Insights
Major Changes to the Tax Deductibility of GIC and SIC: What It Means for You
| Summary |
The Australian Taxation Office (ATO) has made critical changes to the tax treatment of General Interest Charges (GIC) and Shortfall Interest Charges (SIC). While interest charges on overdue tax liabilities have long been a part of tax compliance, the deductibility of these charges has now come under sharper scrutiny — and the rules have changed.
For businesses and individuals alike, understanding how these changes affect your bottom line is more important than ever. Here’s what you need to know.
What are GIC and SIC?
General Interest Charge (GIC) is an interest charge applied by the ATO on unpaid tax liabilities. It begins accruing the day after the due date until the liability is paid in full. Learn more from the ATO
Shortfall Interest Charge (SIC) applies when the ATO amends an assessment and finds a shortfall in the amount of tax previously paid. It’s generally lower than GIC but still represents a cost to the taxpayer. View ATO explanation
What Changed in 2024–2025?
Historically, both GIC and SIC were considered tax deductible when incurred in the course of producing assessable income or in carrying on a business. However, following a series of legal interpretations and ATO clarifications, the landscape has shifted.
The ATO has now confirmed that GIC and SIC will not always be deductible, particularly when they result from avoidable taxpayer behaviour, such as late lodgement, negligence, or non-compliance. This move is aligned with policy intent to discourage poor compliance and ensures a fairer tax system. See ATO guidance on deductions
Key Implementation Dates
- 26 March 2024 – The ATO released Draft Taxation Ruling TR 2024/D1, which clarifies the deductibility of GIC and SIC. This draft ruling signals the ATO’s position moving forward.
- 1 July 2025 – The final ruling, once confirmed, is expected to take effect prospectively from this date. From this point onward, deduction claims must comply with the clarified interpretation. See ATO guidance on deductions
Frequently Asked Questions (FAQs)
1. Is a GIC tax deductible?
GIC may be deductible if incurred in the ordinary course of business. However, deductions may be denied where the interest results from poor compliance or deliberate inaction. Learn more about Corporate Tax Compliance
2. What is the difference between GIC and SIC?
- GIC applies to late payments of tax.
- SIC applies when there is a shortfall due to amended assessments.
Both accrue interest but are calculated at different rates.
3. Are GIC taxable?
GIC is not taxable income for businesses or individuals. However, any deductions claimed must be legitimate — false deductions may attract penalties.
4. How is interest expense tax deductible?
Interest is generally deductible if it’s:
- Incurred in producing assessable income, or
- Linked to business borrowing or financing
But penalty-related interest is now subject to limitations.
5. Tax deductibility of GIC and SIC according to the ATO
The ATO provides guidance that deductibility depends on the purpose and nature of the liability. If it’s capital in nature, or relates to penalties, it may be non-deductible.
6. What does “tax shortfall” mean?
A tax shortfall occurs when the ATO finds, after reassessment, that you paid less tax than required. This can result in additional tax plus SIC.
7. Is penalty interest tax deductible?
No. The ATO has made it clear that penalty interest is generally not deductible. This includes interest imposed as a result of failing to meet tax obligations.
8. Is debt interest tax deductible?
Yes — but only when it is related to borrowing for income-producing purposes (e.g., business loans, investment property finance). Not all interest qualifies.
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9. Can I claim a loan tax deduction?
Yes, if the loan is used to produce assessable income (e.g., for equipment or working capital). Keep detailed records to support your claim.
10. Are late fees tax deductible?
Late fees charged by third parties (e.g. suppliers, banks) may be deductible if they relate to business expenses. However, ATO late fees are not deductible.
11. Why is the ATO denying deductions for GIC and SIC?
The ATO is reinforcing the intent of the law: interest imposed due to non-compliance should not be rewarded with a tax deduction. It aligns with broader anti-avoidance policy.
12. Is late payment interest tax deductible?
If it’s a commercial loan from a financial institution, yes. If it’s ATO-imposed interest, then deductibility depends on the cause and context.
Summary of Deductibility Treatment: GIC, SIC, and Related Costs
What Does This Mean for Your Business?
- Greater Scrutiny – Businesses can expect more scrutiny on how and why deductions for interest and penalties are claimed.
- Risk of Tax Shortfalls – Incorrect assumptions about deductibility may lead to amended assessments, shortfalls, and penalties.
- Documentation is Key – Maintain a clear audit trail, especially for any claimed deductions involving interest or penalty amounts.
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Quick Tips
- Only claim deductions for interest genuinely related to income production or business operations
- Keep records of ATO notices, dates, and reasons for GIC/SIC
- Review your interest and penalty treatment each financial year
- Work with your accountant or advisor on complex claims
Key Takeaways
- GIC and SIC are no longer automatically tax deductible
- Purpose, behaviour, and timing all affect eligibility
- Penalty-related interest is being closely watched by the ATO
- Business owners must review their tax deduction strategy
Let’s Talk Strategy
Don’t risk your claim being denied — or worse, triggering an ATO review. Our team of experienced Modoras advisors can help you:
- Assess the deductibility of GIC/SIC in your specific context
- Optimise your loan structuring and tax planning
- Avoid unexpected tax shortfalls
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