ATO interest on tax debts to no longer be tax deductible

In the Mid-Year Economic and Financial Outlook (MYEFO), announced by the Federal Government on 13 December 2023, a significant update was revealed that affects tax planning

Under existing tax law, taxpayers who have paid their tax debts late and incurred GIC or SIC can currently claim these interest charges as a tax deduction. As of March 2024, the annual GIC rate stands at 11.38%, and the SIC rate is 7.38%, so the amounts can be significant. 

Starting from 1 July 2025, expect that the General Interest Charge (GIC) and Shortfall Interest Charge (SIC) on tax debts owed to the Australian Taxation Office will no longer be tax deductible. This legislative change is yet to be enacted. However, it is anticipated that the Government will secure easy passage for this measure with support from the ALP, the Greens, and Senators Lidia Thorpe and David Pocock.

What’s the best route to effectively manage your tax burden?

The inability to claim a tax deduction on this penal interest could significantly increase the financial burden for businesses servicing a tax debt, making GIC/SIC interest significantly more costly from an after-tax cash flow perspective. This makes strategic financial management crucial. 

Accordingly, from 1 July 2025, taxpayers that are going to be late with the payment of their taxation debts that are carrying on a business, could be better advised to explore the option of obtaining borrowed funds from an arm’s length lender, to assist in paying off their tax debt to the ATO.  

However, if you think this will affect you, it’s important that you speak with your tax advisor or a tax accountant who can carefully consider your situation and help you evaluate your options with clarity and confidence. 

Expert support with tax advice and tax planning 

Given the complexity of tax law in general, and the frequency of legislative changes, it’s crucial to keep abreast of changes in taxation, and the potential impacts on your business. Navigating this evolving landscape can be challenging, which is why LDB Accountants and Advisors are here to help simplify this complexity, ensuring your business remains compliant while optimising tax strategies. 

Let us help you navigate through the intricacies of tax planning and compliance with confidence. For expert tax advice and tailored solutions that address your specific needs, do not hesitate to contact LDB on (03) 9875 2900 and ask to speak with the tax team.