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Act Now: ATO Interest Charges Will Soon be Non-Deductible

Do you have ATO interest charges hanging over you? Hoping to claim them as a tax deduction when you pay them off? If so, read on, because a recent Government announcement aims to put a stop to interest charge deductibility. Previously, general interest charge (GIC) and shortfall interest charge (SIC) could be claimed as a deduction, but subject to the passage of legislation, from 1 July 2025 that will no longer be the case. The good news, however, is that there is something you can do about it before the rules change…

What are the Current GIC and SIC Deduction Rules?

GIC and SIC apply in situations where tax obligations are overdue or when an error in self-assessment leads to an underpayment of taxes, respectively. Presently, both GIC and SIC can be deducted from taxes for all entities, but an announcement in December 2023 has put a deadline on this. Starting from the income year beginning on 1 July 2025, the Government will disallow tax deductions for interest charges levied by the Australian Taxation Office (ATO), specifically GIC and SIC. It is currently unknown if bank loan interest will be tax deductible post-1 July 2025 if the ATO passes this legislation. As it stands, per Taxation Ruling IT 2582, interest on borrowings to pay out tax debts relating to carrying on a business are tax deductible, but this is not applicable for individuals who aren’t operating a business. So, watch this space!

Why are the Rules Changing?

If you’re searching for a reason why the government may look to change these rules, look no further than the fact that this policy is projected to boost their receipts by $500.0 million over the four-year period ending in 2026–27. By eliminating these deductions, the government also wants to incentivise entities to accurately assess their tax obligations and ensure timely payment, thereby ensuring fairness among individuals and businesses who consistently meet their tax responsibilities. Furthermore, the Tax Commissioner will retain the discretion to waive GIC or SIC based on individual circumstances, reinforcing this measure’s goal of promoting compliance while accommodating exceptional cases.

I Have an Entity with GIC/SIC – What Should I Do?

If we assume that these measures will eventually be passed into law, the clock is now ticking to take advantage of the current deductibility rules concerning GIC and SIC. That means the sooner you pay off any outstanding GIC/SIC, the better – and there are a number of lenders that will assist with the payment of tax debt. While the initial rate is typically higher than that of other loan facilities, it is important to remember that GIC currently stands at 11.38%.

Therefore, paying off outstanding ATO interest charges now generally means a slightly higher rate in the short term (with the potential to refinance down to a more competitive rate after 12-24 months in some cases) – but crucially means you are able to claim the deductions currently on offer. A great recent example is a client with a $700,000 ATO debt, who was able to finance $620,000 of this through a specialist lender. That means in one foul swoop, they took care of close to 90% of their debt, gave themselves a structured, achievable way to pay it back, and could claim the deduction because they took action before 1 July 2025.

How McKinley Plowman Can Help

Should you be in a position where you have one or multiple entities with outstanding GIC or SIC amounts, the bottom line is to act now. In the first instance, our Finance team can help you navigate whether paying off tax debt with a loan is appropriate for your situation. Our tax & accounting team can then review your structures and ensure everything is optimised from a tax perspective, and develop a forward-thinking strategy through tax planning. That way, you can get back in the ATO’s good graces for the long-term.

To find out how we can help you, please do not hesitate to reach out to us on 08 9325 2411 (Perth), 08 9301 2200 (Joondalup), or via our website.

written by:

Since entering the accounting industry over a decade ago, Levi has worked in senior positions alongside clients of all different sizes and industries, and joined McKinley Plowman in 2022. He combines his invaluable experience with his Chartered Accountant (CA) and Chartered Tax Adviser (CTA) qualifications, and delivers outstanding results for MP+ clients. At MP+, Levi works with clients to start, grow, and improve their business, and enjoys developing sounds tax and business development strategies to help them reach their goals.

Levi has a particular knack for optimising tax results, equipping clients with effective business structures, and delivering thorough forecasting to facilitate business growth. He loves seeing clients achieve their growth objectives and obtaining optimal tax results.

When he’s not in the office working hard for clients, you’ll find Levi spending time with his young family, and playing & watching soccer and AFL.

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