Starting 1 July 2025, significant changes are coming to the deductibility of interest charges associated with tax liabilities. These changes, part of the Treasury Laws Amendment Bill 2024, will affect both businesses and individuals, particularly those reliant on tax deductions for General Interest Charges (GIC) and Shortfall Interest Charges (SIC). At Tax Oasis, we believe in preparing our clients for financial and regulatory changes with clarity and actionable insights.
What Are SIC and GIC?
- Shortfall Interest Charge (SIC): Applied when the Australian Taxation Office (ATO) amends a taxpayer’s return, revealing an underpayment.
- General Interest Charge (GIC): Levied on unpaid tax amounts, encouraging timely payment.
Historically, both charges were deductible for income tax purposes. This policy allowed taxpayers to offset some financial burdens associated with late or corrected payments. However, as of 2025, this benefit will be removed.
Why the Change?
The government’s goal is to promote timely compliance with tax obligations and ensure a level playing field for those who meet their responsibilities on time. Removing these deductions will likely discourage late payments and encourage more accurate initial filings.
Current and Future Impact
Currently, the GIC rate is 11.42%, and the SIC rate is 7.42%. Under the new law, these rates will still apply, but the incurred costs will no longer be tax-deductible. This change effectively increases the financial burden on taxpayers who fall short of timely compliance.
Example Scenarios for Victorian Taxpayers
- Small Business Owner – Cash Flow Crunch
Imagine a Melbourne-based small business owner experiencing a temporary cash flow issue. If they delay their $100,000 tax payment by three months, the GIC would accrue approximately $2,855 in interest (11.42% annual rate, pro-rated). Currently, this amount would be deductible, reducing their tax liability. After 1 July 2025, this deduction will no longer be available, leaving the business to absorb the full cost. - Individual Taxpayer – Amended Assessment
A Victorian individual taxpayer discovers an error in their previous tax return. The ATO issues an amended assessment with an additional $20,000 liability. The SIC for a six-month period would amount to approximately $742. While this is deductible under current rules, from 2025 onwards, it becomes an outright expense.
What Can You Do?
The upcoming changes underscore the importance of proactive tax management. Here are a few steps to consider:
- Review Tax Liabilities: Ensure all tax obligations are up-to-date before 30 June 2025 to avoid non-deductible interest charges.
- Optimise Cash Flow: Evaluate your financing options to avoid delays in tax payments.
- Seek Remission: In exceptional circumstances, apply for an ATO remission of interest charges to reduce your liability.
Let Tax Oasis Help You Plan Ahead
At Tax Oasis, we understand that changes in tax policy can be challenging. Our team specialises in helping businesses and individuals navigate complex regulations, ensuring compliance and minimising financial strain. Don’t wait until these changes take effect – contact us today to develop a tailored strategy that safeguards your financial well-being.
