No More Deductions for ATO Interest Charges: What You Need to Know Before 1 July 2025

Starting 1 July 2025, you will no longer be able to claim tax deductions for interest charges imposed by the Australian Taxation Office (ATO), specifically the General Interest Charge (GIC) and Shortfall Interest Charge (SIC).

 

What are GIC and SIC?

The ATO applies the General Interest Charge (GIC) to unpaid tax liabilities e.g. unpaid Business Activity Statement (BAS) or Income Tax debt, accruing daily on a compounding basis. The Shortfall Interest Charge (SIC) is imposed when a taxpayer’s self-assessment results in a tax shortfall, accruing from the original due date until the amended assessment is issued.

 

Key Changes Effective from 1 July 2025

  • Interest charges incurred on or after 1 July 2025 will no longer be tax-deductible, regardless of when the underlying tax debt was assessed.
  • Those with payment arrangements extending beyond 1 July 2025 should note that any GIC or SIC accrued after this date will not be deductible, even if related to earlier debts.
  • If GIC or SIC incurred after 1 July 2025 is later remitted by the ATO, the remitted amount will not need to be included as assessable income, since it was not previously deducted.

 

Implications for You

  • Without the ability to deduct GIC and SIC, the after-tax cost of carrying tax debt will rise, making it more expensive for businesses and individuals to manage unpaid tax liabilities.
  • Businesses may face cash flow challenges due to the higher cost of tax debts. It’s necessary to reassess your financial strategies to accommodate this change.
  • While ATO interest charges will no longer be deductible, interest on commercial loans used to pay tax debts is still be deductible for businesses.

 

Recommendations

  1. Aim to pay off any existing tax liabilities before 1 July 2025 to retain the deductibility of associated interest charges.
  2. If you’re on an ATO payment plan, consider accelerating payments to minimise non-deductible interest accruals post-1 July 2025.
  3. Engage with MGI to explore the implications for you and discuss options and to ensure compliance with the new regulations.
  4. Implement tax lodgement and payment compliance measures to avoid incurring GIC and SIC.

This change underscores the importance of timely tax payments and proactive financial management and planning. By understanding the implications and taking appropriate actions, you can mitigate the impact of these changes on your business’ financial health.

MGI has a number of expert tax accountants and consultants who can assist you to understand these changes and help you with up to date tax advice. If you have any questions speak to your MGI advisor today on (07) 3002 4800.

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