Carey Group Quarterly Newsletter

From 1 July 2025, the Australian Government will implement major changes to the tax treatment of the General Interest Charge (GIC) and Shortfall Interest Charge (SIC). Under new legislation, these charges will no longer be deductible for income tax purposes.

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Understanding GIC and SIC

• General Interest Charge (GIC): Imposed by the Australian Taxation Office (ATO) on unpaid tax liabilities. It accrues daily until the outstanding amount is paid.

• Shortfall Interest Charge (SIC): Applied when a taxpayer’s self-assessed tax liability is less than the actual amount owed. It accrues from the original due date until an amended assessment is issued.

Historically, both GIC and SIC have been tax-deductible, allowing taxpayers to reduce their taxable income by the amount of these charges.

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Legislative Changes

The new legislation introduces the following:

• Non-Deductibility: From 1 July 2025, any GIC or SIC incurred will no longer be deductible for income tax purposes.

• Applicability: This change applies to all taxpayers, regardless of whether the underlying tax liability relates to periods before or after the commencement date.

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Implications for Taxpayers

The removal of deductibility for GIC and SIC has several implications:

• Higher Tax Liabilities: Taxpayers will no longer be able to offset these charges against their taxable income, which may result in larger tax bills.

• Impact on Cash Flow: Businesses, particularly those with tight cash flow, may face increased financial pressure due to the non-deductibility of these charges.

• Greater Compliance Incentive: The change is designed to encourage timely and accurate tax payments by removing the financial advantage of deducting these interest charges.

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Recommendations

To prepare for the change, taxpayers should consider the following:

• Review Tax Practices: Evaluate current tax payment and reporting processes to ensure compliance and reduce the likelihood of incurring GIC and SIC.

• Financial Planning: Factor in the potential impact of non-deductible charges when preparing budgets and cash flow forecasts.

• Seek Professional Advice: Speak with a tax adviser to understand the full impact of these changes and explore strategies to minimise exposure.

For further guidance on any of these areas, consider speaking to a tax professional to make sure you’re fully prepared.