Tax Update: ATO Ends Interest Deductibility
Homeowners Benefit from Rate Cuts & Refinancing Strategies
As of 1 July 2025, important tax and finance shifts are reshaping homeowners’ strategies.
- ATO Interest No Longer Tax-Deductible from 1 July 2025
Starting 1 July 2025, General Interest Charges (GIC) and Shortfall Interest Charges (SIC) applied by the ATO for late or underpaid taxes will no longer be tax-deductible—regardless of when the underlying tax debt originated.
Interest incurred before 1 July 2025 remains deductible in your 2024–25 return. So, now is the final opportunity to claim those deductions.
For context, the GIC currently stands at around 10.78%, compounding daily.
What this means:
- Carrying ATO debt after 1 July becomes an entirely non-deductible expense, making it significantly more costly to delay tax.
Actionable steps:
- Pay off ATO debt.
- If unable to pay outright, consider refinancing through a commercial or home loan—interest on such loans remains tax-deductible for business-related debt in certain situations, provided it is properly structured.
- Explore options for remission, though recent trends suggest the ATO is being stricter, so success isn’t guaranteed. In requesting a remission, the ATO will assess whether the delay in payment was outside of your control and if you have taken reasonable steps to rectify the issues.
- Home Loan Interest Rate Cuts & Refinancing Trends
Australia is seeing a wave of interest rate relief that homeowners can leverage.
- On 13 August 2025, the RBA cut the cash rate by 25 basis points to 3.60%—the third reduction of the year (RBA).
- Major banks (CBA, NAB, ANZ, Westpac) promptly passed on these cuts to their variable-rate home loan customers, with effective dates ranging from 22 to 26 August (ABC News).
Strategic refinancing opportunities:
- Refinancing can provide several potential benefits such as reduced interest rates, lower repayments, access to equity, debt consolidation, debt recycling & extended repayment terms and improved cash flow.
The ATO is Escalating Enforcement
The Australian Taxation Office (ATO) has significantly shifted its approach in recent months, becoming far more stringent in its dealings with taxpayers. Where once the ATO was relatively flexible and accommodating, it is now taking a harder stance.
Requests for remission are being declined with increasing frequency (despite the requests meeting Tax Administration Act criteria for remission). Applications for payment arrangements are being subjected to stricter scrutiny, with many being refused outright or only granted after detailed financial information has been provided to justify capacity to pay. Audit activity is also expected to increase, placing further pressure on businesses already carrying tax debt.
The message from the ATO is clear: outstanding debts must either be paid in full or placed under an approved arrangement that is strictly adhered to. Failure to do so will quickly trigger escalated recovery action.
Bottom Line & Essential Reader Takeaways
- Act now: Consider your options for reducing your ATO debt.
- Watch the mortgage market: With rate cuts rolling out, homeowners should evaluate whether refinancing or switching lenders can deliver savings or better loan terms.
- Talk to Zweck Consulting: About how to structure refinancing – especially mixing personal vs. business uses – this can have major implications for deductibility and long-term costs. We work with trusted brokers and advisers to help you find the best approach.
