The purpose of this communication is to inform you regarding recent amendments to the Income Tax Assessment Act 1997, which will prevent taxpayers deducting general interest charge (GIC) and shortfall interest charge (SIC) incurred on or after 1 July 2025.

About GIC and SIC

GIC applies where a taxpayer fails to pay tax on time, whereas SIC is payable on additional amounts of income tax for which a taxpayer becomes liable as a result of an amended assessment. GIC applies from the date on which the tax was due for payment until the day it is paid, while SIC applies from the date the income tax should have been paid up to the date on which an amendment assessment is issued (i.e., the ‘shortfall period’). 

The current annual rate of GIC is 11.17%, which is seven percentage points higher than the 90-day bank bill rate for February 2025. The current annual rate of SIC is 7.17%, with the rationale for the differential between the annual rates of GIC and SIC being that taxpayers generally cannot have been aware of their liability during the shortfall period. Both GIC and SIC apply on a daily compounding basis, and have since their introduction been deductible for income tax purposes. 

Prospective Treatment

Due to the enactment of the Treasury Laws Amendment (Treasury Incentives and Integrity) Bill 2025, all GIC and SIC incurred from 1 July 2025 will not be deductible for income tax purposes. No grandfathering of existing tax debt is provided for.  

Implications 

In the case of income tax, both GIC and SIC cannot be incurred until the date on which a notice of amended assessment is served, whereafter GIC will be incurred on a daily basis. In other words, it does not matter what income year the underlying amended assessment relates to – it is the service of the notice of amended assessment that will cause the GIC or SIC to be first incurred. This represents an interesting proposition in the context of the strategy to be applied in taxpayer audits and reviews – i.e., it may be desirable to expedite and later object to amended assessments to ensure that the deductibility of SIC is not compromised. 

More broadly, taxpayers may be compelled to re-consider the management of their tax debts and how to finance them. It may be the case that the net cost of obtaining third-party finance to defray tax debt proves more economical than a payment plan with the ATO, for example, once the deductibility of the former is considered. 
 

Finally, although taxpayers will remain entitled to request the remission of GIC and SIC under certain circumstances, it should be borne in mind that taxpayers do not have any objection rights with respect to any GIC remission decisions, and many SIC remission decisions. The increased stakes underscore the importance of seeking professional advice when engaging with the ATO on matters such as GIC and SIC remission.