For many years taxpayers have been able to claim a tax deduction for incurring ATO General Interest Charge (“GIC”) & Shortfall Interest Charge (“SIC”).
This effectively softened the blow for taxpayers that were not able to meet their Taxation commitments on time.
Such charges will no longer be deductible from 1 July 2025 as a result of Parliament passing legislative amendments on Wednesday, 26 March 2025.
This reform was first announced by the current Government in December 2023.
These changes have been very controversial and represent a major shift in tax policy, and will result in increasing the cost of tax debt for businesses and individuals. The rates of GIC & SIC are already levied at premium rates which are calculated on a daily compounding basis.
Although such charges will not be tax deductible post 1 July 2025, the Commissioner will still have the discretion to remit interest charges where it is fair and reasonable to do so, taking into consideration the circumstances which led to the delayed payment of tax liabilities or the tax shortfall.
IMPACT ON EXISTING ATO PAYMENT PLANS
Where an ATO payment plan extends beyond 1 July 2025, taxpayers need to be aware that any GIC or SIC accruing after this time will not be tax deductible even though it may relate to an earlier debt.
PROACTIVE STEPS THAT TAXPAYERS CAN TAKE
- Pre-existing ATO Payment plans
- If possible, consider paying these off prior to 1 July 2025 before the new rules take effect
- Review Tax Cashflow Strategies
- Taxpayers should take into account the increased cost of “borrowing“ from the ATO and consider other possible alternatives
Please contact our office should you have any further queries or wish to discuss your particular situation with us.
Kind Regards,
Eric Cirulis
Director/CEO