ATO's big change hits wallets as new tax rules roll out
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A major shake-up is coming to the way the Australian Taxation Office (ATO) handles tax debts—and it could mean more money out of your pocket if you’re not prepared.
With the new financial year just around the corner, it’s time to get across the details of this change, mainly if you’ve ever found yourself paying interest on a late or underpaid tax bill.
From 1 July 2024, you’ll no longer be able to claim a tax deduction for interest charged by the ATO on late or underpaid taxes.
Up until now, if you were hit with the General Interest Charge (GIC) or Shortfall Interest Charge (SIC), you could at least soften the blow by claiming those interest payments as a deduction on your tax return.
But thanks to the Treasury Laws Amendment (Tax Incentives and Integrity) Act 2025, that little perk is about to disappear.
ATO Assistant Commissioner Anita Challen put it bluntly: ‘These changes will mean it will cost more to carry a tax debt and, while taxpayers won’t feel this change until next tax time, it’s so important to get on top of your tax obligations.’
Here’s the simple version: the ATO charges a General Interest Charge (GIC) of 11.17 per cent per annum (compounding daily) if you don’t pay your tax debt on time or lodge your return late, causing your debt to grow the longer it’s unpaid.
If you underpay your tax due to a self-assessment error, you’ll face the Shortfall Interest Charge (SIC), which is slightly lower at 7.17 per cent per annum but also compounds daily.
Both charges were previously tax-deductible, but from 1 July, that’s no longer the case.
The government says the change is about fairness. The ATO argues that taxpayers who pay on time shouldn’t be disadvantaged compared to those who delay and then get a tax break on the interest.
There’s also a practical side: the ATO is sitting on a whopping $50 billion in collectable tax debt, and this move is expected to boost revenue by $500 million over the next two years.
If you’ve been putting off paying a tax debt, now’s the time to act. Any interest charged by the ATO before 1 July 2024 can still be claimed as a deduction on your 2023–24 tax return (and it should be pre-filled if you lodge online using myTax).
But any interest charged after that date is no longer deductible.
Challen’s advice is clear: ‘If you have a tax debt you’ve been putting off paying – now is the time to pay.’
To stay on top of these changes, set aside funds for GST, PAYG withholding, and superannuation in a separate account to ensure you’re ready when payments are due.
If paying your tax bill in full isn’t possible, contact the ATO to arrange a payment plan, which can help you avoid harsher recovery actions. However, interest will still apply (but is no longer deductible).
Also, before considering loans or third-party finance to cover tax debts, speak with your accountant or financial adviser, as personal loans or credit cards may offer lower interest rates than the ATO’s charges, but it’s important to understand any tax consequences.
For many over-60s, managing cash flow and staying on top of tax obligations is already a juggling act.
This change means it’s more important than ever to avoid letting tax debts linger.
If you’re on a fixed income, the last thing you want is to be hit with non-deductible, compounding interest charges from the ATO.
Have you ever been stung by ATO interest charges? Will this change affect you or your family? Do you have any tips for staying on top of tax time? Share your experiences and advice in the comments below.
Read more: Ignore this phone call warning, and you could face massive $1,650 fine!
With the new financial year just around the corner, it’s time to get across the details of this change, mainly if you’ve ever found yourself paying interest on a late or underpaid tax bill.
From 1 July 2024, you’ll no longer be able to claim a tax deduction for interest charged by the ATO on late or underpaid taxes.
Up until now, if you were hit with the General Interest Charge (GIC) or Shortfall Interest Charge (SIC), you could at least soften the blow by claiming those interest payments as a deduction on your tax return.
But thanks to the Treasury Laws Amendment (Tax Incentives and Integrity) Act 2025, that little perk is about to disappear.
From 1 July, tax deductions on ATO interest for late or underpaid taxes will be removed under new legislation. Credit: Jirapon Manustrong / iStock
ATO Assistant Commissioner Anita Challen put it bluntly: ‘These changes will mean it will cost more to carry a tax debt and, while taxpayers won’t feel this change until next tax time, it’s so important to get on top of your tax obligations.’
Here’s the simple version: the ATO charges a General Interest Charge (GIC) of 11.17 per cent per annum (compounding daily) if you don’t pay your tax debt on time or lodge your return late, causing your debt to grow the longer it’s unpaid.
If you underpay your tax due to a self-assessment error, you’ll face the Shortfall Interest Charge (SIC), which is slightly lower at 7.17 per cent per annum but also compounds daily.
Both charges were previously tax-deductible, but from 1 July, that’s no longer the case.
The government says the change is about fairness. The ATO argues that taxpayers who pay on time shouldn’t be disadvantaged compared to those who delay and then get a tax break on the interest.
There’s also a practical side: the ATO is sitting on a whopping $50 billion in collectable tax debt, and this move is expected to boost revenue by $500 million over the next two years.
If you’ve been putting off paying a tax debt, now’s the time to act. Any interest charged by the ATO before 1 July 2024 can still be claimed as a deduction on your 2023–24 tax return (and it should be pre-filled if you lodge online using myTax).
But any interest charged after that date is no longer deductible.
Challen’s advice is clear: ‘If you have a tax debt you’ve been putting off paying – now is the time to pay.’
To stay on top of these changes, set aside funds for GST, PAYG withholding, and superannuation in a separate account to ensure you’re ready when payments are due.
If paying your tax bill in full isn’t possible, contact the ATO to arrange a payment plan, which can help you avoid harsher recovery actions. However, interest will still apply (but is no longer deductible).
Also, before considering loans or third-party finance to cover tax debts, speak with your accountant or financial adviser, as personal loans or credit cards may offer lower interest rates than the ATO’s charges, but it’s important to understand any tax consequences.
For many over-60s, managing cash flow and staying on top of tax obligations is already a juggling act.
This change means it’s more important than ever to avoid letting tax debts linger.
If you’re on a fixed income, the last thing you want is to be hit with non-deductible, compounding interest charges from the ATO.
Read more: Ignore this phone call warning, and you could face massive $1,650 fine!
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