Key points
- GIC and SIC incurred from 1 July 2025 are no longer deductible.
- GIC sits at around 11% a year and compounds daily.
- Interest on a business loan used to pay a business tax debt is generally still deductible.
For years, businesses carrying a tax debt could at least claim the ATO's interest charges as a deduction. That changed on 1 July 2025. The general interest charge (GIC) and the shortfall interest charge (SIC) incurred on or after that date are no longer deductible, which raises the real cost of leaving a debt with the ATO.
What changed
Legislation passed in 2025 removed the deduction for GIC and SIC incurred in income years starting on or after 1 July 2025. Interest charges incurred before that date are treated under the old rules. The ATO's own guidance urges businesses to deal with their debts sooner because of the change.
How GIC is calculated
GIC is the 90-day bank accepted bill yield plus 7 percentage points. The ATO updates the rate each quarter, and it compounds daily on the unpaid balance. It has been running at around 11% a year. Daily compounding means the effective annual cost is a little higher than the headline rate: about 11.6% for a full year at 11%.
What it costs now
Take a company with a $100,000 tax debt carried for a year at a GIC rate of about 11%.
| Feature | GIC on ATO debt | Business loan at 14% |
|---|---|---|
| Interest over 12 months | About $11,600 | $14,000 |
| Tax deductible? | No (from 1 July 2025) | Generally yes, for a business purpose |
| Tax saved at the 25% company rate | $0 | $3,500 |
| After-tax cost | About $11,600 | About $10,500 |
Illustration only. Excludes loan fees, which add to the loan's cost. Assumes the company pays tax at 25% and the loan interest is deductible.
On these numbers, a loan at a higher headline rate can still cost less after tax. The break-even point is roughly where the loan's after-tax rate matches GIC: for a company at 25%, a loan rate of about 15.5% before fees. Fees, the loan term and your actual tax position move that line, so treat it as a starting point for a conversation with your broker and accountant.
It isn't only about the rate
- Escalation. A plan that slips can lead to garnishee notices and director penalty notices. Paying the ATO in full removes that risk.
- Certainty. A loan has a fixed schedule. GIC compounds daily on whatever is left.
- Credit standing. Large overdue tax debts can be reported to credit bureaus in some circumstances, which affects future borrowing.
Finance isn't automatically the answer. If the business can comfortably clear a small debt within a few months, a payment plan may be the cheaper path even without the deduction.
What to do next
- Get your current ATO balance and the interest accruing on it.
- Ask your accountant how much tax a deductible loan would save you.
- Ask a broker for the total cost, including fees, of the realistic loan options.
- Compare the after-tax cost of each over the time you'd actually need.
Our ATO debt funding page explains how lenders look at tax debts, with and without property.
Sources
General information only. It doesn't take your circumstances into account and isn't tax, legal or financial advice. Speak to your accountant or a lawyer about your situation.