If you’re currently carrying ATO debt – or might in the future – there’s a key change coming that could increase the cost of doing so. From 1 July 2025, two types of interest charges imposed by the Australian Taxation Office will no longer be tax-deductible: the General Interest Charge (GIC) and the Shortfall Interest Charge (SIC).
What Are GIC and SIC?
The General Interest Charge (GIC) applies when tax payments are made late. It accrues daily and is designed to encourage timely payment of tax liabilities. For the July–September 2025 quarter, the GIC rate is set at 10.78% per annum.
The Shortfall Interest Charge (SIC) is triggered when a tax shortfall arises due to a correction or amendment to your return. This also accrues daily, with a current rate of 6.78% per annum for the same quarter.
What’s Changing?
- Historically, both of these charges could be claimed as tax deductions, reducing their after-tax impact. However, from 1 July 2025, these deductions will be scrapped entirely—even if the related tax debt occurred before that date.
- This means the real cost of ATO debt will increase, particularly for higher-income earners. For example:
- Sally, on a 45% marginal tax rate, used to reduce a $1,000 GIC to just $550 after claiming the deduction. Under the new rules, she’ll pay the full $1,000.
- Adam, on a 30% marginal tax rate, previously paid $700 for the same GIC. Going forward, it’s also $1,000 out of pocket.
How to Minimise the Impact
The most effective strategy is simple: pay off any ATO debt as quickly as possible. Since GIC and SIC are charged daily, the longer you carry a balance, the more it costs.
If paying immediately isn’t an option, consider:
- Exploring lower-interest funding options, especially for business-related tax debts (some interest on these loans may still be deductible).
- Setting up ATO payment plans, noting that interest still accrues during the instalment period.
- Planning ahead—allocating funds regularly for tax, GST, PAYG, and other obligations helps avoid interest charges altogether.
A financial adviser offers the expertise you need to achieve your financial goals, helping you avoid pitfalls and optimise outcomes for a secure financial future.
