The Australian government has now legislated changes that will deny tax deductions for the General Interest Charge (GIC) and Shortfall Interest Charge (SIC) starting July 1, 2025. These changes, introduced in the Treasury Laws Amendment (Tax Incentives and Integrity) Bill 2024, aim to increase tax compliance by making it more costly for businesses to delay tax payments.
Understanding GIC and SIC
GIC and SIC are interest charges imposed by the Australian Taxation Office (ATO) on outstanding tax debts and underpaid tax liabilities. These charges accrue daily and are calculated based on the 90-day bank bill rate plus an uplift factor—currently 7% for GIC and 3% for SIC. The primary goal of these charges is to encourage timely tax payments and prevent businesses from using unpaid tax as a source of financing.
Historically, these interest charges have been tax-deductible, helping to offset some of the financial burden on businesses. However, with this legislative change, deductions for these charges will no longer be available, increasing the effective cost of tax debt for businesses.
Key Implications for Business Owners
- Legislation is Final – No More Uncertainty
The government has officially passed this legislation, confirming that GIC and SIC incurred on or after July 1, 2025, will no longer be deductible, even if the debt itself arose before this date. - Increased Financial Burden & Double Penalty
The removal of tax deductibility will significantly increase the after-tax cost of GIC and SIC, making it more expensive for businesses to manage tax debts. This is particularly concerning given that these charges are already set at a premium interest rate. The additional financial strain could act as a form of double penalty, further discouraging compliance rather than supporting businesses in fulfilling their tax obligations. - Impact on Existing Payment Plans
Businesses currently on ATO payment plans that extend beyond July 1, 2025, should be aware that any GIC or SIC accrued after this date will not be deductible, even if it relates to an earlier debt. This may lead to unexpected financial consequences for businesses already struggling with cash flow. - Disproportionate Impact on Small Businesses
Larger businesses with access to better financing options can often refinance tax debts at lower interest rates and still claim tax deductions on those interest expenses. In contrast, small businesses and individual taxpayers may have fewer alternatives, forcing them to pay higher interest costs with no tax relief. This change could widen the financial gap between large corporations and small business owners.
What Business Owners Should Do Next
With these changes now confirmed, businesses should take proactive steps to minimise their exposure:
- Settle Outstanding Tax Debts Before July 1, 2025 – If possible, pay off existing tax debts before the new rules take effect to retain deductibility for current interest charges.
- Review Cash Flow Strategies – Businesses should prepare for the increased after-tax cost of GIC and SIC and ensure they have enough liquidity to meet tax obligations promptly.
- Enhance Tax Compliance Processes – Implement robust tax compliance measures to ensure timely and accurate tax payments, thereby avoiding the imposition of GIC and SIC.
- Consult with Tax Professionals – Engage with accountants and tax advisors to explore refinancing options and mitigation strategies before the legislation takes effect.
At Walker Hill, we are committed to keeping our clients informed about changes that could impact their financial and tax planning. If you have concerns about how this confirmed legislation may affect your business, reach out to our team today for advice at support@walkerhill.com.au.
