Is tax loan interest deductible in Australia?
By PayMyTax · · 5 min read
The short answer
Generally, yes. If your business borrows money to pay a business tax debt such as BAS, IAS or company tax, the interest on that loan is usually deductible because the borrowing is connected to running your business. In contrast, the ATO's general interest charge (GIC) and shortfall interest charge (SIC) are no longer deductible for income years starting on or after 1 July 2025.
Why business loan interest is usually deductible
Under Australian tax law, you can generally claim a deduction for expenses incurred in carrying on a business to earn assessable income. Interest on money borrowed for business purposes, including paying business tax obligations like GST, PAYG withholding and PAYG instalments, generally falls into this category. What matters is the purpose of the borrowing, not the type of lender.
What changed with ATO interest charges
For years, many businesses simply let a tax debt sit with the ATO, or set up an ATO payment plan, partly because the GIC was deductible. That changed. From 1 July 2025, GIC and SIC incurred are no longer tax-deductible. The GIC rate is also high and compounds daily, so leaving a debt with the ATO has become noticeably more expensive after tax.
In short: interest on a business loan used to pay your tax is generally deductible. Interest the ATO charges on an unpaid tax debt is not.
A simple example
Your BAS payment is $10,000. You pay $4,000 now via BPAY, so no interest applies to that amount. You defer $6,000 through a business loan arranged via PayMyTax. Interest is charged only on the $6,000, and that interest is generally deductible for business tax purposes. If the same $6,000 was left with the ATO, the GIC would apply and would not be deductible.
When the interest may not be deductible
- The loan is used for private purposes, such as paying personal income tax unrelated to a business.
- Part of the loan is used for non-business spending. Only the business portion is deductible.
- The business is not carrying on a business or earning assessable income.
How to estimate the deduction
Use the PayMyTax payment calculator on our home page. Choose the amount you want to finance and the term, and it shows an indicative repayment and the estimated tax-deductible interest. The exact payment amount is set once your loan application is processed. When you are ready, sign up on the Customer Portal and upload your statement.
Common questions
- Is the ATO general interest charge (GIC) tax-deductible?
- No. GIC and SIC incurred in income years starting on or after 1 July 2025 are no longer tax-deductible.
- Can I claim interest on a loan used to pay my BAS?
- Generally yes, if the loan is taken out for business purposes. Confirm your situation with your accountant or tax adviser.
- Does it matter who the lender is?
- No. Deductibility depends on what the borrowed money is used for, not on which lender provides it.
Pay your tax now, repay over time
Upload your BAS or IAS statement and choose how much to pay now and how much to defer.
General information only. This article does not take your personal circumstances into account and is not tax, financial or legal advice. Speak with your accountant or tax adviser before acting. PayMyTax is operated by Tax Hitech Pty Ltd ABN 38 642 032 666 and is not a lender. See also our ATO payment plans guide.