The Australian Government recently passed legislation permanently removing the tax deductibility of the general interest charge (GIC) and shortfall interest charge (SIC) for all taxpayers. This significant change will apply to interest charges incurred in income years beginning on or after July 1, 2025.   

This change could substantially impact cash flow and tax planning for small business owners who occasionally rely on ATO payment plans. Here’s what you need to know and how to prepare. 

What are general interest charge (GIC) and shortfall interest charge (SIC)? 

Before we explain the changes, let’s clarify what these charges are: 

  • General interest charge (GIC) is applied when you pay your tax obligations late or have a tax debt. The current GIC rate is 11.38% (as of April 2025), which is significantly higher than many commercial lending rates. 
  • Shortfall interest charge (SIC) applies when your tax assessment is amended, resulting in you owing more tax. The SIC rate is generally lower than the GIC rate.   

Until now, businesses could claim these charges as tax deductions, helping to partially offset the cost of carrying tax debts. 

What’s changing with GIC and SIC, and when?  

From July 1, 2025, you can no longer claim tax deductions for any GIC or SIC payments incurred after this date. Only interest charges incurred in income years starting on or after July 1, 2025, are affected.    

Why has this change been introduced?  

The Government has introduced this change primarily to discourage the reliance on tax debts as a method of business financing. The aim is to encourage businesses to meet their tax obligations promptly rather than ‘borrowing’ from the ATO through late payments. 

However, many tax professionals argue that this change couldn’t come at a worse time. With inflation remaining high, interest rates elevated and ongoing cash flow pressures, removing this deduction significantly increases the real cost of having tax debts. 

Can I still request remission of GIC and SIC charges? 

Yes, the good news is that businesses can and should still apply to the ATO for remission (i.e., reduction or waiver) of GIC and SIC charges in specific circumstances. 

The Commissioner still holds broad discretion to remit these interest charges at their discretion. Situations where remission may be granted include: 

  • External factors outside the business’s control (e.g., natural disasters or events that severely disrupt business operations) 
  • Delays or errors caused by the ATO itself (such as delays in ATO processing or an unreasonably prolonged audit) 
  • Situations where taxpayers demonstrate an excellent compliance history combined with genuine attempts to pay. 

We strongly recommend that businesses familiarise themselves with their options to request remissions now that the costs of carrying these charges will significantly increase. 

How can businesses prepare for the GIC and SIC changes?  

With around two months until this new legislation comes into effect, now is the time for small businesses to proactively address their tax position and cash-flow management strategies: 

1. Focus on paying down existing tax debts 

Focus on reducing or eliminating tax debts before the new rules take effect. This might mean: 

  • Reallocating resources to pay down ATO debts ahead of other creditors 
  • Reviewing payment arrangements to clear debts faster 
  • Considering whether other financing options might be more cost-effective.  

2. Review your cash flow management 

With GIC becoming more expensive, it’s more important than ever to: 

  • Ensure your accounting system provides accurate, timely information 
  • Consider setting aside funds for tax obligations as they accrue 
  • Implement more rigorous cash flow forecasting.  

3. Explore alternative financing options 

While it’s true that some lenders are reluctant to work with businesses carrying tax debt, it’s worth exploring all options: 

  • Speak with your bank about working capital facilities 
  • Consider whether non-bank lenders might offer suitable products 
  • Look into whether invoice financing or other solutions could help manage cash flow.  

4. Be aware of the circumstances where you can request a remission 

Familiarise yourself with the circumstances where the ATO might remit interest charges and: 

  • Document any extenuating circumstances if you face difficulty making payments 
  • Maintain open communication with the ATO if payment issues arise 
  • Consult with your accountant about remission application strategies.  

Important GIC and SIC deadlines to be aware of  

  • Before July 1, 2025: GIC and SIC remain tax-deductible 
  • From July 1, 2025: No tax deductions are available for GIC or SIC incurred after this date.  

Need help navigating the changes to GIC deductions?  

We understand the significant impact these changes may have on your business. Our team can work with you to develop proactive, practical strategies that minimise the impact of these new rules on your business. 

You can reach out to us by: 

This article was written by Tax and Business Services Director, Kylie McEwan.  

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Disclaimer: The information provided in this article is factual in nature and objectively ascertainable and, therefore, does not constitute financial product advice. Importantly, the factual information that has been supplied does not take into account your personal circumstances, objectives or goals.