In brief
New legislation denies deductions for shortfall interest charge (SIC), which is imposed on tax shortfalls, and general interest charge (GIC), which is imposed on outstanding tax related liabilities.
These changes apply to SIC and GIC incurred in income years commencing on or after 1 July 2025. This means that analysis of the time at which SIC and GIC amounts are incurred will be a key consideration to determining deductibility.
In detail
Treasury Laws Amendment (Tax Incentives and Integrity) Act 2025 (the Amending Act), which received Royal Assent on 27 March 2025, amends the income tax law to deny taxpayers the ability to deduct GIC amounts and the SIC amounts incurred in income years commencing on or after 1 July 2025.
Under the current law, taxpayers can deduct GIC and SIC.
Recap: what is GIC and SIC?
The GIC applies to specified tax debts owed to the Commissioner of Taxation that are due but unpaid (including income tax, SIC, goods and services tax (GST), withholding tax and RBA deficit debts, among other items). It is calculated on a daily compounding basis using a premium rate (currently 11.17%) and applies from the date that tax debt was due to the date that it was paid.
The SIC applies where there is a tax shortfall. It is also calculated on a daily compounding basis at a premium rate (currently 7.17%) and generally calculated from the due date of the earlier, understated assessment to the day before the Commissioner issues an amended assessment.
When do these amendments apply?
The Amending Act provides that the amendments apply in relation to assessments for income years starting on or after 1 July 2025. The Explanatory Memorandum states that the amendments are to apply to SIC and GIC incurred in income years commencing on or after 1 July 2025.
The Australian Taxation Office (ATO) has published guidance on the recently enacted legislation on its website (see Deny deductions for ATO interest charges), stating that ‘[a]ny GIC or SIC incurred on or after 1 July 2025 is not deductible. This includes all GIC and SIC in respect of outstanding or late payments of tax for income years both before and after 1 July 2025.’
When are GIC and SIC amounts incurred?
GIC is incurred when the liability for the underlying tax is crystalised (e.g. for income tax, when the taxpayer is served with a notice of assessment — see FCT v Nash). After this point, GIC is due and payable for a particular day at the end of that day. Therefore, after the underlying tax and GIC liability has arisen, additional GIC is deemed to have been incurred at the end of a particular day to which the GIC applies.
The ATO has indicated in TD 2012/2 that it will adopt the same approach for SIC. That is, SIC will be incurred in the year of income the Commissioner gives a taxpayer a notice of amended assessment — not in the years to which the shortfall relates.
What is the policy intent for the change?
The Explanatory Memorandum notes that the amendment is intended to:
- ‘level the playing field’ for individuals and businesses who already correctly self-assess their tax liabilities and pay tax on time by denying deductions for GIC and SIC amounts incurred, and
- assist in lowering the amount of collectable debt owed to the ATO.
Does the new law impact a taxpayer’s current right to request remission of GIC or SIC?
The amendment will not impact a taxpayer’s right to request remission of any GIC or SIC — whether for past or future periods.
The takeaway
Based on the ATO’s website guidance, any amount incurred on or after 1 July 2025, regardless of the year to which it relates, will not be able to be deducted. On this basis, requesting remission of the SIC and GIC will become increasingly important going forward in circumstances where deductions for SIC and GIC will be denied.
Nick Maley
Jake Roche
Ben Bright
Rose McEvoy
Related content