On 26 March 2025, Parliament passed a significant amendment affecting tax deductibility: from 1 July 2025, general interest charge (GIC) and shortfall interest charge (SIC) will no longer be tax-deductible for businesses or individuals.
This change is a significant development for any business that occasionally falls behind on tax payments or enters into ATO payment arrangements.
What’s changing and why it matters?
Currently, GIC (charged at 11.17%) and SIC (7.17%) are deductible, which offsets some of the financial sting when interest accrues on unpaid or underpaid tax.
But from 1 July 2025, that relief disappears. The after-tax cost of GIC and SIC will increase significantly. For example, a taxpayer on the top marginal tax rate could face an effective GIC cost of around 21%, compared to just over 11% today. Even for those on lower marginal rates, the cost impact is substantial.
What you should do now?
If your business has existing ATO debts or frequently uses payment plans, now is the time to act. Clearing tax liabilities before 1 July 2025 could save you significantly in the long run.
This legislative change highlights the importance of proactive cash flow management and timely tax compliance.
