General interest charge and shortfall interest charge incurred on or after 1 July 2025 are no longer deductible. That makes the after-tax cost of carrying an ATO debt higher than it was previously.
What the change covers
General interest charge may apply when a tax or other liability remains unpaid after its due date. Shortfall interest charge may apply when an assessment is amended and the tax position increases. The deduction change applies to interest incurred from 1 July 2025, even where the underlying liability relates to an earlier period.
Interest incurred before the change
Eligible ATO interest incurred before 1 July 2025 can still be deductible under the former rules. The timing of when the interest was incurred therefore matters.
Practical steps
- Review the ATO account and identify overdue amounts.
- Pay what you can as early as practical to reduce further interest.
- If full payment is not possible, consider whether an appropriate payment plan is available.
- Keep current lodgements up to date so the position does not become harder to manage.
- Seek advice early if the debt is disputed or affected by exceptional circumstances.
Interest can continue to accrue during a payment plan. The shortest sustainable arrangement will generally cost less than a longer one.