Starting 1 July 2025, the Australian Tax Office (ATO) will remove the deductibility of General Interest Charges (GIC) and Shortfall Interest Charges (SIC) for all taxpayers. This change, known as the GIC non-deductibility 2025 update, may seem simple at first glance, but the practical implications for individuals, small businesses, and tax practitioners are far from straightforward and deserve your attention.
At Endurego Tax, based in Sydney’s Inner West, we’re here to help you prepare for what this means, particularly if you or your business has unpaid tax debts or is relying on the ATO as a short-term funding source.
What’s Changing?
Currently, GIC is tax-deductible for all taxpayers. But from 1 July 2025, any GIC or SIC charged on or after this date will no longer be deductible, regardless of:
- When your original tax liability arose
- Whether you’re still disputing the ATO’s decision
- If you’re in the middle of a payment plan
This lack of grandfathering could come as a shock, especially for taxpayers navigating disputes or delayed objections.
Who Will Be Most Affected?
This change affects small business owners and individuals the most. Why?
- Higher cost of funding: With the GIC rate currently at 11.17% (June quarter), losing the tax deduction can double the effective cost for high-income earners.
- Limited financing options: Unlike larger corporations, small businesses often rely on the ATO as a short-term creditor. Finding alternative loans can be time-consuming, expensive, or even impossible.
While some businesses can still claim deductions for interest on commercial loans used to pay off tax debts, Section 25-5 of the ITAA 1997 places strict limitations on deductibility. This is a grey area in urgent need of clarification.
Key Areas Needing ATO Guidance
To support tax agents and their clients, we believe the ATO must urgently clarify the following:
- Assessment dates: Will deductibility hinge on the original tax assessment date, or the GIC accrual date?
- Non-assessed liabilities: How does the new rule affect GIC for taxes like Franking Deficit Tax or Family Trust Distribution Tax, which aren’t tied to a formal assessment?
- Payment plans: Will GIC be deductible if a payment plan is set up after 1 July 2025 but relates to a pre-2025 assessment?
- Ongoing disputes: Taxpayers who lose disputes may face significant retrospective GIC costs without deductibility.
- ATO systems: Will Online Services for Tax Agents distinguish between deductible and non-deductible GIC?
- Remission fairness: As GIC remission is becoming harder to obtain, will the ATO consider extended objection delays and arguable positions when reviewing remission requests?
Real-World Example
Imagine a small Inner West café that fell behind on GST during the COVID recovery years. If the ATO issues a final assessment in July 2025, all daily GIC added from that point onwards will be non-deductible. If the owner is disputing the amount and the objection is denied months later, they’ll not only owe the full amount but also won’t be able to deduct the high GIC either. That’s a double hit—and one that could be avoided with better guidance or earlier planning.
What You Should Do Now
- Review existing tax debts — try to finalise them before 30 June 2025.
- Avoid relying on GIC as a financing tool — explore commercial finance options.
- Talk to your tax agent — especially if you’re in dispute with the ATO or considering a payment arrangement.
- Watch for ATO updates — as more guidance is expected soon.
Final Thoughts
This tax law change may appear minor, but the GIC non-deductibility 2025 reform carries major financial consequences for everyday Australians and small business owners. At Endurego Tax, we’re urging the ATO to provide clearer guidance and fairer transition provisions—especially for those caught mid-dispute or mid-payment.
If you’re unsure how the GIC non-deductibility 2025 changes will impact your situation, let’s talk. We’re here to help you navigate the changing tax landscape with confidence and clarity.
