As part of the recent legislative changes passed by Parliament, an important update was included that may affect many business and individual taxpayers.
From 1 July 2025, General Interest Charges (GIC) and Shortfall Interest Charges (SIC) imposed by the Australian Taxation Office (ATO) will no longer be tax deductible. This change will apply to all interest incurred on or after this date, regardless of when the underlying tax debt was originally assessed. Any GIC or SIC incurred prior to 1 July 2025 is not impacted by the changes to the law and will continue to be deductible for the 2024-25 and earlier income years.
What does this mean?
Previously, if you were charged GIC or SIC by the ATO—for example, due to a late payment or underestimation of tax—you could claim that interest as a deduction in your tax return. This helped to offset the financial impact of late payment or shortfall charges.
Under the new law, any interest charged from 1 July 2025 onwards will not be deductible, even if the debt relates to a prior year or assessment. This change could increase the real cost of carrying ATO debt and makes timely tax payments more important than ever.
What should you do?
If you are currently in, or considering entering into, a payment arrangement with the ATO, it’s important to plan ahead. Interest will continue to accrue on outstanding balances, but after 1 July 2025, you won’t be able to claim this interest as a deduction.
We recommend:
- Reviewing any existing payment arrangements to consider paying off ATO debts before the deadline.
- Planning cash flow accordingly to avoid GIC or SIC from being charged in the new financial year.
- Speaking with your adviser to assess the potential impact and discuss strategies to manage or mitigate this change.
This shift highlights the importance of staying up to date with ATO obligations and keeping a proactive approach to tax planning.
If you have any questions about how this change may affect you or your business, please don’t hesitate to get in touch with our team.
