Deductibility Denied on ATO Interest (GIC and SIC) from 1 July 2025
Written by Daniel Dubois
The ATO has now brought an end to the long-standing tax deductibility of interest charges imposed by the Australian Taxation Office (ATO) on overdue tax liabilities. From 1 July 2025, General Interest Charge (GIC) and Shortfall Interest Charge (SIC) will no longer be deductible for income tax purposes, regardless of the nature of the underlying tax debt. This article outlines the key elements of the legislative change and its practical implications for taxpayers.
Background: What Are GIC and SIC?
The General Interest Charge (GIC) and Shortfall Interest Charge (SIC) are statutory interest charges applied by the ATO to encourage prompt payment and ensure the government is compensated for late tax remittances. GIC applies to unpaid tax liabilities, while SIC typically arises from amendments to previously lodged tax returns resulting in additional tax owing.
Historically, these charges were considered deductible under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) if they were incurred in the course of producing assessable income or in carrying on a business. The change applies regardless of whether the interest relates to a pre or post 1 July 2025 tax debt.
Rationale for the Change
The Government's objective is to discourage taxpayers from using the ATO as a lender of last resort and improving tax compliance and cash flow management by tax deductions for interest on overdue tax debts. Previously, some businesses may have strategically delayed tax payments, viewing the ATO as a cheaper source of finance due to the deductibility of GIC and SIC. This legislative reform seeks to discourage such practices and reinforce the importance of timely tax compliance.
Implications for Taxpayers
Increased After-Tax Cost of Tax Debts
From 1 July 2025, taxpayers will no longer receive any tax benefit from GIC or SIC payments.
This increases the real cost of carrying unpaid tax liabilities, making it financially prudent to resolve outstanding debts more quickly.
Strategic Prepayment Opportunities
Taxpayers with existing GIC/SIC liabilities may consider paying off debts before 1 July 2025 to retain deductibility for interest incurred prior to the change.
Businesses should review current payment arrangements with the ATO, including payment plans or negotiated interest remissions.
No Transitional Relief
The legislation provides no grandfathering or transitional carve-outs: all GIC/SIC incurred from 1 July 2025 onward is non-deductible, even if it relates to earlier income years.
Impact on Tax Planning and Financing Decisions
The ATO is no longer a “tax-effective” source of finance.
Businesses may need to reassess their working capital strategies, especially those that previously relied on deferred tax payments as a cash flow management tool
Alternatives
There may be some alternatives for businesses to reposition into business related debt with alternative providers, however this needs to be carefully structured to ensure deductibility given the general need for interest to be incurred in connection with the derivation of assessable income.
Compliance and Record-Keeping Considerations
We encourage clients affected to:
clearly segregate GIC/SIC incurred before and after 1 July 2025 in their accounting systems.
review documentation and payment dates to substantiate deductibility claims in 2024–25.
engage with Salt Financial Group early to determine the most cost-effective approach to manage existing and future liabilities.
The denial of deductibility for ATO interest charges from 1 July 2025 marks a fundamental shift in Australia's tax compliance landscape. With GIC and SIC no longer offering any tax relief, businesses and individuals alike must prioritise timely tax payments and revise their cash flow strategies. For those with existing debts, the window to preserve deductibility is closing fast, making now the time to act.