Taxpayer’s may need to re-think how they fund their future tax liabilities. Parliament has now passed laws to remove a tax deduction for General Interest Charge (GIC) and Shortfall Interest Charge (SIC) with effect from 1 July 2025.
The Australian Taxation Office (ATO) has seen its debtor books ballooning with many taxpayers delaying paying their tax. Many businesses have used the ATO has an easy source of short-term finance and deferred paying tax related liabilities as the interest charges have been tax deductible.
Parliament has taken action to discourage use of Government funds by denying future tax deductions for the Government interest.
While the ATO interest rates already include a penalty component, with GIC being 7% above the 90 day bank bill rate (current rate of 11.36%) and SIC with an uplift of only 3% (current rate of 7.36%), to date the interest has been tax deductible.
From 1 July 2025, the legislation will specifically deny a tax deduction for GIC and SIC.
Businesses and other taxpayers that may have accepted the higher interest rates due to the tax deduction should budget for the change in law and consider talking to their financiers about alternative financing options.
This will require a pro-active approach and likely require up to date financial statements and budgeted cash flows.
Please talk to your usual Exant advisor for assistance in preparation of cash flow forecasts, up to date financial statements and assistance with speaking with your financier.