A major tax change is coming from 1 July 2025 that will impact individuals and businesses with tax debts. From this date, General Interest Charges (GIC) and Shortfall Interest Charges (SIC) applied by the ATO will no longer be tax deductible.
What are GIC and SIC?
The General Interest Charge (GIC) is applied daily on unpaid tax debts until the balance is cleared. The Shortfall Interest Charge (SIC) applies where the ATO believes you have underpaid tax—typically following an amended assessment. Until now, both charges have been deductible, which helped soften the financial impact of tax debts. That will soon change.
What’s changing from 1 July 2025?
Under the Treasury Laws Amendment (Tax Incentives and Integrity) Act 2024, any GIC or SIC incurred from 1 July 2025 onward will be non-deductible. This means taxpayers can no longer claim a tax deduction for these ATO-imposed interest charges, regardless of when the original debt arose.
This change applies to income years starting on or after 1 July 2025, so most taxpayers will see the effect from the 2025–26 financial year onwards.
Why this matters
The removal of deductibility effectively increases the after-tax cost of GIC and SIC. With GIC currently sitting around 11% per annum and SIC close to 7%, the financial burden of late payments and underpaid tax will become more significant.
Large businesses may have the flexibility to refinance ATO debts using deductible commercial loans, but individuals and small businesses are less likely to have access to this kind of funding. As a result, they may bear a disproportionate share of this increased cost.
Importantly, this change is intended to encourage stronger tax compliance by removing what was seen as a “soft penalty.” Without the tax deduction, GIC and SIC function purely as punitive interest charges.
What about transitional periods?
Any GIC or SIC incurred before 1 July 2025 will remain deductible under current rules. However, taxpayers should be aware that if a new or amended notice of assessment is issued after 1 July 2025, even for an earlier tax year, the resulting interest may not be deductible—depending on the timing and nature of the charge.
This creates a narrow window between now and 30 June 2025 to review and manage outstanding tax balances and amendments.
What should you do?
Now is the time to take action:
1. Pay off existing ATO debts where possible.
Clearing these debts before 30 June 2025 ensures any GIC incurred remains deductible and avoids future non-deductible costs.
2. Review payment plans.
If you’re on an ATO payment arrangement that extends beyond 1 July 2025, it’s worth considering an accelerated payment schedule or refinancing options.
3. Consider commercial finance.
In some cases, a commercial loan used to repay a tax debt may still be tax deductible—unlike GIC and SIC going forward.
4. Improve your compliance systems.
Stay on top of lodgement deadlines and ensure you have the cash flow available to pay on time. This is more important than ever given the increased cost of falling behind.
5. Know your rights.
ATO interest charges can be remitted in some circumstances. While rare, it’s still worth requesting if there are valid grounds.
This change may not sound like much at first glance—but for clients carrying tax debt or prone to late payments, it could significantly increase tax costs. From 1 July 2025 onward, the message is clear: don’t rely on deductions to soften the impact of interest charges.
If you’re unsure how this change may affect you or your business, or if you’d like support managing your ATO obligations before 30 June, we’re here to help.
