From 1 July 2025, interest charged by the Australian Tax Office (ATO) – the General Interest Charge (GIC) and Shortfall Interest Charge (SIC) – will no longer be deductible under the new section 26-5(1A) of the Income Tax Assessment Act 1997.
Under the newly introduced change, taxpayers who carry an ATO debt after 30 June will be charged the full headline interest rate with no ability to apply a tax deduction. As such, any GIC or SIC that is incurred on or after 1 July 2025 will be non-deductible.
Background
Under legislation, a General Interest Charge is a daily interest applied to unpaid tax debts/liabilities and triggered when overdue (or a tax return is lodged incorrectly). It is calculated based on the unpaid debt amount, a daily compounding interest rate, and the time attached to the debt remaining unpaid.
Tax penalties and interest attached to the unpaid debt continues to accumulate as long as the debt remains outstanding.
In relation to the Shortfall Interest Charge, this is applied to under-payment of tax amounts upon amendment of a tax return due to administration errors or revealed in subsequent compliance audits.
Remissions
The approach to remissions (reductions) of General Interest Charge (GIC) and Shortfall Interest Charge (SIC) remains unchanged under the new legislation.
For GIC and SIC amounts that are non-deductible and are remitted by the ATO after 1 July 2025, these remissions will not be included in assessable income. In contrast, if a remission is granted on charges that were deductible prior to this date, the remitted amount will become assessable in the financial year the remission is processed.
For More Information
Ensuring you have a clear understanding of how assessments and remissions interact within the new regulatory framework will be critical for maintaining compliance and optimising your income tax outcomes.
To discuss your specific circumstances and to develop the most effective tax management strategy under these changes, please contact an Archer Gowland Redshaw adviser on (07) 3002 2699 | info@agredshaw.com.au.
