The Australian Taxation Office (ATO) has recently clarified an important change that will affect many small and medium businesses: General Interest Charges (GICs) are no longer deductible for income tax purposes.
When businesses or individuals pay their tax obligations late, the ATO applies a General Interest Charge (GIC). This charge is intended to compensate the Government for the time value of money and to encourage timely payment.
Historically, GICs were treated as a deductible expense, meaning businesses could claim them as a tax deduction. However, this is no longer the case.
From the 2025 income year onward, any GIC incurred will be treated as a non-deductible expense. This brings GICs in line with other types of penalty payments to government agencies, such as speeding fines or late lodgement penalties, which have always been non-deductible.
The rationale is that deductions should not apply to costs that arise purely from non-compliance. In other words, paying late is not a business activity that should attract a tax benefit.
No tax benefit from late payments – previously, a portion of the GIC was offset by the deduction; now, the full cost will hit your bottom line.
Increased real cost of non-compliance – with no tax relief available, businesses will feel the full impact of late payment charges.
Greater incentive to stay up to date – avoiding GICs is now more important than ever.
Plan cashflow carefully – ensure you have funds set aside for BAS, PAYG, GST, and income tax obligations.
Set reminders and alerts – automate payment alerts so due dates are not missed.
Engage with the ATO early – if you anticipate difficulties paying on time, consider negotiating a payment plan. While interest still applies, proactive engagement can prevent escalation.
Seek professional support – your accountant can help you forecast tax obligations and smooth cashflow to reduce the risk of late payments.
The change to GIC deductibility highlights the importance of timely tax compliance. By staying on top of ATO obligations, businesses can avoid unnecessary costs and protect their profitability.
If you are concerned about upcoming ATO obligations or managing cashflow, talk to the Tactica Partners team. We can work with you to forecast liabilities, set up strategies for timely payments, and avoid unnecessary penalties.
