If you’re a tradie or small business owner carrying a debt with the ATO, the maths quietly changed on you. Since 1 July 2025, the interest the ATO charges on tax debts is no longer tax deductible — which makes letting that debt sit there more expensive than it used to be. This is general information, not tax advice, so check the note at the end and talk to your accountant. But here’s what changed, why it matters, and how tax debt loans can help you deal with an ATO debt on better terms.
What changed on 1 July 2025?
The General Interest Charge (GIC) and Shortfall Interest Charge (SIC) the ATO applies to unpaid tax used to be tax deductible. From 1 July 2025, that interest is no longer deductible — and it applies to interest incurred on or after that date regardless of which income year the debt relates to. So even if your tax debt is from an earlier year, any interest building up now can’t be claimed.
And the interest isn’t small. The GIC rate is set by the ATO and resets every quarter — it’s been sitting around 11% a year (10.96% for the April–June 2026 quarter). Check ato.gov.au for the current figure, but the point stands: a tax debt left with the ATO is now one of the more expensive debts you can carry, with no deduction to soften it.
Why this matters for your business
Put simply: an ATO debt that lingers now costs you more, and you no longer get a tax deduction for the interest. For a lot of tradies that flips the decision. Where it once made sense to pay the ATO down slowly, it can now be worth comparing the cost of leaving the debt with the ATO against the cost of clearing it another way.
What is a tax debt loan?
A tax debt loan — also searched as a business loan to pay tax debt — is exactly what it sounds like: you use business finance to pay out the ATO, then repay the loan on agreed terms instead. The appeal is twofold:
- Predictable repayments in place of an open-ended ATO debt and quarterly-changing interest.
- Potentially deductible interest. Interest on borrowing used for business purposes may be deductible depending on your circumstances — whereas the ATO’s interest no longer is.
That word “may” matters. Whether the interest on a replacement loan is deductible depends on how the borrowing is structured and used, and on your specific situation. Confirm it with a registered tax agent before you rely on it — don’t assume it from a blog.
What to weigh up before you refinance an ATO debt
- The all-in cost of the loan versus the cost of carrying the ATO debt (including that non-deductible interest).
- Your cash flow — whether fixed repayments suit you better than an ATO payment arrangement.
- Deductibility — your accountant’s view for your situation.
- Eligibility — any finance is subject to lender assessment and approval.
If the real issue is a timing squeeze rather than a one-off debt, it may be worth looking at cash flow finance as well.
Who it suits
Clearing a tax debt with finance tends to suit businesses with an otherwise healthy operation and a clear plan to repay — where the ATO debt is the main thing weighing things down. It’s less suitable as a way to paper over an ongoing shortfall. The honest answer is that it comes down to the numbers, which is exactly the kind of thing to run past your accountant and a broker together.
Frequently asked questions
Is ATO interest still tax deductible?
No. General Interest Charge and Shortfall Interest Charge incurred on or after 1 July 2025 are not tax deductible, regardless of which income year the debt relates to. Interest incurred before that date may still be deductible. Confirm how it applies to you with a registered tax agent.
Can I get a loan to pay off a tax debt?
Some businesses use finance to clear an ATO debt and repay the loan instead. Whether it’s available, and whether it’s the right move, depends on your circumstances and is subject to lender approval — and it’s worth running the numbers with your accountant first.
Is the interest on a loan to pay tax debt deductible?
It may be, depending on how the borrowing is used and structured and on your situation — but it isn’t automatic. This is a question for a registered tax agent, not something to assume.
How much is ATO interest now?
The GIC rate is set by the ATO and changes each quarter — it’s been around 11% a year (10.96% for the April–June 2026 quarter). Check ato.gov.au for the current rate.
Talk it through
If an ATO debt is weighing on the business, it’s worth understanding your options alongside advice from your accountant. Share a few quick details and we’ll compare a panel of lenders to see what’s available for your situation — obligation-free, and subject to lender approval. Find your best rate, or see the full range on our business finance page.
General advice disclaimer: The information in this article is general in nature and doesn’t take into account your objectives, financial situation or needs. It isn’t financial, credit or tax advice. Tax treatment — including the deductibility of interest — depends on your individual circumstances and current law; seek independent advice from a registered tax agent or accountant, and refer to the ATO (ato.gov.au), before making any decision. Tradie Finance is a credit assistance provider, Australian Credit Licence 506065. All finance applications are subject to lender assessment, eligibility and approval; terms, conditions, fees and charges apply.