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For years, owing the ATO was treated as cheap, patient finance. Two changes ended that. The ATO returned to firm collection, and from 1 July 2025 general interest charge and shortfall interest charge stopped being tax deductible. The comparison has to be redone on an after-tax basis.
The after-tax sum
A deduction reduces the real cost of interest by the taxpayer’s rate. GIC no longer gets one.
| GIC | Deductible business loan | |
|---|---|---|
| Headline rate | 11.43% | 12.0% |
| Tax deduction at 25% | none | 3.0% |
| After-tax cost | 11.43% | 9.0% |
To match GIC after tax, a deductible loan would have to cost about 15.2% for a company on the 25% rate, and about 16.3% on the 30% rate. A second mortgage at 0.975% a month is roughly 11.7% a year before tax and about 8.8% after tax at 25%. On $400,000 that is a saving in the order of $10,000 a year, before fees.
Fees have to be counted
A loan has an establishment fee, legal and valuation costs. On a short loan they matter. Add them to the interest, work out the after-tax total for the period the debt would realistically be outstanding, and compare that with GIC compounding daily over the same period. Over 12 months and above, the loan usually wins. Over two or three months, it may not, unless enforcement is the real concern.
What the rate comparison leaves out
- Compounding. GIC compounds daily. Most private loans charge simple monthly interest.
- Credit reporting. Debts of $100,000 or more, overdue more than 90 days with no engagement, can be reported to credit bureaus.
- Enforcement. Garnishee notices, director penalty notices, statutory demands and winding-up applications. None of these exist on a loan that is being paid.
- Certainty. A loan has a fixed rate and an end date. GIC resets quarterly and rose to 11.51% for October to December 2026.
When borrowing is not the answer
Where the debt can be cleared from cash flow within a few months. Where a payment plan is comfortably affordable and the business has better uses for its equity. Where interest might be remitted - it is worth asking the ATO. And where the business is not viable, in which case more secured debt only moves the loss onto the property.
How it is done
Usually a second mortgage or, for speed, a caveat loan, behind the existing first mortgage, with the ATO paid directly at settlement. The full picture is on the ATO tax debt funding page. Run the after-tax numbers with your accountant: this is general information, not tax advice.
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Get matched with a funderFAQ
Is interest on a loan to pay tax deductible?
For a business paying a business tax debt, generally yes. For an individual paying personal income tax, generally no. Your accountant should confirm your position.
What is the GIC rate now?
11.43% a year for July to September 2026 and 11.51% for October to December 2026. The ATO resets it each quarter.
Does GIC stop on a payment plan?
No. It keeps accruing on the unpaid balance for the life of the plan.