GIC No Longer Tax Deductible From July 2025
Carrying ATO debt just got more expensive. The General Interest Charge is no longer tax deductible, increasing the effective cost of outstanding tax debt by around 30%.
The 2025 GIC Deduction Change — Stats at a Glance
The scale of the change and the speed of SBR as a response. Four headline numbers that frame the current environment:
Real after-tax cost of carrying ATO debt post-1 July 2025
Compounding daily on all outstanding ATO debt
Eliminates GIC problem by reducing principal
Treasury Laws Amendment effective from this date
This Changes the Maths on ATO Debt
If your business is carrying ATO debt and relying on the GIC tax deduction to soften the interest cost, that deduction is gone from 1 July 2025. The effective cost of your ATO debt just increased significantly. Businesses on payment plans should reassess their strategy now.
What Changed on 1 July 2025?
GIC and SIC deductions have been permanently removed
As part of the Treasury Laws Amendment, the General Interest Charge (GIC) and Shortfall Interest Charge (SIC) are no longer tax deductible from 1 July 2025. This applies to all GIC and SIC incurred from that date forward.
GIC deduction removed
Interest charges on late or unpaid ATO debt can no longer offset your taxable income.
SIC deduction removed
Shortfall Interest Charge from amended assessments is also no longer deductible.
Effective cost increase of ~30%
For a business on the 25% tax rate, losing the deduction means paying ~30% more on GIC in real terms.
How Much More Does ATO Debt Cost Now?
Example calculations at ~11% GIC rate and 25% company tax rate.
| ATO Debt | Annual GIC | Old Tax Saving | New Tax Saving | Extra Cost/Year |
|---|---|---|---|---|
| $100,000 | $11,000 | $2,750 | $0 | $2,750 |
| $200,000 | $22,000 | $5,500 | $0 | $5,500 |
| $500,000 | $55,000 | $13,750 | $0 | $13,750 |
These figures assume a 25% company tax rate. For sole traders on higher marginal rates, the lost deduction is even more significant.
Why This Pushes Businesses Toward SBR
When carrying ATO debt becomes unsustainable, reducing the principal is the only way to fix the problem at its root.
Many businesses have been managing ATO debt through payment plans, absorbing the GIC cost because the tax deduction softened the blow. That cushion is now gone. For businesses where the debt is already difficult to service, this change can tip the balance.
Costs Are Rising
GIC still accrues at ~11%, but the after-tax cost is now ~30% higher because you cannot offset it against income.
Payment Plans Strain Harder
Payment plans that were marginally viable now become harder to sustain as the true interest cost increases.
SBR Eliminates the Root Cause
By reducing the principal debt by 60-80%, SBR removes the GIC problem entirely. No debt means no interest.
SBR does not just reduce interest costs. It reduces the debt itself, eliminating the GIC problem at the source.
What Are Your Options Now?
Four paths forward, ranked from most proactive to least.
Pay the debt faster
Accelerate payments to reduce the principal and stop GIC from compounding.
Reduces total interest cost but requires available cash flow.
Negotiate a reduced payment plan
Contact the ATO to renegotiate terms or request hardship provisions.
May lower monthly burden but does not reduce the principal debt.
Consider SBR to eliminate the debt
Small Business Restructuring can reduce total debt by 60-80%, eliminating the GIC problem entirely.
Removes the root cause of GIC accumulation and preserves the business.
Do nothing
Continue carrying the debt under the old approach without adjusting strategy.
Costs compound faster now that the tax deduction is gone. Worst option.
Why the ATO Votes Yes on SBR Plans 90%+ of the Time
The GIC change makes early SBR more economically rational — both for businesses and for the ATO.
The ATO votes in favour of SBR plans over 90% of the time when they're the major creditor. With GIC no longer deductible, the case for early restructuring is stronger than ever:
Better Return
The ATO often receives more through SBR than they would from liquidation. A restructured, paying business yields more than a wound-up one struggling with uncollectable GIC.
Future Revenue
A continuing business pays future taxes (BAS, PAYG, SGC). With GIC now non-deductible, keeping businesses viable and paying is more valuable than forcing collapse.
Jobs Preserved
Supporting viable businesses aligns with broader economic policy. The 2025 GIC change makes early restructuring economically rational — for both businesses and the ATO.
The 2025 GIC change tilts the economics toward SBR. Early action benefits everyone.
When This Applies
Key dates and transitional provisions you need to know.
| Date | Event | Detail |
|---|---|---|
| 1 July 2025 | GIC and SIC deductions removed | The Treasury Laws Amendment takes effect. GIC and SIC incurred from this date onward are no longer tax deductible. |
| FY2025-26 onwards | Full impact on tax returns | Businesses can no longer claim GIC/SIC as a deduction in their tax returns for charges incurred after 1 July 2025. |
| Transitional provision | Pre-July 2025 GIC remains deductible | GIC and SIC incurred before 1 July 2025 can still be claimed as a deduction. Only charges accruing from the effective date lose deductibility. |
How Badly Does This Affect Your Business?
Impact depends on debt size, profitability, and current strategy.
Small debt (~$50k), profitable business
Monitor closely. If cash flow supports it, payment plan may still be viable. Consider SBR if cash flow tightens.
Low–medium risk
Medium debt ($100-250k), marginal profitability
Reassess viability urgently. A 30% cost increase may render payment plan unviable. SBR becomes attractive.
Medium–high risk
Large debt ($500k+), declining revenue
SBR is likely the best option. The GIC cost increase makes payment plan impossible. Act within 12 months before options narrow further.
High–critical risk
DPN issued (director penalty notice)
Act within 21-day window. Appointing an SBR practitioner within 21 days can discharge non-lockdown DPNs. Delay is costly.
Critical risk
Director Concerns About the GIC Change — Addressed Directly
The questions directors and sole traders raise most often about the 2025 GIC deduction removal. If any describe your situation, work through the answer with a tax agent or restructuring practitioner before acting.
If I pay off my ATO debt before year-end, can I still claim the pre-July GIC deduction?
Yes. GIC incurred before 1 July 2025 remains deductible in the financial year it was incurred. If you paid GIC in FY2024-25, you can claim it as a deduction in that year's tax return. Only GIC accruing from 1 July 2025 onward loses deductibility. Speak to your tax agent about timing of deduction claims for mixed-vintage debt.
Does the GIC change affect my personal tax if I'm a sole trader?
Yes — sole traders on marginal tax rates are affected even more than companies. A sole trader on a 37% or 45% marginal rate loses a larger deduction than a company on 25%. For sole traders with significant ATO debt, the real cost increase from 1 July 2025 may be 45-60% in after-tax terms. Structure considerations (incorporation, SBR eligibility for Pty Ltds) matter more than ever.
Can I negotiate with the ATO to waive GIC now that it's not deductible?
The ATO can remit GIC in specific circumstances (hardship, error, exceptional circumstances), but this is discretionary and not commonly granted. The GIC deductibility change does not create a new ground for remission. For material debt, SBR often delivers better outcomes than waiting for ATO remission that may never come.
Will the ATO accelerate collection action because GIC is no longer deductible?
ATO enforcement priorities have been increasing since COVID-era forbearance ended. While the GIC change is not explicitly an enforcement trigger, the combination of higher effective cost (for taxpayers) and ongoing enforcement activity makes early action more important. Directors waiting for "the ATO to get around to it" are exposing themselves to DPNs, garnishee notices, and wind-up applications.
Does SBR eliminate GIC on all my ATO debt, or only future GIC?
SBR addresses the total debt owed to the ATO as at appointment date, including accrued GIC (both pre- and post-July 2025). If the plan is accepted and the principal debt is reduced by 60-80%, GIC accrued on that debt is also compromised. Post-appointment tax obligations (new BAS, PAYG, super) are excluded debts and must be paid on current terms — they continue to accrue GIC at the post-July 2025 rate with no deduction.
What if my payment plan was already marginal — is SBR now the only option?
Not necessarily, but SBR becomes significantly more attractive. A 30% effective cost increase often tips marginal payment plans into unviability. Three tests: (1) Can you still service the plan at the new effective cost? (2) Is your cash flow stable enough to survive any further shocks? (3) Will you still have working capital after payments? If any answer is uncertain, review SBR before default creates DPN or garnishee exposure.
How long do I have before the GIC change really hurts?
The change takes effect immediately from 1 July 2025. Every day of delay adds to non-deductible GIC. For a $200k debt at ~11% GIC, that's approximately $60/day of extra effective cost. Over 6 months of inaction, the non-deductible GIC burden alone reaches $5,500. The longer you wait, the more expensive the decision becomes.
GIC and Tax Deduction Glossary
Technical terms used in the 2025 GIC deduction change.
- General Interest Charge (GIC)
- Interest charged by the ATO on overdue tax debts at a compounding daily rate (approximately 11% per annum as of 2025). Historically tax deductible under section 25-90 of the Income Tax Assessment Act 1997, but from 1 July 2025, GIC is no longer deductible, increasing the effective after-tax cost by approximately 30% for businesses on the 25% company tax rate.
- Shortfall Interest Charge (SIC)
- Interest charged on underpaid tax amounts from amended assessments or voluntary disclosures. Like GIC, SIC was historically deductible but is no longer from 1 July 2025. SIC compounds daily and often exceeds GIC rates.
- Tax Deductibility
- The ability to reduce taxable income by the amount of a deductible expense. When GIC was deductible, a business on the 25% company tax rate could offset the interest cost against income, reducing the net cost. This deduction no longer applies to GIC/SIC incurred from 1 July 2025.
- Transitional Provisions
- GIC and SIC incurred before 1 July 2025 remain tax deductible and can be claimed in the tax return for the year in which they accrued. Only charges accruing from 1 July 2025 onward are non-deductible. This creates a mixed-vintage debt environment for many businesses.
- Treasury Laws Amendment (2025)
- The legislation that removed GIC and SIC deductibility, effective 1 July 2025. The amendment applies to all GIC and SIC charges incurred from that date and is permanent (not temporary).
- Effective Cost Increase
- The real-world cost increase resulting from the removal of the tax deduction. For a business on the 25% company tax rate, losing the deduction increases the effective cost by approximately 30% (from $11,000 GIC to $11,000 with no offset).
- Small Business Restructuring (SBR)
- Formal debt restructuring process under Part 5.3B of the Corporations Act 2001 for eligible companies with debts under $1 million. SBR reduces ATO debt by 60-80%, eliminating GIC by reducing the principal debt. The ATO votes yes 90%+ of the time on viable SBR plans.
- Payment Plan
- Informal arrangement with the ATO to pay tax debt over time in installments. Unlike SBR, a payment plan requires paying 100% of the debt plus all accrued interest and future GIC charges. No longer tax deductible from 1 July 2025.
- Debt Service Capacity
- A business's ability to meet ongoing debt payments from operating cash flow. When the effective cost of ATO debt increases by 30%, businesses that were previously able to service payment plans may no longer have sufficient cash flow, tipping them toward SBR or insolvency.
- Viability Test
- Assessment of whether a business can generate sufficient profitable trading to meet future tax obligations and plan payments. This is the core test applied by the ATO when deciding whether to vote yes on an SBR plan.
Further Reading — ATO Debt, SBR, and Tax Strategy
The GIC change affects all small businesses carrying ATO debt. Core adjacent resources:
ATO Debt Help
Full options guide: payment plans (pay 100%), SBR (reduce 60-80%), liquidation, and enforcement escalation.
What is SBR?
Complete guide to Part 5.3B restructuring: eligibility, process, timeline, 87% approval rate, and costs.
How SBR Works
5-step timeline, 20-day restructuring phase, creditor vote, and 50%-by-value approval threshold.
SBR Eligibility
Pty Ltd, debts under $1M, lodgements current, 7-year rule, and director duty compliance.
How ATO Votes on SBR
Assessment criteria, PS LA 2012/2 framework, approval patterns, and how to maximise ATO support.
How Much Does SBR Cost?
Median $16,137 restructuring fee + $6,739 plan fee (ASIC). Total typically $15k–$30k.
Carrying ATO Debt Is Now More Expensive
If your business has ATO debt, check whether SBR could reduce it before the interest costs become unsustainable.
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