ATO Removes Tax Deduction for Interest from 1st July, 2025

Legislation has been passed to the effect that interest imposed by the ATO for late payment (or short payment) of tax liabilities, will no longer be deductible from 1^st July, 2025.

This includes interest on outstanding debt under “payment arrangements” with the ATO.

Whilst this will put further pressure on businesses struggling to pay their tax arrangements under the current economic environment, it is clear that the ATO no longer wishes to “play banker” to Australian taxpayers.

It is still open for taxpayers to apply for a remission of interest, however given our experience over the past 6 months, this is unlikely to be granted.

Given the above, we strongly recommend clients consider other finance arrangements, if possible, to cover occasional shortfall of tax liabilities.