Amendments have been made to the Income Tax Assessment Act 1997 (ITAA 1997), which mean taxpayers will no longer be able to deduct the costs of general interest charge (GIC) and shortfall interest charge (SIC) if incurred on or after 1 July 2025. This is important to consider in the lead up to year end processes.
What are GIC and SIC?
| GIC | SIC |
|---|---|
| Arises where a taxpayer doesn’t pay their tax on time. | Arises on additional amounts of tax which a taxpayer becomes liable for due to an amended assessment. |
| Applies from the date the tax was due for payment until the day it is paid. | Applies from when the income tax should have been paid, up to the date on which an amendment assessment issues. |
| Current annual rate of GIC is 11.17%. | Current annual rate of SIC is 7.17%. |
| Apply on a daily compounding basis. | Apply on a daily compounding basis. |
| Currently deductible when incurred rather than paid. | Currently deductible when incurred rather than paid. |
What is Changing for GIC and SIC?
Updates to the legislation in the Treasury Laws Amendment (Treasury Incentives and Integrity) Bill 2025, mean that any GIC and SIC incurred on or after 1 July 2025 will not be deductible for income tax purposes. It is important to note that there is no grandfathering of existing tax debt in the provisions.
Andersen Comment
Due to the changes, taxpayers may wish to re-consider how they will manage and finance their tax debts. With GIC and SIC no longer deductible, an ATO payment plan is less attractive as it may be more economical to obtain external assistance to settle a tax debt once the deductibility of that type of arrangement is compared to incurring GIC or SIC with the ATO.
It should also be noted that for both GIC and SIC, they cannot be incurred until the date on which a notice of amended assessment is served, whereafter GIC will be incurred on a daily basis. It does not matter what income year the underlying amended assessment relates to. This means taxpayers should consider timing of their lodgements and amendments and whether it may be better for them to expedite lodgements and later object to any amended assessments in order to ensure that the deductibility of SIC is preserved.
Finally, whilst clients will still be able to request for the remission of GIC and SIC imposed on them in certain circumstances, it should be noted by taxpayers that they do not have any objection rights if the disagree with GIC remission outcomes, and have limited rights or ability to request review of SIC remission outcomes. Given the extra impost of the lack of deductibility, it is evermore prudent to be seeking timely professional advice when engaging with the ATO on any matters relating to GIC or SIC remissions.
