What changed for the ATO's General Interest Charge from 1 July 2025?

The Treasury Laws Amendment (Tax Incentives and Integrity) Act 2025 removed the income tax deduction for both the General Interest Charge and the Shortfall Interest Charge for amounts incurred on or after 1 July 2025. It is the date the interest is incurred that triggers the rule, not the date it is paid, and the rule applies regardless of whether the underlying tax debt relates to an earlier income year. For a landlord with a tax shortfall identified on their FY2025-26 return, every dollar of GIC or SIC the ATO charges is now a dead cost rather than a deductible expense.

What is the actual GIC rate landlords are paying right now?

The ATO sets the General Interest Charge quarterly. For the April to June 2026 quarter the annual GIC rate is 10.96%, compounding daily. The Shortfall Interest Charge, which applies to underpaid tax identified after lodgement, sits at the GIC rate minus four percentage points and is therefore close to 6.96% for the same quarter. The ATO has published the GIC for the first quarter of 2026-27 at 11.43%, applying from 1 July 2026. A landlord carrying ATO debt across the EOFY transition wears both quarterly resets.

Why does this matter most on the FY2025-26 lodgement?

FY26 is the first complete financial year where every day of GIC and SIC is non-deductible. The change took effect on 1 July 2025, so the FY25 return was largely unaffected because most prior-year interest was incurred before that date. Lodgements for the year ended 30 June 2026 will be the first to fully reflect the new regime. For a landlord who runs an overdue PAYG instalment, lodges late, or ends up with a Part IVC amendment, the lost deduction can lift the effective cost of ATO debt by three to four percentage points at the marginal tax rate.

How big is the ATO's data-matching net for landlords this year?

Three programs run in parallel. The residential investment property loan data-matching program collects loan data on approximately 1.7 million individuals a year from banks and other financial institutions, and the current protocol runs from 2021-22 through 2025-26. The property management data-matching program collects data on around 2.3 million individuals a year from property management software providers, and runs from 2018-19 through 2025-26. The rental bond data-matching program collects records on roughly 2.2 million landlords, tenants and managing agents from state and territory bond authorities through to 30 June 2026. Combined, the three programs give the ATO what its officers call a rich picture of rental activity, and the FY26 return is matched against all three datasets.

What can a landlord still do in the two days to EOFY?

Four things. Prepay up to 12 months of investment loan interest where the lender allows it and the prepaid amount covers an eligible service period of no more than 12 months ending within the next income year, which brings the deduction forward into FY26. Order a depreciation schedule from a quantity surveyor if the property was built after 1985 or has had renovations, because the cost of the schedule itself is deductible in FY26 and the future-year deductions start to flow. Sort the repair versus capital improvement decision on any work completed before 30 June, because a deductible repair sits inside section 25-10 of the Income Tax Assessment Act 1997 and a capital work depreciates at 2.5% over 40 years under section 43-25. Lodge or vary a PAYG income tax instalment if FY26 cashflow is materially different from the ATO's prior-year estimate, because the variation is recorded against the 28 July 2026 instalment but the prudential reasoning works from current evidence.

Does the new rule mean a landlord cannot deduct any interest on a tax-related loan?

No. The non-deductibility applies to ATO-administered interest charges (GIC and SIC) specifically, not to commercial interest on a loan a landlord takes out from a bank to settle an ATO debt. Where a borrower can demonstrate the loan was used to pay assessed Australian income tax that was incurred in producing assessable income, ATO public guidance has historically accepted the interest on that loan as deductible under section 8-1. The new TLA Act 2025 change does not interfere with that pathway. The cleanest cash-flow play for a landlord facing a tax debt is now often to refinance the debt off the ATO at a commercial rate that remains deductible, rather than carry a non-deductible 10.96% charge.

ATO's 10.96% interest charge is no longer deductible. FY26 landlord returns are the first to wear it

This article is general information only and does not constitute financial or tax advice. Consult a qualified tax professional for advice specific to your situation.

Key takeaways

The Treasury Laws Amendment (Tax Incentives and Integrity) Act 2025 removed the income tax deduction for ATO General Interest Charge and Shortfall Interest Charge for any amount incurred on or after 1 July 2025. FY2025-26 is the first complete lodgement year that reflects the change.
The GIC for the April to June 2026 quarter is 10.96%, compounding daily. The Shortfall Interest Charge for the same quarter is roughly 6.96%, sitting four points below GIC by formula. The GIC steps up to 11.43% from 1 July 2026.
The ATO's residential investment property loan data-matching program collects loan records on about 1.7 million landlords a year from banks. The current protocol runs from 2021-22 through 2025-26, so the FY26 return is the final year inside this protocol's window.
The property management data-matching program collects data on about 2.3 million individuals a year from property management software providers, and the rental bond program collects records on about 2.2 million landlords, tenants and managing agents from state bond authorities through to 30 June 2026.
ATO Assistant Commissioner Rob Thomson has continued to flag that nine in ten landlord returns contain an error, with interest expense apportionment alone accounting for 42% of the $1.2 billion rental tax gap in the Individuals Not in Business population.
The four EOFY moves a landlord still has time to make: prepay up to 12 months of investor loan interest where the lender allows it, order a quantity surveyor depreciation schedule for properties built after 1985, settle the repair versus capital improvement classification on FY26 works, and lodge a PAYG instalment variation where cashflow materially differs from the ATO's prior-year estimate.
The RBA held the cash rate at 4.35% on 16 June 2026 and the May 2026 monthly CPI moderated to 4.0%, so the GIC reset on 1 July is happening into a softening but still high-rate environment. Carrying ATO debt at 10.96% rising to 11.43% with no offset will sting harder than carrying a commercial loan that remains deductible.

This article is general information only and does not constitute financial, tax, or investment advice.

End of financial year for FY2025-26 lands on Tuesday 30 June 2026, two days from publication. For most Australian landlords, the EOFY ritual is the usual one: tidy up the records, prepay where it makes sense, decide what the quantity surveyor needs to see, lodge a clean return after 1 July. This year, one quiet change in federal tax law sits underneath all of it, and it changes the economics of every dollar a landlord owes the ATO from this point forward.

From 1 July 2025, the General Interest Charge and the Shortfall Interest Charge stopped being deductible. The change is small in words and large in dollars. For a landlord with any kind of tax debt or shortfall through FY2025-26, the FY26 return is the first lodgement that fully reflects it.

Here is what changed, where the data-matching net is pointed for this tax time, and the four EOFY moves a landlord still has time to make.

The TLA Act 2025 change in one paragraph

The Treasury Laws Amendment (Tax Incentives and Integrity) Act 2025 amended the Income Tax Assessment Act 1997 to deny a deduction for GIC and SIC incurred on or after 1 July 2025. The ATO's official explainer confirms that the trigger is the date the interest is incurred, not the date it is paid, and the rule applies regardless of whether the underlying tax debt relates to an earlier income year. A landlord who pays GIC in February 2026 on a 2023 income tax liability is wearing a non-deductible cost.

The rule sits underneath whatever rate the ATO sets each quarter.

The GIC for the quarter ending 30 June 2026 is 10.96%, compounding daily. The ATO has already published the GIC for the September 2026 quarter at 11.43%, which applies to interest incurred from 1 July 2026 onward. The SIC, which applies where the ATO identifies underpaid tax after lodgement, runs four percentage points below GIC by formula, putting it close to 6.96% for the April to June 2026 quarter.

At those rates, with no deduction, the after-tax cost of ATO debt for a landlord on the 37% marginal bracket is now the headline rate. Before 1 July 2025, the same charge translated to roughly 6.9% after the deduction. The change is worth almost four full percentage points of effective interest cost for a higher-income landlord.

Why FY26 is the first lodgement that fully feels it

For landlords lodging their FY24-25 return in late 2025 or early 2026, most of the GIC and SIC accrued was incurred before 1 July 2025 and was therefore still deductible. The FY26 lodgement is the first complete financial year sitting fully on the new side of the rule.

That matters in three specific scenarios.

Late PAYG instalments. If a landlord underpaid their quarterly PAYG instalments through FY26 and the ATO catches up after lodgement, the SIC on the underpaid amount is non-deductible.

Late lodgement. A return lodged after 31 October 2026 (or after the registered tax agent extension date) triggers GIC on any balance owed from the original due date. That GIC is non-deductible.

Substituted or amended assessments. Any Part IVC objection or audit-driven amendment that lifts the FY26 liability after lodgement attracts SIC on the shortfall amount. Again, non-deductible.

The mechanical change in each case is small. The cumulative effect on a landlord who normally relies on a settlement reconciliation in late October to true up the year is meaningful. It is now a higher all-in cost to be late with the ATO than to be late with a bank.

The data-matching net underneath the FY26 lodgement

The non-deductibility change matters more because of who the ATO is actually looking at this year. Three parallel programs cover the FY26 window. The residential investment property loan program sweeps loan account data on about 1.7 million individuals a year from banks, and FY26 is the final year inside the current 2021-22 to 2025-26 protocol. The property management software program collects records on about 2.3 million individuals a year through to 2025-26. The rental bond program pulls records on about 2.2 million landlords, tenants and managing agents from state authorities through to 30 June 2026. We covered the mechanics of all three programs and the typical mismatches they surface in Nine in 10 rental returns have an error on 24 May 2026.

What is new for FY26 is the cost of being caught. Every dollar of GIC or SIC the ATO applies to a data-matched shortfall is now a non-deductible expense. Same bank feed, same property manager feed, same bond regulator feed, fundamentally higher all-in cost on the other side. ATO Assistant Commissioner Rob Thomson's standing line that interest apportionment alone accounts for about 42% of the $1.2 billion rental tax gap in the Individuals Not in Business population now carries a sharper price tag. The classic redraw-for-private-spending claim that gets flagged still triggers a shortfall; the SIC that follows is no longer offset against the marginal rate.

The four EOFY moves landlords still have time to make

Forty-eight hours is enough time to do real work on FY26 deductions if a landlord moves now.

Prepay up to 12 months of investor loan interest

The ATO's prepaid expenses rule for non-business individuals allows a landlord to claim a deduction in the year an interest prepayment is incurred, provided the prepaid amount covers an eligible service period of no more than 12 months ending in the next income year. Translated: if a landlord locks in a 12-month interest prepayment to a date no later than 30 June 2027, the full prepayment is deductible in FY26.

Two practical points. First, the lender has to allow it. Variable loans typically do; fixed-rate loans usually require a specific prepayment facility. Second, the cash-flow trade-off matters. Bringing forward a deduction into FY26 only makes sense if the FY26 marginal rate is at least as high as FY27 is expected to be, and if the cash isn't doing higher-yielding work elsewhere. For a landlord on the top bracket facing a flat FY27, the play is clean.

Order a depreciation schedule before 30 June

A quantity surveyor's depreciation schedule unlocks Division 40 (plant and equipment) and Division 43 (capital works) deductions for the life of the property. For a property built after 15 September 1987, capital works depreciate at 2.5% over 40 years. For a property built after 18 July 1985 and before 15 September 1987, the rate is 4% over 25 years. Plant and equipment depreciate over the asset's effective life.

A schedule typically costs $500 to $800 and the cost of the schedule itself is deductible in the year it is incurred. Importantly, a landlord who orders the schedule by 30 June 2026 captures the FY26 deduction for the schedule's fee and starts the future-year depreciation clock. The schedule is then carried forward indefinitely; one document keeps producing deductions for the next 39 years.

For landlords who acquired second-hand residential property after 9 May 2017, the 2017 reforms limit Division 40 plant and equipment deductions to assets the landlord purchased new. Division 43 capital works are unaffected. A quantity surveyor will scope which legacy assets still qualify and which now sit only inside the cost base for CGT purposes.

Settle the repair versus capital improvement question on FY26 works

Any work the landlord has completed in FY26 has to be classified before lodgement. The cleanest test, per the ATO's rental expenses guidance, is whether the work returns the asset to its prior state (deductible repair) or improves it beyond its prior state (capital improvement, depreciated over 40 years at 2.5%).

A like-for-like replacement of a broken tap is a repair. A bathroom renovation is a capital improvement. A patch and repaint of a damaged wall is a repair. A full repaint of the property after a tenancy ends is usually a repair where it returns the surface to its prior condition. A kitchen replacement that upgrades cabinetry, benchtop and appliances is a capital improvement. An immediate post-purchase repair to remedy a defect that existed at acquisition is generally a capital expense, not a deductible repair, regardless of the work performed.

Lodging this distinction wrong is the second largest of the ATO's stated rental complaints. The work is done; the decision sits with the landlord and the tax agent in the next few weeks.

Lodge or vary the PAYG income tax instalment

A landlord on PAYG instalments who expects FY26 net rental income or capital gains to land materially below the ATO's prior-year estimate can vary the next instalment downward. The Q4 FY26 instalment is due 28 July 2026, and the variation is calculated using current evidence rather than the system's automatic look-back.

The risk is in the other direction. If the variation underestimates the FY26 liability by more than 15%, the ATO can apply GIC and SIC on the under-estimated amount. Under the new TLA Act 2025 rule, that interest is now non-deductible. The variation is a useful cash-flow lever and a sharper audit hook than it was a year ago.

The numbers in dollars

Run a representative case to see what the change actually does.

A Sydney landlord on the 37% marginal bracket carries a $50,000 income tax shortfall through FY26 after a Valuer-General reassessment lifted land tax and a depreciation re-scope reduced the offset. The shortfall sits with the ATO from the original lodgement due date until the landlord pays it 12 months later. At a GIC of 10.96% annual, compounding daily, the interest accrued is roughly $5,800.

Pre-change, that $5,800 was a deductible expense. At a 37% marginal rate, the after-tax cost was about $3,654. From FY26 onwards, that $5,800 is non-deductible. The after-tax cost is the full $5,800.

The difference is about $2,146 of additional real cost. For a landlord with two or three properties carrying a similar shortfall through FY26, the number scales linearly.

The cleanest alternative, where the landlord's circumstances allow it, is to refinance the ATO debt onto a commercial line of credit, where the interest is deductible under section 8-1 of the Income Tax Assessment Act 1997 provided the borrowing relates to producing assessable income. A 9% bank rate that is deductible costs less after tax than a 10.96% ATO charge that is not. The ATO has historically accepted the deductibility of bank interest on loans drawn to pay assessable-income-related tax debts (TR 95/25). The TLA Act 2025 change does not interfere with that pathway.

What landlords should actually do this week

Three concrete actions for the next 48 hours.

One. If there is any GIC or SIC currently accruing on an ATO debt that hasn't been refinanced, run the numbers on a bank facility before 30 June. A non-deductible 10.96% charge versus a deductible 8 to 9% commercial rate is a real margin worth chasing.

Two. Decide on the interest prepayment, the depreciation schedule order, and the repair versus capital classification by Sunday. Quantity surveyors are booked solid in the last week of June. A call before lunchtime Monday gives the surveyor 30 hours to lodge a backwards-effective inspection or to issue a forward schedule that includes the cost-of-schedule deduction in FY26.

Three. Pull current-year rental income, agent fees, repairs and capital works into one place. Cross-check against the property management software's owner statement totals before lodgement, because the ATO already has those numbers via the data-matching protocol. Discrepancies will land in front of an auditor before the return does.

Where Propkt fits in the workflow

The two deductions most likely to be misstated in an audit are the ones a landlord can least afford to lose: interest apportionment and the repairs versus capital classification. Both require clean, contemporaneous records. Both are easy to lose track of when a property changes management mid-year, a loan gets redrawn, or a tradie's invoice gets shoved into the wrong folder.

Propkt's expense tracking is built around the categories the ATO actually cares about: interest, agent fees, council rates, water, repairs, capital works, depreciation. The mortgage calculator runs the prepayment scenario at the lender's exact rate so the deduction sits where you expect at lodgement. And the per-property record keeps the rental income, the bond, and the maintenance log in one place when the ATO data-matching protocol cross-references the bank's loan data against the property manager's owner statement.

EOFY in 48 hours is enough time to do the work cleanly. It is not enough time to reconstruct a year of mixed records.