— An ATO Update —

Recent legislative changes introduced by the Australian Taxation Office (ATO) will impact how businesses and individuals treat interest charges on overdue tax liabilities. Effective 1 July 2025, deductions will no longer be allowed for General Interest Charges (GIC) and Shortfall Interest Charges (SIC) incurred due to late or insufficient tax payments.

What’s Changing?

Under previous rules, taxpayers were allowed to claim tax deductions for interest charged by the ATO on late payments or tax shortfalls. This included:

• General Interest Charge (GIC) – interest applied to late payments across various taxes.
• Shortfall Interest Charge (SIC) – interest applied when tax assessments are amended and underpaid amounts are identified.

The Government has now removed the deductibility of these interest charges from 1 July 2025. Any GIC or SIC accrued from this date onward will no longer be tax-deductible, even if related to earlier income years.

Who Will This Affect?

This change will apply to:

Individuals who incur GIC or SIC on personal tax obligations.

Small and large businesses facing ATO-imposed interest on overdue tax liabilities.

Trusts and SMSFS with delayed tax payments that attract interest.

It’s important to note that interest incurred before 1 July 2025 will still be deductible, even if paid after that date. Only charges accruing from 1 July 2025 onward will be non-deductible.

Why the Change?

The ATO’s position is that interest charges imposed due to non-compliance should not be treated as a normal cost of doing business. This change is aligned with the policy intent to encourage timely and accurate tax compliance across the board.

What Should You Do?

Here’s how we recommend preparing for this update:

• Review existing tax payment practices – Avoid late payments by setting up automated reminders or payment plans.
• Work with your accountant proactively – Ensure your tax returns and BAS lodgements are accurate and timely to avoid triggering SIC or GIC.
• Review outstanding tax liabilities – If you currently have overdue balances, consider addressing them before 1 July 2025 to preserve your deduction.

Current GIC and SIC Rates

GIC and SIC are calculated on a daily compounding basis and are updated quarterly. The following are the rates for the 2024–2025 income year:

General Interest Charge (GIC)

Shortfall Interest Charge (SIC)

Need Help?

We’re here to help our clients navigate these updates. Whether you’re an individual taxpayer or a business entity, our team can help you implement strategies to minimise the risk of ATO interest charges and maintain tax efficiency.

If you have any questions about how this change may affect your current or future deductions, feel free to reach out to our team today.