The Australian General Interest Charge is no longer tax deductible if it was incurred on or after 1 July 2025. GIC that accrued on your ATO account before that date can still be claimed as a cost of managing your tax affairs on the relevant year’s return. The cutoff turns on when the ATO applied the charge to your account, not when the underlying tax debt arose.
What the 1 July 2025 Change Did
The Treasury Laws Amendment (Tax Incentives and Integrity) Act 2025 removed the deduction for GIC and Shortfall Interest Charge (SIC). Before the change, section 25-5 of the Income Tax Assessment Act 1997 treated both as deductible expenses at question D10 on the individual return.1Australian Taxation Office. Denying Deductions for ATO Interest Charges
The new rule catches every charge posted from 1 July 2025 onward, regardless of the age of the debt. If you owe income tax from 2022-23 and GIC is still accruing on that debt, the portion applied to your account from 1 July 2025 is not deductible; the portion applied before that date still is.1Australian Taxation Office. Denying Deductions for ATO Interest Charges
There is one side effect that works in your favour. Because GIC incurred from 1 July 2025 is not deductible, any GIC the ATO later remits does not have to be included as assessable income. The recoupment rule only bites where the GIC was actually deducted on a prior return.2Australian Taxation Office. General Interest Charge
Claiming GIC That Accrued Before 1 July 2025
GIC that hit your account before 1 July 2025 remains deductible for the 2024-25 and earlier income years. You claim it in the year the ATO applied the charge, not the year you paid it. For most individuals, that means totalling the GIC posted between 1 July 2024 and 30 June 2025.3Australian Taxation Office. Interest Charged by the ATO
Report GIC and SIC at question D10 (Cost of managing tax affairs) under label N. Pull your statement of account through myGov or ask your registered tax agent for it, and keep a digital copy in case the ATO reviews the deduction. Your records should clearly separate the principal tax debt from the interest applied during the year.4Australian Taxation Office. D10 Cost of Managing Tax Affairs 2025
If the ATO later remits GIC you already deducted, include the remitted amount as assessable income in the year the remission occurs. That recoupment rule prevents a double benefit for a cost you did not ultimately bear.1Australian Taxation Office. Denying Deductions for ATO Interest Charges
Shortfall Interest Charge Follows the Same Rule
SIC applies when the ATO amends an assessment upward and identifies a shortfall. It is charged at a lower rate than GIC. SIC incurred from 1 July 2025 onward is not deductible, and SIC incurred before that date is claimed the same way as GIC, at D10 label N.5Australian Taxation Office. Shortfall Interest Charge
Reducing GIC Now That the Deduction Is Gone
With the deduction removed, remission is the main way to take the edge off. The ATO has discretion to reduce or waive GIC and looks at what caused the late payment, whether it was within your control, what you did to fix it, and your recent compliance history.6Australian Taxation Office. Remission of Interest Charges
A clean track record helps. Where the GIC amount is $2,500 or less, a positive compliance history strongly influences the outcome. For larger amounts, you need to document the specific event that prevented timely payment: illness, a natural disaster, or a business disruption outside your control.6Australian Taxation Office. Remission of Interest Charges
If you cannot pay in full, a payment plan through myGov or the ATO phone line spreads payments over time. GIC keeps accruing and compounding daily during the plan, and the rate is not reduced because you are on one, so shorter plans cost less.7Australian Taxation Office. Payment Plans
Penalties Are a Separate Category
Penalties have never been deductible. Section 26-5 of the ITAA 1997 blocks deductions for penalties imposed under any Australian law, and the 1 July 2025 change did not touch that rule. Failure-to-lodge penalties and false-or-misleading-statement penalties both sit outside D10. If the ATO charges you both a penalty and interest on the same debt, only the interest portion was ever potentially deductible, and even that is gone for charges incurred from 1 July 2025.8Australian Taxation Office. Failure to Lodge on Time Penalty
If You Are Asking About IRS Interest Instead
Interest paid on IRS underpayments is not deductible for individuals. Section 163(h) of the Internal Revenue Code treats it as “personal interest,” which does not fit any of the exceptions for mortgage, investment, student loan, estate tax deferral, or business interest.9Office of the Law Revision Counsel. 26 USC 163 – Interest
Businesses are treated differently. Interest on tax underpayments properly allocable to a trade or business can be deducted as a business expense, because the personal interest disallowance applies only to taxpayers other than a corporation. Federal tax penalties are not deductible for any taxpayer.