From 1 July 2025, businesses will no longer be able to claim ATO General Interest Charges (GIC) or Shortfall Interest Charges (SIC) as tax deductions. These charges—once treated as legitimate business expenses—will now be fully non-deductible, increasing the real cost of falling behind on tax.
This legislative change is especially significant for businesses already operating under cash flow strain or carrying ongoing ATO debt. If your business strategy includes deliberately deferring tax payments to preserve cash or working capital, now is the time to reassess that approach. With GIC and SIC becoming non-deductible, the true financial impact of tax debt increases, and the negatives may now outweigh the short-term benefits.
In this article, we’ll explore what the change means, why it was introduced, how it affects your bottom line, and what strategies are available to manage ATO debt more effectively going forward.
What is GIC and how does it work?
The General Interest Charge (GIC) is a daily compounding interest fee the Australian Taxation Office (ATO) applies when a tax debt remains unpaid after its due date. This includes late payments on obligations like income tax, BAS, PAYG withholding, and fringe benefits tax. The GIC exists to encourage timely payment of tax debts—and at over 11%, it carries a significant cost to businesses.
The Shortfall Interest Charge (SIC), on the other hand, applies when the ATO determines that you’ve underpaid tax due to an underestimation or error—often following an amended assessment. It accrues from the original due date of the tax and is generally charged at a lower rate than GIC.
Learn more about ATO interest rates and how GIC is calculated.
Key differences:
- GIC applies to late payments.
- SIC applies to under-reported or amended tax liabilities.
Previously, both types of interest were tax-deductible, meaning businesses could claim them as legitimate expenses and reduce their taxable income accordingly. From 1 July 2025, that deduction will no longer be available, making these interest charges even more costly.
Why the government made this change
This change was introduced as part of the 2023–24 Federal Budget and has now passed into law. The removal of deductibility for ATO interest charges—specifically the General Interest Charge (GIC) and Shortfall Interest Charge (SIC)—is designed to discourage businesses from viewing tax debt as a low-priority, flexible liability.
Historically, some businesses treated unpaid tax like an unofficial line of credit, especially when GIC was deductible and repayment enforcement was lenient. By removing that deductibility, the government is sending a clear message: paying tax late is no longer just expensive—it’s now more punitive.
What is the government encouraging instead?
Now, the government is encouraging businesses to:
- Lodge and pay on time.
- Engage early with the ATO if they’re unable to meet obligations.
- Use formal tools like payment plans or restructure pathways.
These changes align with the government’s broader strategy to:
- Protect the integrity of the tax system
- Reduce the burden of collectible tax debt
- Promote fairness among compliant and non-compliant businesses.
What it means for your business (and bottom line)
Previously, when a business incurred a General Interest Charge (GIC) on overdue tax, it could be entered in the Profit and Loss Statement as an operating expense—just like interest on a business loan. This meant the GIC reduced the business’s taxable income for the financial year.
For example:
- A business incurs $10,000 in GIC over the year.
- If it’s operating at a 25% corporate tax rate, that expense would reduce the tax bill by $2,500.
- Net cost = $7,500 after tax.
This treatment provided a modest cushion against the financial sting of falling behind on tax obligations. But that benefit is being removed.
From 1 July 2025, GIC will no longer be deductible — meaning that same $10,000 becomes a full, unreduced cost to the business. It still appears in the profit and loss, but now it doesn’t provide any tax offset.
This change has two key implications:
- Profit figures may appear artificially lower.
- Cash flow will be tighter, because the tax benefit that once softened the GIC blow is now gone.
From 1 July 2025, interest charged by the ATO—specifically the GIC and SIC—will no longer be tax deductible. This change, passed into law last year, means these charges will now be treated more like penalties.
Importantly, interest on commercial loans used to refinance ATO debt remains deductible in many cases. This means refinancing tax debt through a business loan can still offer tax advantages, depending on your circumstances.
With the GIC rate currently over 11%, refinancing may also reduce the total interest paid, while retaining deductibility.
— Gary Threlfall, CPA
Senior Accountant, Threlfalls Chartered Accountants
Specialist in SME tax and compliance strategy
What businesses should do before 1 July 2025
As a small Australian business, there are a few key steps you may need to take before 1 July 2025. This include reviewing your current ATO debt, calculating your likely GIC impact, and finally exploring refinancing or restructuring options.
How to minimise your GIC exposure
If you’re wondering how to minimise your own exposure, there are three easy steps you can follow:
- Pay or negotiate early.
- Set up a payment plan.
- Request GIC remission under hardship.
If these steps aren’t possible for your business right now, then there are a still other options open to you.
When a payment plan isn’t enough, consider a Small Business Restructure (SBR)
SBR allows eligible small businesses to restructure ATO debt and pause further interest while remaining operational.
To qualify for a Small Business Restructure, a business must:
- Be a company with total liabilities under $1 million
- Be up to date with employee entitlements and lodgements
- Be insolvent or likely to become insolvent
- Have directors who haven’t recently used an SBR for another business
The SBR process is facilitated by a registered Small Business Restructuring Practitioner (SBRP), who works with the business to develop a plan and negotiate creditor approval. If approved, the ATO and other creditors agree to accept a reduced repayment over a defined period while the business continues trading. This option is designed to provide viable businesses with a path to survival, especially where debt pressure is short-term and manageable with proper support.
Case Study: The cost of waiting vs. acting early
Consider two businesses, Alpha Pty Ltd and Beta Co., both owing $100,000 in ATO tax debt in January 2025. The GIC rate is 11.15% annually.
Alpha Pty Ltd – Proactive Refinance
Alpha works with its accountant and broker to refinance the tax debt using a specialist loan facility at 7% interest. This loan is interest-deductible, and repayment terms are structured up to 30 years.
- Annual interest: $7,000 (deductible from profit).
- Can obtain longer payment terms with property security up to 30 years. Payment would be $665 per month at 7.0% interest rate allowing reduced outgoings and ability to pay more when cashflow allows.
- Result: Predictable repayments, improved cash flow, and preserved credit status.
Beta Co. – Delayed Action
Beta Co. does nothing, hoping for business conditions to improve. They continue to accrue GIC at 11.15%, now non-deductible from 1 July 2025.
- Annual interest: $11,150 (non-deductible)
- After-tax cost: $11,150
- Payment plans usually have a maximum term of 2 years with 3 years on exception. Therefore a 2-year plan payment at 11.17% (09/06/2025) would be approx. $4669 per month.
- Result: Higher cost, tighter cash flow, and mounting pressure from ATO recovery action, risk of business loss and/or garnishee orders and court action.
- Businesses not in communication with the ATO for debts over $100,000 can result in credit defaults being registered.
Outcome: The difference in cost alone is significant—but more importantly, Alpha Pty Ltd has taken control of its debt situation while Beta Co. has lost strategic flexibility. Acting early didn’t just save money—it reduced risk and preserved business stability.
There are solutions available to manage ATO debt
With the removal of tax deductibility for ATO interest charges, it’s more important than ever for businesses to take a proactive approach to managing tax debt. Rather than letting interest accumulate at high rates—without the previous tax benefit—business owners should consider formal and informal solutions that can reduce risk, improve cash flow, and preserve business viability.
ATO payment arrangement:
Even though an ATO payment arrangement is no longer tax deductible, they can be an effective method to avoid the risk of escalated ATO collections.
- Available for many businesses with manageable tax debts.
- May reduce further penalties if arranged promptly.
- Often flexible and tailored to cash flow capacity.
- Assists to avoid heavy ATO collections processes (such as garnishee orders or court judgments) while under a formal payment arrangement.
- Note: Faltering on any business obligation could result in cancelling a payment plan.
- Note 2: Interest is no longer tax deductible.
Requesting GIC remission:
- Can be pursued if exceptional circumstances prevented timely payment.
- Note: Requires evidence and proactive engagement with the ATO.
- Note 2: In many cases, the ATO may request full payment of the debt before remission.
Refinancing through commercial loans:
- Interest on commercial loans remains deductible
- Replaces high GIC rates with potentially lower commercial rates
- May offer cash flow stability with longer repayment terms
- Note: Not available with traditional lenders; specialised lenders are required
Small Business Restructure (SBR):
- Formal, government-endorsed restructure option.
- Allows for compromise on debts while continuing to trade.
- Often suited to viable businesses with short-term debt pressure.
- Note: Usually requires funding from a specialist loan facility or personal funds.
- Note 2: An SBR arrangement is registered against your company until final debt is paid.
A new cost that can be avoided
Businesses that carry or accumulate ATO debt must now re-evaluate that strategy in light of these legislative changes. With GIC and SIC no longer deductible, every dollar in interest becomes a dollar lost—there’s no tax offset to soften the blow.
Engaging in a proactive debt assessment—reviewing your tax liabilities, assessing upcoming obligations, and forecasting repayment capacity—is the first step. But navigating these changes isn’t something most business owners should do alone.
Working with reputable advisers—such as your tax agent or accountant, bookkeeper, and experienced mortgage or finance broker—can help you:
- Evaluate your current tax position.
- Understand the financial impact of GIC changes.
- Explore alternative funding options or restructuring paths.
- Implement a tailored strategy to reduce exposure and improve cash flow.
- Maintain ongoing monthly bookkeeping and record keeping.
The earlier these conversations happen, the more options will be available. What was once a manageable cost of doing business may now be a serious drain on profits. But with expert support and early action, it can still be managed effectively.
Loan Saver Network brings over 26 years of experience in the mortgage and finance industry, with a reputation built on proven results and strong online reviews. We’re here to support business owners with practical guidance through complex tax debt situations. Proactive debt management now has even greater value and outcomes.
