Important Changes to ATO General Interest Charge Deductibility
What You Need to Know About the GIC Changes
From 1 July 2025, a significant change affects how the ATO's General Interest Charge (GIC) is treated for tax purposes. GIC is no longer tax deductible, which means taxpayers can no longer claim a deduction for this interest expense.
What is GIC?
The General Interest Charge is interest that the ATO charges when tax debts are not paid on time. GIC commonly applies to:
Amended assessments for income tax
Returns lodged after the due date
Running Balance Account (RBA) deficit debts
Outstanding amounts on payment plans
Why This Matters
Previously, taxpayers could claim GIC as a tax deduction, which partially offset the cost of late payments. With this deduction no longer available, the full cost of GIC now falls directly on taxpayers with no tax relief.
Additionally, the ATO has become stricter when considering requests for GIC remissions, making it more difficult to have these charges waived or reduced.
Minimising Your GIC Exposure
If you're on a payment plan with the ATO, GIC continues to accumulate on the outstanding balance. To limit your exposure:
Pay as much as possible toward your tax debt
Make payments as early as you can
Consider whether alternative financing options might be more cost-effective
Alternative Financing: What's Deductible?
Some taxpayers are now exploring third-party financing to pay off tax debts and avoid ongoing GIC charges. However, the deductibility of interest on these borrowings depends on your circumstances:
For Individuals: Interest incurred on borrowing money to pay personal tax debts is generally not deductible under paragraph 25-25(2)(c) of the ITAA 1997, even though other expenses relating to managing your tax affairs may be deductible.
For Business Taxpayers: Interest on borrowings to pay business tax debts may be deductible under the general deduction provision (section 8-1 of the ITAA 1997). To qualify, the interest must be incurred in carrying on the business for the purpose of gaining or producing assessable income. A strong argument can be made that paying tax debts allows a company to continue operating and generating income.
What Should You Do?
Given these changes, it's more important than ever to:
Lodge your tax returns on time
Pay tax debts promptly to avoid GIC charges
Contact us immediately if you're facing difficulty meeting tax obligations
Discuss whether alternative financing arrangements might suit your situation
If you have questions about how these changes affect you or need assistance with ATO payment arrangements, please don't hesitate to contact our office.
This information is general in nature and should not be relied upon as specific advice for your circumstances. Please contact us to discuss your individual situation.