The Australian Federal Government via the Taxation Office (ATO) is adopting a tougher approach to tax compliance and interest charge deductibility. Taxpayers will no longer be able to claim deductions for General Interest Charges (GIC) and Shortfall Interest Charges (SIC) incurred from 1 July 2025. This change affects all types of taxpayers while significantly impacting SMEs and family businesses across Australia. Understanding these changes and preparing early can save your business money and stress. 

Who will be affected by the ATO’s new interest charge rules?

This change affects all taxpayers (e.g. individuals, trusts, companies etc) that: 

• incur General Interest Charges (GIC) or Shortfall Interest Charges (SIC) on late or amended tax debts 

• have existing or incur future outstanding debts with the ATO subject to interest charges 

If your organisation regularly deals with tax debts, it’s crucial to understand these changes and their financial impact. 

What does ending deductibility of GIC and SIC mean for your business?

Starting 1 July 2025, businesses will no longer be able to deduct ATO interest charges that have been incurred (GIC and SIC) from their taxable income. This means: 

• interest charged on late tax payments or amended assessments will become a non-deductible expense

• even if the original tax debt relates to previous years, any interest charges applied after 1 July 2025 will not reduce taxable income 

• your after-tax cost of late tax payments will increase, affecting your cash flow
  

Consequences of not acting before the July 2025 deadline

Failing to prepare for these changes could lead to: 

• Higher overall costs on late or amended tax payments due to interest charges becoming fully non-deductible, increasing your after-tax expenses 

• Reduced cash flow as the after-tax impact of GIC and SIC rises, limiting available funds for other business needs 

• Greater risk of penalties and stricter enforcement if you lack effective compliance systems to manage timely tax lodgements and payments 

• Fewer chances of having interest charges waived, as the ATO will strictly apply remission criteria under section 8AAG of the Taxation Administration Act 1953. 

Stricter ATO interest remission policies: what you need to know

The ATO has announced a more rigid approach to waiving interest charges. Under section 8AAG of the Taxation Administration Act 1953, remission of GIC and SIC will now only be granted in very limited circumstances, such as: 

• delays outside the taxpayer’s control 

• exceptional or special circumstances 

Businesses should be prepared for fewer successful remission applications and stricter enforcement. 

How can businesses prepare for the ATO’s interest charge changes?

To minimise the financial impact and stay compliant, businesses should: 

• Plan Tax Payments Early: Work with your accountant or tax adviser to forecast and pay tax liabilities well ahead of deadlines 

• Pay Outstanding ATO Debts Before 1 July 2025: Clearing debts now means you can still deduct related interest charges 

• Improve Internal Tax Controls: Use tracking systems to avoid late lodgements and payments. 

• Communicate Proactively with the ATO: Engage early if payment delays are unavoidable to negotiate manageable arrangements 

• Consider Alternative Financing: Compare the cost of ATO interest with external funding options which might be more cost-effective post-July 2025
  

Why choose us?

We specialise in helping SMEs, NFPs, and family businesses navigate complex tax changes. Our services go beyond compliance to include: 

• Strategic cash flow forecasting

• Governance and board support for NFPs 

• Customised tax planning and advisory

With our help, you’ll stay ahead of policy changes and avoid unexpected financial shocks. 

Book a consultation and stay ahead of ATO compliance changes

Don’t wait until the last minute. Contact us today to discuss how these tax interest charge changes affect your organisation and develop a tailored plan to protect your business finances.