From 1 July 2025, General Interest Charge (GIC) and Shortfall Interest Charge (SIC) payments are no longer tax-deductible. This change, introduced through recent legislation, will have a real impact on businesses—particularly small and medium-sized enterprises (SMEs)—that carry overdue tax liabilities.

What are GIC and SIC?

When a business owes money to the Australian Taxation Office (ATO), interest charges can apply. There are two key types:

• General Interest Charge (GIC)
  This applies when tax is not paid by the due date. GIC is currently calculated at the 90-day bank bill rate plus 7%, with a current rate of 11.17%.
• Shortfall Interest Charge (SIC)
  This applies when a business underpays tax due to errors in its tax return. SIC accrues from the date the original tax should have been paid until an amended assessment is made. After that, GIC takes over. SIC is calculated at the 90-day bank bill rate plus 3%, currently 7.17%.

Before 1 July 2025, both GIC and SIC were tax-deductible, which helped reduce the after-tax cost of managing tax debts. That is no longer the case.

What this means for your business

Now that the deductibility has been removed, the effective cost of ATO interest has increased. For many SMEs, GIC previously resembled the cost of an unsecured loan—and in some cases, the ATO may have been viewed as a relatively soft source of short-term finance.

But with deductibility off the table, that calculation has changed. Businesses now have more reason to explore external financing options, which may offer lower interest rates and more favourable terms.

A shift in tax debt strategy

The change to GIC and SIC deductibility is likely to reshape how businesses approach tax debt. Key points to consider:

• Cash flow will become even more critical: Late payments will now hit harder, and businesses with tight cash positions may need to review how they manage working capital.
• Proactive financial planning is essential: Seeking professional advice—especially in areas like forecasting, finance structuring, and debt management—can help businesses navigate this shift.
• ATO remissions may still be available: The ATO can exercise discretion to remit GIC or SIC, especially in cases of financial hardship. If your business is affected, consider lodging a formal request for remission.

Broader implications

With over $50 billion in collectable tax debt—65% of it owed by small businesses—the ATO is under pressure to recover outstanding liabilities. This change could be part of a broader strategy to encourage timely tax compliance and reduce the growing tax debt backlog.
However, there’s a risk it may have the opposite effect for businesses already under stress. The higher after-tax cost of tax debt could further strain businesses that are struggling to meet their obligations.

What to do now

If your business has tax debts or is entering into a repayment plan, now is the time to:

1. Review your payment plans: If your interest charges are accruing from 1 July 2025 onwards, they’re now non-deductible. Consider accelerating payments if possible.
2. Seek professional advice: Work with your accountant or advisor to reassess your tax position and evaluate financing alternatives.
3. Request remissions where appropriate: Don’t assume interest charges are set in stone. If your business has a valid case, seek a reduction or remission through the appropriate ATO channels.

This legislative change marks a significant shift in how tax debt is treated in Australia. By adjusting your strategy now, you can help reduce the financial impact and keep your business on track.

If you’re unsure how this change affects you, our business services team is here to help you assess your options.