From 1 July 2025, the tax treatment of the Australian Taxation Office’s General Interest Charge (GIC) will change significantly. Until now, GIC, the interest the ATO applies to unpaid tax debts, has been a tax-deductible expense. From the new financial year, however, any GIC incurred will no longer be deductible, meaning businesses will absorb the full cost of this compounding interest without any tax offset.
With GIC rates exceeding 11% per annum and applied daily, the removal of this deduction raises the stakes for business owners carrying tax debt. What was once a manageable cash flow timing issue may now become a costly financial drag.
This change affects more than just tax returns, it impacts loan strategy, cash flow forecasting, and even how lenders assess business risk.
What Is the ATO General Interest Charge (GIC)?
The General Interest Charge is the ATO’s standard interest applied to unpaid or late tax liabilities. It is not a penalty in the traditional sense, but rather a mechanism designed to ensure fairness between taxpayers, discouraging delayed payments and compensating the broader tax system for the time value of money lost.
GIC accrues daily on a compounding basis, which means interest is charged not only on the unpaid tax but also on previously accrued interest. As of Q3 in the 2025 calendar year, the GIC annual rate sits at 10.78%, based on the 90-day bank bill rate plus an uplift as defined by tax legislation.
For example, if a business fails to pay a $10,000 Business Activity Statement (BAS) on time, the GIC begins accruing the day after the due date, increasing the amount owed every single day until it’s fully paid. While GIC may appear minor at first, the compounding nature means even small debts can grow substantially if left unaddressed.
What’s Changing from 1 July 2025?
From 1 July 2025, GIC incurred on any unpaid tax debt will no longer be deductible for income tax purposes. This legislative amendment, introduced under section 26-5(1A) of the Income Tax Assessment Act 1997, was confirmed as part of the Federal Government’s 2023–24 Mid-Year Economic and Fiscal Outlook (MYEFO). It also applies to the Shortfall Interest Charge (SIC), which is imposed when the ATO amends a tax return and finds underpaid tax.
Importantly, only GIC and SIC incurred from 1 July 2025 onwards will lose their deductibility. Any interest charges incurred prior to that date remain deductible and can still be claimed in the 2024–25 financial year, provided they are correctly accounted for.
For small and medium-sized businesses, this is more than a tax footnote. Deductibility effectively reduces the real cost of interest by around 25–30%, depending on the business tax rate. Its removal shifts GIC from a deductible business expense to a pure financial cost, directly impacting net profit and cash flow planning.
Why This Matters for Business Owners
While this legislative change may seem technical, the practical impact is clear: carrying tax debt is about to become significantly more expensive. Without deductibility, GIC is now a net cash expense, one that offers no tax relief and no benefit beyond the temporary deferral of a liability.
For many small and medium businesses, tax debts are used, intentionally or not, as short-term working capital. ATO payment plans are often seen as flexible financing options, especially when business cash flow is stretched. But from 1 July 2025, this strategy becomes increasingly risky. An interest rate of over 11%, compounding daily, means that even short deferrals can carry real cost. And with no tax offset available, the after-tax cost of ATO debt can easily surpass that of commercial finance.
There’s also the perception issue. Lenders view ATO debt, especially when it’s aged or increasing, as a red flag. It can affect credit assessments, refinancing approvals, and may limit access to business lending. In some cases, ATO debt disclosures are even required for grant eligibility or director guarantees.
At Blackwattle Tax, we often see tax strategy and financial structuring treated as separate disciplines. But this change highlights how closely they’re linked, particularly when it comes to managing interest-bearing liabilities within a broader financial plan.
GIC vs Business Loan: What’s the Real Cost?
The removal of GIC deductibility puts it in stark contrast to other common financing tools. Business loans remain tax-deductible provided they are used for income-producing purposes. That difference alone can mean thousands in unnecessary cost when relying on ATO payment plans over commercial alternatives.
Let’s compare the two:
Type of Debt | Interest Rate | Deductible? | After-Tax Cost |
ATO GIC (Q3 2025) | 10.78% | No | 10.78% |
Business Loan | ~6.00% | Yes | ~4.20% |
Example: Lisa runs a family-owned transport business and owes $30,000 in outstanding BAS and PAYG. She’s considering a payment plan over 12 months. At 10.78% GIC, this would cost her over $1,600 in interest, with no tax benefit. By refinancing through a business line of credit at 6%, she reduces her real cost to around $900, and retains deductibility in full.
This comparison doesn’t mean tax payment plans are never appropriate, but they should now be treated with the same scrutiny as any other financing decision. If you’re comparing options, Blackwattle Tax can assist with both the tax implications and the operational side of refinancing or repayment planning.
What Should You Do Before 30 June 2025?
With a clear cut-off date in place, the 2024–25 financial year is your final opportunity to claim deductions for any GIC or SIC incurred. That makes now the ideal time to review your ATO balance, interest history, and any open payment arrangements.
Here’s a checklist to guide your next steps:
- Log into the ATO Business Portal to check current balances and interest charges
- Pay off any ATO debt before 30 June 2025 where possible, this will ensure any GIC incurred remains deductible
- If interest has already accrued, ensure it’s documented and included in your upcoming tax return
- Reconsider long payment plans, compressing them into shorter terms can reduce total interest cost and ensure deductibility
- Model the difference between GIC and business loan options, our Virtual CFO service can help with this
- Set reminders for recurring tax obligations to avoid interest altogether
For businesses already operating on tight margins, ignoring this deadline could mean thousands in additional, unclaimable costs in the new financial year. If you’re unsure where your exposure sits, or how to restructure payments smartly, Blackwattle Tax offers strategic advisory support backed by real financial modelling.
How to Manage ATO Debt Without Overpaying Interest
Even if your business is on an approved ATO payment plan, General Interest Charges still apply. Many business owners assume that entering a plan pauses or reduces interest, it doesn’t. GIC continues to compound daily on the outstanding balance until fully repaid, regardless of whether you’re compliant with the plan terms.
With the removal of deductibility, this interest becomes an even greater drag on your cash flow. What used to be a tolerable business cost is now an avoidable one, especially when cheaper, deductible finance options are available.
Here are practical steps to reassess your ATO debt strategy:
- Compare the cost of GIC to your existing loan or offset account, if you’re paying 6% on a business facility and 10.78% to the ATO, the decision is clear.
- Shorten the term of any new ATO payment plans, longer arrangements now result in materially higher after-tax costs.
- Set up automatic payments and allocate funds into a dedicated “ATO bucket” in your accounting software to ensure liabilities are addressed on time.
- Forecast your upcoming BAS and PAYG obligations, part of the value in our Virtual CFO service is helping businesses prepare for tax before it’s due, not after it’s overdue.
At Blackwattle Tax, we view ATO payment plans as a last resort, not a default setting. If you’re unsure how to restructure repayments or compare financing costs, our team can walk you through the options in a way that’s grounded in your actual cash flow position.
Can You Request a GIC Remission?
Yes, but only under specific and justified conditions. The ATO maintains the discretion to remit (cancel or reduce) GIC where it believes the charges are unfair or excessive based on the circumstances.
Eligible scenarios for remission may include:
- Serious financial hardship where ongoing viability of the business is threatened
- ATO error or delay, including incorrect advice or failure to act on time
- Natural disasters or extraordinary events that prevent timely payment
Importantly, even though GIC will no longer be deductible from 1 July 2025, remitted GIC will also not be treated as assessable income. This change maintains tax neutrality, but it does mean the onus is on businesses to act early and proactively if remission may be needed.
If you believe you may qualify for a remission, it’s best to compile supporting documentation and lodge a written request through the ATO’s formal remission process.
At Blackwattle Tax, we can help frame these requests in a way that aligns with ATO expectations, especially where there’s a clear history of good compliance and financial distress.
Common Mistakes to Avoid
With interest deductibility rules shifting, many businesses may unknowingly adopt strategies that cost them more in the long run. Avoiding these common traps can protect your margins and simplify your tax year:
- Assuming ATO payment plans pause GIC, they don’t. Interest continues to accrue daily.
- Relying on the ATO as your default financing partner, GIC rates are now less favourable than most commercial lending options.
- Overlooking the EOFY 2025 cut-off, only interest incurred before 1 July 2025 can be deducted. After that, it becomes a sunk cost.
- Failing to compare repayment scenarios, even simple modelling can reveal better options than carrying tax debt.
- Ignoring early warning signs, even a small unpaid BAS or PAYG amount can quickly escalate when compounded daily at 11% interest.
A strategic tax position is as much about what not to do as it is about knowing your options. At Blackwattle Tax, we help clients avoid reactive decision-making by embedding tax management into broader business planning.
Industry Impacts: Who’s Most Affected?
While this policy shift applies to all businesses, some industries will feel the effects more acutely, particularly those with volatile cash flow or tight seasonal margins.
Key risk areas:
- Construction & Trades
Irregular payment cycles and long project timelines often lead to deferred tax payments. GIC can accumulate unnoticed across BAS periods, compounding the issue. - Retail & Hospitality
Operating on lean margins, these sectors are vulnerable to short-term cash crunches. A single late BAS lodgement can quickly escalate into avoidable interest charges, now with no tax offset. - E-commerce & Technology
Growth-focused businesses often reinvest aggressively, delaying tax obligations to preserve runway. This change will demand sharper forecasting and disciplined payment planning. - Healthcare Practices
Clinics and practitioners using payment plans to manage tax debt, particularly for superannuation or PAYG withholding, will need to reassess whether that structure still makes sense financially.
For these industries and more, integrating tax strategy into day-to-day operations is no longer optional. It’s essential. Blackwattle Tax provides industry-specific support across construction, retail, healthcare, and e-commerce, ensuring tax doesn’t quietly erode your profitability.
Rethinking Tax Debt Strategy in 2025
The removal of deductibility for ATO interest charges isn’t just a technical adjustment, it represents a fundamental shift in how businesses should approach tax debt.
From 1 July 2025:
- GIC and SIC become pure expenses, with no tax offset
- Carrying ATO debt is more expensive than most business finance options
- Proactive planning, not reactive payment, becomes critical
This is the time to revisit your tax position, debt structure, and budgeting habits. Don’t assume payment plans are still the most convenient option, and don’t leave accrued interest unclaimed before the end of this financial year.
Your Next Step
Need help comparing GIC to commercial finance, or reviewing your ATO position before EOFY?
Book a free 15-minute consultation with one of our Chartered Accountants at Blackwattle Tax. We’ll help you assess your options, model your interest exposure, and structure your repayments in a way that protects cash flow.
Disclaimer
This article provides general information only and does not constitute legal or tax advice. For personalised guidance based on your business circumstances, please consult a registered tax agent.