC of 10.96%, his total interest cost could be somewhere around $49,000 across the life of the plan, depending on how the debt is repaid.

Old rules: about $36,750 net of tax. New rules: the full $49,000.

That’s a $12,250 hit, just from the deduction change.

Suddenly, refinancing through a business loan, where the interest may stay deductible, looks like a serious option for David. The conversation we’d have is whether the refinancing costs justify the savings.

Want your own numbers run? A genuine review with our tax planning team is the quickest way to see your actual exposure.

Your ATO Debt Action Plan

Bookmark this section. Here’s the checklist we’re walking clients through right now.

1. Find out exactly what you owe

Get a current ATO statement. Find out the total debt, when it accrued, and what interest is sitting on it. Don’t guess. Get the actual numbers.

2. Work out how much of your interest will be non-deductible

Anything from before 1 July 2025 is still deductible. Anything after is not. Get clarity on the split so you understand your real after-tax cost going forward.

3. Compare against alternative finance

What would the same debt cost you with a bank loan, business overdraft, or invoice finance? Sometimes the answer surprises you, especially when you factor in deductibility.

4. Consider refinancing properly

If you can shift ATO debt to a deductible business loan, you’re potentially saving thousands. But it needs to be done properly. The borrowing has to be genuinely connected to business activities.

5. Apply for GIC remission if you’ve got grounds

The ATO can still remit GIC where there are reasonable grounds, such as serious illness, natural disaster, or circumstances beyond your control. It’s worth a properly drafted application.

6. Don’t let new debt pile up

This is the biggest one. The new rules apply to all interest from 1 July 2025 onwards. The cheapest debt is the one you don’t have. Get on top of BAS, PAYG, and superannuation guarantee obligations going forward.

7. Don’t go quiet on the ATO

Whatever else you do, keep communicating with the ATO. The minute you go silent, your options narrow. DPNs, garnishee notices, and director liability all become much more likely.

8. Get advice before you do anything dramatic

Withdrawing from super to pay tax debt. Selling assets. Borrowing against the family home. These are big calls. Don’t make them without proper advice.

A conversation with a tax advisor for ATO debt is genuinely worth it before you act.

Common Mistakes and Myths Doing the Rounds

There’s a fair bit of bad information floating around about this change. Let’s clear some of it up.

Myth 1: “Only big businesses are affected.”

Completely wrong. This change applies to every Australian taxpayer with an ATO debt. Sole trader, micro business, small company, big corporate everyone.

Myth 2: “It only applies to new tax debts.”

Nope. The rule looks at when the interest was incurred, not when the underlying debt was created. So if you’ve got a five-year-old debt still accruing GIC, all that GIC accrued from 1 July 2025 onwards is non-deductible.

Myth 3: “I can just ignore it and the ATO won’t bother.”

Genuinely the worst strategy right now. ATO enforcement is at much higher levels than during the softer post-COVID period. Garnishee notices, DPNs, and recovery action are all very real risks.

Myth 4: “Bank loan interest isn’t deductible either.”

Not true. Interest on borrowings used for genuine business purposes is generally still deductible. That’s why refinancing an ATO debt with a business loan can be such an effective strategy.

Myth 5: “I’ll wait and see if the law changes back.”

Tempting, but risky. The change is in force. It’s not flagged for reversal. Treating it as temporary could cost you tens of thousands.

Myth 6: “Payment plans are still my best option.”

For some businesses, yes, especially smaller debts that can be cleared quickly. But for larger or longer debts, refinancing through traditional finance may now be the better play.

When to Act – Honestly, Yesterday

The smart time to deal with ATO tax debt in Australia was last financial year.The next best time is right now.

Act now if:

You’re carrying any ATO debt with GIC or SIC accruing
You’re already on an ATO payment plan extending into 2026 or beyond
You’ve received a notice of amended assessment recently
You’ve got upcoming BAS or income tax lodgements that might create new debt
You’re a director of a company carrying ATO liabilities

Treat it as urgent if:

Your debt is over $100,000
You’ve had a DPN issued or are at risk of one
You’ve fallen behind on superannuation guarantee
You’re already getting ATO recovery letters
You’re considering insolvency or restructuring options

The longer you leave it, the fewer options you’ve got. ATO compliance posture in 2026 is significantly more aggressive than what most business owners have experienced before. Getting tax debt help in Australia early can be the difference between a manageable problem and a crisis.

How HOC Helps Aussie Businesses Manage ATO Debt

This is where Hughes O’Dea Corredig comes in. We’re a Melbourne firm, based in Essendon, and we’ve been helping businesses across Victoria and increasingly nationally Work through tax debt issues for decades.

We’re not the kind of accounting firm that ticks a box and moves on. We’re the kind that picks up the phone, gets into the details of your situation, and helps you find a real way forward.

Tax Planning and Tax Returns

Our tax planning team works with businesses to build forward-looking strategies that minimise tax debt risk in the first place. From cash flow forecasting to lodgement scheduling to deduction optimisation, we help you stay ahead of the ATO instead of behind it.

Business Advisory

For businesses already in trouble, our business advisory practice walks through your options properly. Refinancing analysis, GIC remission applications, ATO payment plan negotiations, director risk management — we handle the lot. And we do it without judgement, because we’ve seen it all.

SMSF and Trust Structuring

Many of our clients run business operations through trust or SMSF structures, and the new GIC rules interact with both in important ways. Our SMSF specialists can review how your structures are set up and whether they need adjusting in light of the deductibility change.

Whether you’re around the corner in Essendon or working with us remotely from somewhere in regional Australia, our team delivers proper, practical ATO debt help in Australia without the runaround.

FAQs — ATO Interest Changes Answered

Why is ATO interest no longer deductible?

The government introduced the change to encourage more timely tax payments. Treating ATO interest as deductible was effectively subsidising tax debt. Removing the deduction makes carrying an ATO debt genuinely expensive, which is the whole point.

What changed with ATO interest deductions from 1 July 2025?

Any General Interest Charge or Shortfall Interest Charge incurred on or after 1 July 2025 is no longer tax deductible. Interest incurred before that date is still deductible in the year it was incurred.

Can businesses still claim ATO interest as a deduction?

Only for interest incurred before 1 July 2025. Everything from that date onwards is non-deductible, regardless of when the underlying tax debt was created.

Does this apply to individuals too?

Yes. The change applies to all taxpayers. Individuals, sole traders, partnerships, companies, trusts, SMSFs — anyone who incurs GIC or SIC.

What if the ATO remits my interest?

Interest remitted by the ATO that relates to amounts incurred before 1 July 2025 must be included in assessable income. Remission of interest incurred from 1 July 2025 onwards can’t be assessed in the same way, because there was no deduction in the first place.

Is bank loan interest still deductible?

Generally yes, provided the borrowing relates to a genuine business or income-producing purpose. This is part of why refinancing an ATO debt to a business loan can make so much sense.

Should I still use an ATO payment plan?

For small, short-term debts, possibly. For larger debts or longer repayment periods, alternative finance may be a better option. Get advice on your specific situation before committing.

Can I still ask for GIC remission?

Yes. The remission rules haven’t changed. Where you’ve got reasonable grounds, such as illness, disaster, or circumstances genuinely beyond your control, a properly drafted remission application is still worth pursuing.

Why Our Advice Holds Up

Look, ATO debt is one of those areas where bad advice can cost you serious money. Get it wrong and you’re looking at extra interest, potential personal liability, and a real squeeze on your business cash flow.

Here’s why businesses across Melbourne keep coming back to Hughes O’Dea Corredig:

Decades of experience helping Australian businesses through tax debt issues, restructuring, and ATO disputes.

Registered Tax Agents with current technical knowledge of the new deductibility rules.

Integrated team tax, business advisory, SMSF, financial planning and estate planning all in one firm.

A practical, no-jargon approach . we tell you what your real options are, not what’s easiest for us.

Active tracking of ATO guidance, Treasury releases, and updates from CPA Australia and CA ANZ.

Reviewed by the HOC tax and business advisory team, April 2026. This article is general information only and isn’t a substitute for tailored tax or financial advice.

Your Next Step — Book a Tax Debt Review

If you’re carrying ATO debt, or you’re at risk of building one, the single most useful thing you can do right now is sit down with someone who genuinely understands the new rules.

Book your ATO debt review

Our team runs confidential tax debt review sessions where we work through your current exposure, calculate the real after-tax cost of your interest, and walk through your refinancing and remission options.

Call HOC on +61 3 9375 4286 or email mail@hoc.com.au to lock in a time.

Or take a look first

Not quite ready to book? Have a look around at our tax planning services, business advisory practice, and SMSF specialists to get a feel for how we work.

Related Resources

Wrapping Up

Let’s bring it home.

The change to ATO interest no longer being deductible is one of those quiet legislative shifts that doesn’t make front-page news but absolutely lands in your business’s bank account. From 1 July 2025, GIC and SIC are non-deductible, and at a current GIC rate of 10.96% for April to June 2026, that’s genuinely one of the more expensive forms of finance you can carry.

For Australian businesses already squeezed by rising costs and softer trading conditions, this is one more reason to actually deal with tax debt instead of letting it sit there.

But here’s the thing. The businesses that engage early, work through refinancing options, apply for remissions where appropriate, and build forward-looking cash flow plans can manage this properly. The ones that drift and hope? They cop the full hit and then some.

Don’t be in that second group.

Book your tax debt review with Hughes O’Dea Corredig and get a proper plan in front of you. Not a panic attack waiting to happen.

Hughes O’Dea Corredig is a Melbourne accounting firm specialising in tax planning, business advisory, SMSF, financial planning, succession, and estate planning. Based in Essendon, we look after clients across greater Melbourne and nationally via secure remote service. Information in this article is general and current as of April 2026. Please get personalised advice before making any tax debt or refinancing decisions.

Our Core Services:
Wealth Management • Tax Advisory • Superannuation • SMSF Management • Business Accounting • Business Adviosry , Retirement Planning etc.

🌐 www.hoc.com.au | 📍 Level 2, 333 Keilor Road, Essendon VIC 3040 | 📧 mail@hoc.com.au

Connect with Us

Follow our latest insights and expert opinions:
🔗 LinkedIn 📘 Facebook

Categorised in: Blog