Major Changes to the Tax Deductibility of GIC and SIC: What It Means for You

Parliament has passed amendments to the tax law to deny deductions for General Interest Charge (GIC) and Shortfall Interest Charges (SIC). While interest charges on overdue tax liabilities have long been a part of tax compliance, this change to the deductibility of these charges will mean that taxpayers will bear the full financial burden of these interest charges without any offsetting tax benefits previously available.

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.

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.

What has changed

Historically, both GIC and SIC were tax deductible.

Amendments to the tax laws that passed Parliament earlier this year apply have effect that any GIC or SIC that is incurred on or after 1 July 2025 will not be deductible.

Any GIC or SIC incurred on or after 1 July 2025 is not deductible regardless of whether the debt relates to an earlier income year.  That is, even if the debt relates to an income year that ended before 1 July 2025, any GIC or SIC incurred in relation to that earlier year is not deductible if the charge is incurred on or after 1 July 2025.

Remission of GIC and SIC

Where GIC or SIC is incurred it is still open for taxpayers to request a remission of these charges from the ATO.  The ATO has published guidelines explaining when a remission of GIC or SIC may be granted.

Of recent times the ATO has been applying a rigorous approach in considering these requests meaning that many requests for remission of these charges are being denied.

It is noted, however, that where the ATO does remit GIC or SIC incurred on or after 1 July 2025 that remission will no longer be assessable income.

GIC and SIC incurred before 1 July 2025

Any GIC or SIC already incurred prior to 1 July 2025 remains deductible for the year ending 30 June 20254 and earlier income years.

If GIC or SIC incurred before 1 July 2025 is remitted that remission is assessable income and must be returned as income in your tax return.

Is the tax deductibility of other interest charges incurred by a taxpayer affected by this law change?

No.  The law change only applies to GIC and SIC charges incurred on or after 1 July 2025.  That is, interest on debts incurred for an income producing purpose continue to be tax deductible.

What Does This Change Mean for You? 

Given the change to deny tax deductibility of GIC and SIC incurred on or after 1 July 2025 taxpayers should consider:

1. Timely tax payments and accurate self-assessment. Ensuring that tax liabilities are paid by their due date will avoid GIC being incurred on those liabilities.  Ensuring tax returns are accurate and complete will prevent SIC from being incurred.
2. Actively engage with the ATO. Where there is an unavoidable outstanding tax debt, or you are facing financial difficulties, it is advisable to engage early with the ATO to discuss your options.
3. Review existing payment arrangements. Taxpayers with existing ATO payment plans should reassess whether these arrangements continue to be financially viable.  In some circumstances alternative financing options may reduce overall costs.
4. Consult professional advisers. If you’re unsure how these changes might impact your tax strategy or ATO liabilities, our team at Modoras can help you assess your options and structure a more effective plan — including refinancing considerations where appropriate.
5. Consider refinancing ATO debts.  Consult our Mortgage Broker, Adam Magro, to discuss the possibility of refinancing you banking facilities to provide funds to pay tax debts.  Interest on working capital loans for businesses including sole traders remains tax deductible.

Contact us today to discuss how these changes could affect you and what strategies can help you stay ahead.