From 1 July 2025, the Australian Taxation Office (ATO) will no longer allow taxpayers to claim a tax deduction for General Interest Charges (GIC) and Shortfall Interest Charges (SIC). This is a significant change for taxpayers with outstanding taxation liabilities. It is seen by the ATO as a way to encourage timely tax payments and reduce the unpaid tax debt of Australian taxpayers.
What Are GIC and SIC?
GIC applies where a taxpayer fails to pay tax on time, whereas SIC is payable on additional amounts of income tax for which a taxpayer becomes liable as a result of an amended assessment. GIC applies from the date on which the tax was due for payment until the day it is paid, while SIC applies from the date the income tax should have been paid up to the date on which an amended assessment is issued (i.e., the ‘shortfall period’).
The current annual rate of GIC is 11.17%. The current annual rate of SIC is 7.17%.
Both GIC and SIC apply on a daily compounding basis and have since their introduction been deductible for income tax purposes.
What Does This Mean for You?
1. Increased After-Tax Cost
Previously, taxpayers could claim a deduction for GIC and SIC, effectively reducing the after-tax cost of these charges. With the new rules, these charges will no longer be deductible, increasing the real cost of late or underpaid taxes.
2. Impact on Businesses
Businesses may still claim deductions for interest on loans used to pay tax liabilities. However, GIC and SIC related to unpaid tax debts will not be deductible . This change underscores the importance of timely tax payments and proactive engagement with the ATO to manage tax liabilities.
Businesses may re-consider the management of their tax debts and how to finance them. It may be the case that the net cost of obtaining third-party finance to reduce tax debt proves more economical than a payment plan with the ATO.
Action Plan
- Pay Tax Debts on Time: Ensure all tax liabilities are paid by the due date to avoid incurring non-deductible GIC and SIC.
- Consider Refinancing Options: Businesses may explore refinancing options to pay off tax debts, ensuring that any interest incurred is deductible
- Engage with the ATO: If you’re unable to meet tax obligations, proactively engage with the ATO to discuss payment plans or potential remissions.
- Seek Our Advice: Consult with your BQK accountant to understand the full implications of these changes and develop strategies to manage tax liabilities effectively.
The end of deductibility for GIC and SIC marks a significant shift in Australia’s tax landscape. Taxpayers must now be more vigilant in managing their tax affairs to avoid increased costs. By staying informed and proactive, you can navigate these changes successfully and maintain compliance with the ATO’s requirements.