Is ATO GIC Tax Deductible in 2026? What Changed From 1 July 2025

For Australian businesses carrying tax debt, the tax treatment of the interest cost changed materially on 1 July 2025.

General interest charge (GIC) and shortfall interest charge (SIC) incurred on or after 1 July 2025 are not deductible. The ATO confirms that the change applies even where the underlying tax debt relates to an earlier income year.

That makes the cost of carrying ATO debt easier to misunderstand. A quoted GIC rate and a quoted business-loan rate are not automatically comparable on an after-tax basis.

The rule from 1 July 2025

Before 1 July 2025, taxpayers could generally claim deductions for GIC and SIC in circumstances allowed by the tax law. The law changed from 1 July 2025.

For GIC or SIC incurred on or after 1 July 2025, the ATO says no income-tax deduction is available. The date the original tax debt arose does not change that outcome.

For the July to September 2026 quarter, the ATO's published GIC annual rate is 11.43%, with a daily rate of 0.03131507%. GIC rates change quarterly and the charge is worked out daily on the outstanding amount.

If you want to model the current cost against a commercial facility, use the ATO payment plan vs business loan calculator.

Does that make business-loan interest deductible?

Not automatically.

Interest on separate borrowings can have a different tax treatment from ATO GIC. The ATO's ruling IT 2582 deals with interest on money borrowed to pay income tax. Whether interest is deductible depends on the borrower, the nature of the tax liability, how the borrowed funds are used and the connection with the income-producing business.

That distinction matters. A company borrowing to pay a company tax liability is not the same fact pattern as an individual borrowing to pay a private tax liability. Mixed-purpose borrowings can create further complexity.

The practical rule is simple: ask the accountant or tax adviser to confirm deductibility before using an after-tax loan cost in the comparison.

Why the change matters when comparing an ATO plan with refinancing

Suppose a business has a $100,000 ATO balance and is deciding between keeping the debt on a payment plan or refinancing it.

The comparison should include:

• the current ATO GIC rate and likely repayment period
• the lender interest rate
• establishment and ongoing fees
• the loan term
• the monthly repayment under each structure
• any security or guarantee conditions
• the confirmed tax treatment of lender interest
• whether carrying the ATO debt may complicate future borrowing

A lower monthly repayment can simply mean the lender is spreading the debt over a longer term. A lower headline rate can also be offset by establishment fees or monthly facility fees.

The calculator is built around those trade-offs rather than rate alone.

What if some GIC was incurred before 1 July 2025?

The ATO distinguishes between charges incurred before and after the change date. GIC or SIC incurred before 1 July 2025 remains subject to the previous deductibility rules. Charges incurred from 1 July 2025 are denied a deduction.

If the account spans both periods, do not assume the whole balance has one tax treatment. Your accountant can use the ATO account and transaction dates to determine the amount relevant to each period.

Should a business refinance solely because GIC is no longer deductible?

No.

Refinancing replaces one liability with another. It only improves the position if the new structure is suitable for the business.

A payment plan may still be sensible where the debt can be cleared quickly, repayments are affordable and new tax obligations are being paid on time. Commercial finance may deserve closer review where the ATO plan is long, monthly payment pressure is too high, or the business expects to need further bank or commercial finance before the tax balance is cleared.

For the lender-assessment side of that question, see Can an ATO payment plan affect a business loan application?.

If you are considering finance specifically to clear tax arrears, the business loan with ATO debt guide explains the documents and lender questions that commonly arise.

Frequently Asked Questions

Is ATO GIC tax deductible in 2026?

No. GIC incurred on or after 1 July 2025 is not deductible. GIC incurred before that date may be treated under the previous rules.

What about ATO shortfall interest charge?

SIC incurred on or after 1 July 2025 is also not deductible.

Is interest on a business loan used to pay tax deductible?

It may be, depending on who borrows, the tax liability being paid and the connection between the borrowing and the business. A registered tax adviser should confirm the treatment before you rely on a deduction.

Does the tax treatment mean refinancing ATO debt is always better?

No. Tax treatment is only one part of the comparison. Rate, fees, loan term, repayment pressure, security and lender conditions also matter.

Official sources

• ATO: Denying deductions for ATO interest charges
• ATO: General interest charge rates
• ATO Taxation Ruling IT 2582: deductibility of interest on money borrowed to pay income tax

Further Reading

• ATO GIC vs Business Loan Interest: What Should You Compare?
• Can You Refinance ATO Debt With a Business Loan?
• ATO Payment Plan vs Business Loan Calculator

GPS Finance Group (CRN 000575797) is an Authorised Credit Representative of AFAS Group Pty Ltd (ACL 414426). AFCA Member ID 119860. General advice only. Consider whether this information is appropriate for your circumstances. Tax and legal questions should be discussed with a registered tax adviser or lawyer.