The True Cost of ATO Debt Now That It’s Not Tax-Deductible
From 1 July 2025, the rules changed — big time.
If you’re a business with an Australian Tax Office (ATO) debt, the General Interest Charge (GIC) and Shortfall Interest Charge (SIC) are no longer tax-deductible.
That means every dollar of interest you pay to the ATO now comes straight out of your pocket — no offset against your taxable income.
What Changed
Before 1 July 2025:
If your company tax rate was 25%, you could claim ATO interest as a deduction.
This meant the after-tax cost was 25% lower.
For example: $1,000 of ATO interest cost you only $750 after tax.
Now:
The same $1,000 costs you the full $1,000.
No deductions. No relief.
Example: $100,000 ATO Debt at 25% Company Tax Rate
The ATO’s GIC rate is currently around 11.17% p.a., compounding daily.
Before 1 July 2025 (deductible)
Annual interest: $11,170
After 25% tax deduction: $8,377.50
Effective after-tax rate: 8.38%
After 1 July 2025 (non-deductible)
Annual interest: $11,170
After-tax cost: $11,170
Effective after-tax rate: 11.17%
Impact: Cost jumped by $2,792.50 per year — about a 33% increase.
The Daily Compounding Sting
The ATO charges interest daily, not yearly.
When you run the numbers for 12 months of daily compounding at 11.17%, the real cost is higher:
Principal: $100,000
Rate: 11.17% p.a. (daily compounding)
Interest: $11,815.82
Effective after-tax rate: 11.82%
What About a Tax-Deductible Loan Instead?
Let’s compare that ATO debt to a business loan at 18.5% p.a. where the interest is deductible.
Loan at 18.5% (monthly compounding)
Annual interest: $20,152.12
Tax saving (25%): $5,038.03
After-tax cost: $15,114.09
Effective after-tax rate: 15.11%
Result: Even with the deduction, the 18.5% loan costs more than the 11.82% ATO debt.
The Break-Even Point
We ran the maths to find the tipping point — where a deductible loan becomes cheaper than the ATO debt.
Break-even loan rate (monthly compounding) for a business on 25% tax: ~14.71% p.a.
Below that rate, the loan is cheaper after tax.
Above it, keeping the ATO debt costs less (purely on interest).
Visual: Loan Rate vs After-Tax Cost
Red dashed line = cost of $100k ATO debt at 11.17% (daily compounding)
Blue line = after-tax cost of deductible loan at different rates
Green dashed line = break-even loan rate (~14.71%)
Key Takeaways for Business Owners
ATO debt just got a lot more expensive — the loss of deductibility increases the after-tax cost by a third.
Daily compounding matters — the real cost is higher than the headline rate.
Refinancing only makes sense if you can get a loan below ~14.7% p.a. (for a business on 25% tax).
Non-financial factors count too — refinancing can give predictable repayments, avoid ATO collection pressure, and improve your credit profile.
Key Takeaways for Business Owners
ATO debt just got a lot more expensive — the loss of deductibility increases the after-tax cost by a third.
Daily compounding matters — the real cost is higher than the headline rate.
Refinancing only makes sense if you can get a loan below ~14.7% p.a. (for a business on 25% tax).
Non-financial factors count too — refinancing can give predictable repayments, avoid ATO collection pressure, and improve your credit profile.
Struggling with Cash Flow or ATO Debt?
ATO debt doesn’t just cost you in interest — it eats into your cash flow, limits your ability to invest in growth, and can put you on the back foot with the tax office.
If you’re feeling the pressure, the worst thing you can do is ignore it. There are always options — from restructuring repayments to refinancing into smarter, more tax-effective funding — but the sooner you act, the more control you keep.
I work directly with business owners to create practical, numbers-driven strategies that reduce interest, improve cash flow, and take the stress out of dealing with the ATO. If you want to get ahead of the problem instead of chasing it, reach out today — and let’s get you back in control of your business finances.