The Australian Taxation Office (ATO) has announced significant changes that may impact how both businesses and individuals manage their tax liabilities, particularly regarding interest charged on outstanding debts.
Currently, the ATO imposes General Interest Charges (GIC) on unpaid tax amounts, accruing daily until the debt is paid. Shortfall Interest Charges (SIC) apply when a tax shortfall arises due to an amended assessment, calculated from the original due date.
Under new legislation, any GIC or SIC incurred from 1 July 2025 onwards will no longer be tax deductible. This change represents a shift from the current rules, under which such charges have generally been deductible where related to income-producing activities.
On a positive note, if a GIC or SIC amount that was non-deductible is later remitted by the ATO, it will not be included in assessable income, providing some relief for taxpayers in that scenario.
What can you do?
With the deductibility of these charges coming to an end, we recommend that clients review any existing or anticipated ATO liabilities. In some cases, it may be beneficial to refinance ATO debts through commercial lending arrangements, where interest remains deductible and may attract lower rates. We encourage you to speak with your adviser to explore options that best suit your financial position.
