Key points
- ATO interest charges (GIC and SIC) won’t be tax-deductible from 1 July 2025.
- Charges assessed before that date may still be deductible.
- Businesses should act early to avoid non-deductible interest.
Starting 1 July 2025, significant changes will be implemented regarding the deductibility of the General Interest Charge (GIC) and Shortfall Interest Charge (SIC) levied by the Australian Taxation Office (ATO). These changes will impact taxpayers with overdue tax liabilities or tax shortfalls. Here’s what you need to know:
What Are GIC and SIC?
General Interest Charge (GIC)
This is a charge that applies to unpaid tax and superannuation liabilities. It currently accrues daily at a rate of 11.17% per year. Think of it as a penalty for not paying your taxes on time.
Shortfall Interest Charge (SIC)
This charge applies when there’s a shortfall in your tax due to an amended assessment. It currently accrues daily at a rate of 7.17% per year. It’s like a penalty for underestimating your taxes.
What’s Changing?
Up until now, you could deduct these charges from your taxable income, which helped reduce your overall tax bill. But from 1 July 2025, GIC and SIC will no longer be deductible. This means you won’t be able to use these charges to lower your taxable income.
Why Does Timing Matter?
The timing of when these charges are incurred is crucial:
- Before 1 July 2025: If GIC or SIC is incurred on or before this date, it remains deductible.
- After 1 July 2025: If incurred after this date, it’s not deductible, no matter when the interest period started.
How Does This Affect You?
If you have unpaid tax debts or expect to have tax shortfalls, you might want to consider paying off these debts before 1 July 2025 to avoid non-deductible charges. Also, the timing of when the ATO issues assessments is important. Charges incurred before 1 July 2025 are deductible, while those after are not.
Unpaid Debts
For unpaid debts, GIC is incurred daily and will be non-deductible from 1 July 2025. Make sure to check your statements to see what amounts are deductible.
Remissions
The rules for remissions (reductions) of GIC and SIC haven’t changed. Non-deductible GIC and SIC remitted after 1 July 2025 won’t be assessable. However, remitted charges that were deductible before this date will be assessable in the year they are remitted.
What Should You Do Next?
Here are some steps to take to manage your tax liabilities effectively:
- Review Your Tax Debts: Understand how these changes will apply to your situation.
- Seek Amendments and Make Voluntary Disclosures: Ensure that relevant assessments are received before 1 July 2025 to maintain deductibility in the 2024/25 year.
- Consider Financing Options: Evaluate whether it’s better to pay business tax liabilities before 1 July 2025 to avoid non-deductible GIC and whether these payments can be financed in a deductible manner.
By taking these steps, you can better manage the financial impact of these changes and ensure compliance with the new regulations. If you have any questions or need help navigating these changes, feel free to reach out to your advisor.
Questions?
We are here to help. If you have any question regarding your tax debts please do not hesitate to contact your advisor.
