ATO interest is no longer tax deductible: what the GIC change really costs your business

The ATO general interest charge stopped being tax deductible for income years starting on or after 1 July 2025. Because you now pay it with after-tax dollars, a GIC of 11.43 per cent costs a base rate entity the same as a deductible facility priced at 15.24 per cent. For a company on 30 per cent, the equivalent is 16.33 per cent.

What is the ATO general interest charge and how is it calculated?

The general interest charge is what the Australian Taxation Office charges on an unpaid tax debt. It compounds daily on the amount overdue, and the rate is set each quarter at the 90 day bank accepted bill rate plus seven percentage points, divided by the days in the year.

The formula sits in section 8AAD of the Taxation Administration Act 1953. The base is the Reserve Bank of Australia 90 day bank accepted bill rate, the uplift is seven percentage points, and the result is divided across the days in the year to give a daily rate.

For the July to September 2026 quarter the annual rate is 11.43 per cent and the daily rate is 0.03131507 per cent. The ATO's own description of how it applies is that GIC "is calculated on a daily compounding basis on the amount overdue". The ATO does not publish an algebraic compounding formula, so treat that sentence as the rule rather than reconstructing one.

The shortfall interest charge is the quieter relative. It uses the same base rate with a three point uplift instead of seven, which put it at 7.43 per cent for the same quarter, exactly four points below the general interest charge.

The direction of travel matters as much as the number. Across five quarters the charge has moved from 10.78 per cent to 11.43 per cent.

The after-tax columns are calculated, not published. They show what a deductible facility would have to be priced under to leave you better off, which is the comparison the next three sections work through.

What changed on 1 July 2025?

Schedule 2 of the Treasury Laws Amendment (Tax Incentives and Integrity) Act 2025 inserted subsection 26-5(1A) of the Income Tax Assessment Act 1997, which denies a deduction for both the general interest charge and the shortfall interest charge.

The Act is No. 29 of 2025 and it received Royal Assent on 27 March 2025. Subsection 26-5(1A) reads: "Without limiting paragraph (1)(a), you cannot deduct under this Act the general interest charge or the shortfall interest charge."

The application rule is worth reading slowly, because the plain English version and the legislation are not phrased the same way. The Act says the amendments "apply in relation to assessments for income years starting on or after 1 July 2025". The ATO's plain English page describes the charges as incurred on or after 1 July 2025. For a standard 30 June balancer those two readings coincide. For an entity with a substituted accounting period they do not, and the statutory wording governs.

Charges incurred before that line stay deductible in the years they belong to. A general interest charge that accrued in the 2024-25 income year is still deductible in the 2024-25 return. Nothing was clawed back. What changed is that every dollar of interest the ATO charges you from your 2025-26 income year onwards is paid out of profit that has already been taxed. That is why the arithmetic in the next section moved so far.

How do you work out the real after-tax cost of an ATO debt?

Divide the GIC rate by one minus your company tax rate. At 11.43 per cent GIC, a base rate entity on 25 per cent is carrying the equivalent of a 15.24 per cent deductible facility, and a company on 30 per cent is carrying 16.33 per cent.

The formula is: after-tax equivalent = GIC rate divided by (1 minus company tax rate).

At 25 per cent: 11.43 divided by 0.75 equals 15.24 per cent.

At 30 per cent: 11.43 divided by 0.70 equals 16.33 per cent.

Which rate applies to you turns on the base rate entity test. A company is a base rate entity, and taxed at 25 per cent, where its aggregated turnover is under $50 million and no more than 80 per cent of its assessable income is base rate entity passive income. Every other company is taxed at 30 per cent. Both rates have been unchanged since 2021-22.

Then there is the compounding. Take $100,000 left overdue for a full year at the current daily rate of 0.03131507 per cent. Daily compounding produces $12,106.83 of interest. Simple interest at 11.43 per cent would have produced $11,430. The compounding adds $676.83 on its own, before the deductibility question is considered at all.

Put those two effects together and a $100,000 balance carried for a year costs a base rate entity roughly what a deductible facility at 15.24 per cent would cost, with the compounding on top. That is the number to compare against, and you can check it yourself against the ATO's published daily rate.

Is it cheaper to borrow and pay the ATO out?

Only if the all-in cost of the loan, including fees and any early payout charge, sits below the after-tax equivalent of the general interest charge. Compare like for like, and remember that loan interest is generally deductible where the borrowing is for business purposes, while the general interest charge no longer is.

This is a comparison you perform, not a recommendation anyone can make for you. The honest version of it has three parts.

First, the true cost of the facility, not the headline rate. Establishment fees, ongoing fees and any early payout cost all belong in the number. A rate quoted without them is not the cost of the loan. The effective annual rate calculator is the way to put both sides on the same basis.

Second, the deductibility asymmetry. Interest on borrowing for business purposes is generally deductible. The general interest charge is not. That gap is the entire reason the comparison changed on 1 July 2025. Using working capital finance against an ATO debt works through what that looks like in practice, and a business term loan is the structure most often compared against a plan.

Third, the parts that are not about price. An application takes time, it produces a credit enquiry, and the outcome is not guaranteed. A payment plan with the ATO has none of those frictions, and for many businesses it remains the right answer. What actually happens when you ask the ATO for a payment plan covers that path, and the ATO payment plan versus a business loan sets the two side by side.

Borrowing is not always the answer. Sometimes the answer is lodging on time, paying what you can, and asking for a plan.

Does the ATO ever remit the general interest charge?

Yes. Section 8AAG of the Taxation Administration Act 1953 gives the Commissioner four grounds to remit the general interest charge, and the ATO's approach is set out in practice statement PS LA 2011/12. The remission law was not changed by the deductibility amendment.

The four grounds run broadly as follows. The first two deal with circumstances that contributed to the delay and were not caused by the taxpayer, or were caused by the taxpayer but where reasonable action was taken to mitigate them. The third covers a delay not caused by the taxpayer where it would be fair and reasonable to remit. The fourth, in subsection 8AAG(5), is a residual discretion for special circumstances.

PS LA 2011/12, last updated 25 June 2026, is where the ATO explains how it exercises those grounds. It is worth reading before you write to the ATO, because it tells you what the decision maker is looking for.

Two practical points. The subsection 8AAG(5) residual discretion is restricted to senior tax officers, so a front line request will not reach it. And the tax treatment of a remission now flips depending on when the charge arose: a remitted charge that was deductible when incurred is generally assessable on remission, while a charge that was never deductible does not produce that outcome. Raise that with your registered tax agent rather than assuming.

What should you do before your next BAS is due?

Work out the after-tax cost of any balance you are carrying, decide whether to clear it, negotiate it or refinance it, and set the money aside before the lodgement rather than after it.

Three things are worth separating.

Lodging and paying are different obligations with different consequences. Lodging your business activity statement on time keeps you out of the failure to lodge penalty even in a quarter where you cannot pay in full. Do not skip the lodgement because the payment is short.

The general interest charge runs from the due date, not from the day you notice, and the cost is now paid with after-tax dollars.

The comparison is worth doing before the debt exists. Run the after-tax equivalent on the balance you expect to carry, put it next to the all-in cost of a facility you could actually obtain, and make the call with both numbers in front of you.

The single next step: take your current overdue balance, divide the current GIC rate by one minus your company tax rate, and write the resulting number down. That is what the debt is really costing you.

This is general information, not tax advice. Rates and ATO practice change, and the general interest charge is reset every quarter. Speak to a registered tax agent about your own circumstances, and confirm the current rate on the ATO's general interest charge rates page before you rely on any figure here.

Sources: Australian Taxation Office, General interest charge rates and Shortfall interest charge rates; ATO, Deny deductions for ATO interest charges; ATO, PS LA 2011/12; ATO, Company tax rate changes; Federal Register of Legislation, Treasury Laws Amendment (Tax Incentives and Integrity) Act 2025 (No. 29, 2025). Figures checked 26 August 2026.

Last reviewed: August 2026.

General information only - it doesn't take your situation into account. Consider whether a product suits your business before acting, and get independent advice where you need it. No credit check to see your options. A credit check only happens if you choose to formally proceed with a lender.