Business owners with outstanding ATO interest charges may soon lose a long-standing tax benefit. The government has proposed legislative changes that will disallow deductions for General Interest Charges (GIC) and Shortfall Interest Charges (SIC) from 1 July 2025. That means the clock is ticking for businesses that want to claim these deductions before they’re removed.
What Are GIC and SIC?
These are interest charges applied by the ATO when:
- Tax obligations are paid late (GIC), or
- There’s a shortfall due to an underestimation of tax (SIC).
Currently, these charges are tax deductible, meaning businesses can claim them as a legitimate expense — often at a high effective return, given that GIC currently sits around 11.38%.
However, this tax benefit could soon disappear.
What’s Changing from 1 July 2025?
The government’s proposed legislation will remove the ability to claim GIC and SIC as tax deductions. This means that:
- Any ATO interest incurred after 1 July 2025 will no longer reduce your taxable income.
- The ATO may still apply interest, but businesses will wear the full cost without a tax deduction.
This measure is expected to raise around $500 million over four years, while also encouraging more timely and accurate tax payments.
Is There Still a Way to Deduct Tax-Related Interest?
Yes — but only in limited situations.
According to Taxation Ruling IT 2582, businesses that borrow funds to pay off income tax may still be able to claim the interest on those borrowings as a deduction — if it’s done in connection with the business’s income-producing activities.
In simple terms:
If you’re running a business and take out a loan to pay your tax debt — and the loan supports the operation of the business — the interest on that loan may still be deductible, even after 1 July 2025.
But this rule doesn’t apply to individuals who aren’t carrying on a business, and it doesn’t apply to the ATO interest itself — only to commercial interest on borrowings used to repay tax.
What You Can Do Now
If you have an ATO debt that includes GIC or SIC, the most tax-effective option could be to pay it before 30 June 2025. This could allow you to:
- Claim a deduction under the current rules
- Avoid losing that tax benefit from July next year
- Possibly refinance tax debt using a business loan, and claim interest under IT 2582 (if eligible)
In some cases, specialist lenders can assist with structured repayments, helping businesses clear ATO debt now and maintain healthy cash flow going forward.
How Paris Financial Can Help
If you’re unsure whether these changes apply to you, or you want to act before the window closes, we can help.
Our tax advisors can:
- Review your ATO account and identify deductible interest components
- Explore whether your business qualifies for deducting interest on borrowed funds (under IT 2582)
- Assist with structuring repayments or finding a lending solution where appropriate
The key takeaway? Don’t wait until 2025. The opportunity to deduct ATO interest is still available — but not for long.
Need help reviewing your ATO debt or planning your repayments before the rules change?
Get in touch with the team at Paris Financial today on: (03) 8393 1000.
