Taxpayers warned of GIC implications as changes loom

Tax practitioners have been advised to caution their clients about any outstanding debts or costs before July 1 to help them mitigate any consequences associated with the general interest charge (GIC) law change.

From 1 July 2025, law changes to the deductibility of interest will impact any late payments or underpayments from being tax deductible in a move to hold taxpayers with delayed payments accountable.

As previously reported on Accountants Daily, the change came as a result of the Treasury Laws Amendment Act 2025 being enforced as law, meaning any GIC incurred on and after 1 July 2025, regardless of whether the debt related to an earlier income year, would no longer be tax deductible.

Tony Greco, senior tax adviser at the Institute of Public Accountants, said the change was set to impact all taxpayers and therefore would have wide ramifications as GIC was currently deductible for all entities.

Greco said while it was good that the ATO had communicated the law change from July, it fell short of what was required.

“What we are finding with our member interactions is that whilst most tax practitioners are aware of the change, they have not had fulsome conversations with their clients to help them mitigate some of the consequences associated with the law change,” he said.

“For some taxpayers there is only a week left to pay down tax debts with alternative financing to avoid the imposition of GIC which will be non-deductible after 1 July 2025. Particularly for taxpayers for taxpayers conducting a business who may effectively obtain alternative sources of finance and the interest incurred on the loan may continue to be eligible for a tax deduction (depending on the purpose and nature of the loan).

According to Greco, it was also crucial that tax practitioners ensured their clients were aware that any outstanding litigation or disputes would be more costly in the event of an unfavourable outcome. To mitigate this, he said some clients may want to settle disputes to avoid additional financial impost, which emphasised why tax practitioners should highlight the potential implications of the denial of GIC deductibility.

“Practitioners will be surprised that the law change does not provide any grandfathering provisions, and this might explain the lack of conversations with clients,” Greco said.

“Any assessments of GIC that happen – or GIC incurred daily after the initial assessment – after 1 July 2025 will be non-deductible regardless of the lodgement period it relates to or when the underlying debt was raised.”

It was noted that the IPA was originally not supportive of the upcoming GIC law change based on a number of reasons, including the disproportionate impact it would have on the small business sector.

The change was not as much of a concern for larger businesses, as they were less likely to have tax debts and would be able to obtain alternative finance more easily.

“The uplift factor applied to the GIC rate already compensates the government for taxpayers who are late in paying their undisputed tax debts,” Greco said.

“The IPA is supportive of more affirmative ATO action on debt collection on a case-by-case basis and applying more pressure on businesses with the capacity to pay is not in dispute.”