What That Means and What You Should Do

From 1 July 2025, one of the quieter but significantly impactful tax-changes landed: interest charges imposed by the ATO, specifically the General Interest Charge (GIC) and the Shortfall Interest Charge (SIC) will no longer be tax deductible.

What Has Changed

• Previously, if a business or individual had an overdue tax liability, the interest imposed by the ATO (GIC) or the interest on a tax-shortfall (SIC) could be claimed as a deduction, reducing taxable income.

• Under the new rules, any GIC or SIC incurred on or after 1 July 2025 will not be deductible, regardless of when the underlying tax debt arose.

• Interest charges incurred before 1 July 2025 remain deductible for the 2024-25 and earlier income years.

• The practical effect: the cost of carrying an ATO tax debt becomes significantly higher because you’ll pay interest out of after-tax dollars.

Why It Matters Especially for NDIS Providers and Growth-Focused Businesses

For businesses scaling (for example moving from 50 participants to 150 in the NDIS space) or individuals building generational wealth, cash flow and profitability are critical. With this change:

• The drag of a tax-debt interest cost becomes heavier and eats into margin, cash available for investment, staffing, technology and growth.

• Timely tax compliance and proactive management become more than a compliance matter, they’re strategic.

• For firms acting as strategic CFO advisors (like yours), this change offers a talking point: help clients not just with tax returns, but with operational health and cash flow resilience.

What Businesses and Individuals Should Do

Here’s a strategic playbook of actions:

1. Assess your current tax-debt position

• Identify any outstanding tax liabilities owed to the ATO (income tax, PAYG withholding, GST, super guarantee shortfalls).

• Check how much GIC/SIC is accruing (remember it compounds daily) and when the interest starts.

• Understand when you’ll cross the 1 July 2025 threshold (i.e. interest incurred from that date will not be deductible).

2. Prioritise payment or restructure before 30 June 2025

• If you can pay down or fully settle the ATO debt before 1 July 2025, the interest incurred up to that date remains deductible – retaining tax benefit.

• If full payment isn’t possible, consider whether alternative financing makes sense (see next point).

3. Explore refinancing or alternative finance

• Because GIC may be ~11.17% (as at June 2025) and compounds daily.

• Borrowing at a lower interest rate might make sense: you repay the ATO debt with a business loan that still allows interest deductibility (provided the loan meets the income-producing purpose test).

• Caveat: ensure the purpose of the loan meets the deductibility criteria – for example, business-related tax debt may qualify, but personal investment-related tax debt may not.

4. Strengthen cash-flow and tax-liability planning

• Set aside funds on a regular basis for tax liabilities (PAYG, GST, super guarantee) so you’re not relying on ad-hoc payments when cash is tight.

• Incorporate the new interest non-deductibility into your 2026 cash flow projections – i.e. if you carry debt, your after-tax cost is higher, so your buffer needs to be larger.

• Review your pricing, margins and expense structure accordingly – higher cost of debt means less flexibility.

5. Engage your tax advisor/accountant early

• This change is complex and impacts not just the tax return, but the broader business model, financing, and growth strategy.

• As a strategic advisor you can help clients run “what-if” modelling: for example, alternate scenarios of paying now vs carrying debt, cost of finance, impact on profitability.

Key Takeaway

From 1 July 2025, carrying a tax debt to the ATO becomes significantly more expensive. The removal of deductibility of GIC and SIC means you lose the tax shield and absorb the full cost of interest in after-tax terms. For businesses and individuals, especially those scaling, managing cash flow, or planning for growth. This change elevates the importance of proactive tax-debt management, refinancing options, and disciplined cash flow planning.

If you or you have outstanding ATO liabilities, now is the time to act. Review your position, consult your accountant, explore alternatives, and update your 2026 strategy accordingly.

t: +61 7 3177 4120
e: advisors@hksrussell.com

Posted on November 24, 2025 by Charisse Russell - Articles