This is the single most expensive change most small business owners have not adjusted to.
The Treasury Laws Amendment (Tax Incentives and Integrity) Act 2025 removed the deduction for the general interest charge and the shortfall interest charge. Any GIC or SIC incurred on or after 1 July 2025 is not deductible, regardless of which income year the underlying debt relates to.
Charges incurred before 1 July 2025 remain deductible in the year they were incurred, so the change is not retrospective. But it is the date the charge is incurred that matters, not the date you pay it.
Why the real cost is higher than the rate
The general interest charge for the quarter beginning 1 July 2026 is 11.43 per cent per annum, and it compounds daily.
That is the headline. The real cost is worse, because you now have to pay it from after tax dollars. To cover $10,000 of non-deductible interest, a business owner on a 47 per cent marginal rate has to earn roughly $18,900 and pay tax on it first.
Run that against a $50,000 ATO debt carried for a year and the effective cost is materially higher than the rate suggests. For a taxpayer on a high marginal rate, an 11.43 per cent non-deductible charge behaves more like a rate in the high teens or low twenties in pre-tax terms.
The payment plan misunderstanding
A common belief is that entering a payment plan with the ATO stops or reduces the interest. It does not. The general interest charge continues to accrue on the outstanding balance for the life of the plan.
That has always been true. What has changed is that you no longer get a deduction for it, which makes a long slow payment plan considerably more expensive than it used to be.
The refinancing question
If you can borrow commercially at a lower rate and use the proceeds to pay out the ATO debt, the interest on that borrowing will generally still be deductible where it is connected to your business activities. That can produce a genuine saving on two fronts, the rate and the deductibility.
Two cautions. Whether the interest is deductible depends on the purpose and the circumstances of the borrowing, so it needs to be structured properly rather than assumed. And swapping an ATO debt for a commercial debt changes your position with a lender who has different remedies and different expectations. It is not a free move.
Where this goes if it is not dealt with
The ATO has been explicit about a firmer approach to debt collection. Director penalty notices, garnishee notices, disclosure of business tax debts to credit reporting bureaus where they exceed $100,000 and are not disputed, and in serious cases statutory demands, wind up applications and departure prohibition orders.
Disclosure to credit bureaus is the one that catches people by surprise, because it affects your ability to get finance from anyone, including the lender you were going to use to refinance the debt out.
The practical position
Lodgement and payment are separate things, and the first is always worth doing even when the second is not possible. Outstanding returns have to be lodged before the ATO will consider most arrangements, and lodging on time preserves options under the director penalty regime that are lost when returns are late.
If you are carrying an ATO debt, the cost of carrying it went up materially on 1 July 2025 and it is compounding daily while you decide what to do.