The ATO reminds taxpayers that from 1 July 2025, interest on late payments and underpayments will no longer be tax deductible.

The Australian Taxation Office (ATO) announced on 10 June 202, reminding taxpayers that from 1 July 2025, interest charged by the ATO for late payments or underpayments will no longer be tax deductible.

For taxpayers with a non-standard income year (i.e., not ending on 30 June), the changes will take effect from the beginning of their next income year starting after 1 July 2025.

The Treasury Laws Amendment (Tax Incentives and Integrity) Act 2025 is now law. This means any general interest charge (GIC) incurred on and after 1 July 2025, regardless of whether the debt relates to an earlier income year, will no longer be tax deductible.

Like any other commercial loan, interest is applied if an amount of tax or other liability remains unpaid after its due date, or if there is a shortfall of payment due to an amendment or correction. This is designed to encourage timely payment of tax and compensate the community for the cost of late payments.

The change is designed to ensure that taxpayers who do the right thing and pay their tax in full and on time are not disadvantaged relative to those who do delay payment.

ATO Assistant Commissioner Anita Challen reminded taxpayers to pay in full and on time to avoid the general interest charge accruing on overdue debts.

The ATO website has a range of helpful tools and free resources to help taxpayers and business owners to plan ahead and manage their cash flow to prevent a tax debt.

Interest charged by the ATO that was incurred before 1 July 2025 can still be claimed as a deduction this tax time. The interest that can be deducted is pre-filled in tax returns if taxpayers lodge online using myTax. Taxpayers can also verify the accuracy of the pre-filled data by checking it against their account in ATO online services before lodging.

There has been no change to the laws about remission of GIC, and taxpayers will still be able to request the ATO to remit interest charges. Taxpayers should be aware that remission requests are carefully assessed to ensure a level playing field for those taxpayers who pay on time.

Taxpayers who need support or are experiencing serious financial hardship should reach out early to their registered tax professional or visit the ATO website to see what support options are available.