Major ATO Change: GIC No Longer Tax-Deductible from 1 July 2025

For self-employed business owners, property investors, and first home buyers in Logan, Beenleigh, the Gold Coast, and surrounding regions, managing your finances is about more than just your mortgage. It's also about staying on top of your tax obligations. A significant change by the Australian Taxation Office (ATO) has come into effect from 1 July 2025 that you need to be aware of.

Previously, the General Interest Charge (GIC) applied to overdue tax debts could be claimed as a tax deduction. As of the new financial year, this is no longer the case. This change effectively makes holding a tax debt with the ATO a much more expensive strategy.

What is the ATO General Interest Charge (GIC)?

The General Interest Charge (GIC) is a daily compounding interest rate that the ATO applies to unpaid tax debts, including income tax, GST, and PAYG instalments. It's a key tool used to encourage taxpayers to pay their obligations on time.

For years, many businesses and individuals found some relief in the fact that GIC was tax-deductible. This meant that the after-tax cost of the GIC was lower than the headline rate, softening the blow for those who were running behind on payments.

What Changed on 1 July 2025?

From 1 July 2025, any General Interest Charge (GIC) or Shortfall Interest Charge (SIC) incurred will no longer be tax-deductible. This applies to interest incurred in income years starting on or after this date, regardless of whether the original debt relates to an earlier period.

The change was introduced to create a fairer system for taxpayers who do pay on time and to encourage quicker settlement of tax debts. For those with existing or future tax debts, this means the full, high interest rate is now a non-deductible cost, increasing the overall financial burden.

The key impact is this: The effective cost of your tax debt has increased overnight. What was once a partially offset expense is now a full, unreduced expense to your business or personal finances.

How Does This Affect Self-Employed Business Owners in Logan and Beenleigh?

The removal of the GIC deduction will have a direct and substantial impact on self-employed and small business owners in the Logan, Beenleigh, and Gold Coast area.

• Increased Real Costs: The after-tax cost of any unpaid tax debt has jumped significantly. For a company with a 25% tax rate, a $10,000 GIC bill that once cost you $7,500 after tax now costs the full $10,000. For a sole trader on a high marginal tax rate, the jump can be even more dramatic.

• Tighter Cash Flow: This change will put extra pressure on your business's cash flow, as you no longer have the benefit of a tax deduction to help soften the financial hit.

• A New Approach to Tax Debt: What was once viewed by some as an "unofficial line of credit" with the ATO is now a far more costly and punitive option. The government is sending a clear message: get your tax debts paid.

How Can You Manage or Avoid ATO Debt?

With these changes now in effect, it's more important than ever to be proactive about your tax obligations. Simply put, avoiding GIC is the best financial strategy.

• Pay On Time: The most obvious, but most effective, solution is to lodge and pay your tax obligations on time. If you're a business owner, consider setting up a separate bank account to put aside GST, PAYG withholding, and superannuation to ensure you have the funds ready when they are due.

• Proactive Payment Plans: If you have an existing debt with the ATO, paying it off before GIC accrues further is a smart move. While the ATO does offer payment plans, interest will continue to accrue during this time, and as of 1 July, it is no longer deductible.

• Talk to Your Accountant: Your tax professional is your first port of call. They can help you understand your specific situation and advise on the best course of action.

• Consider a Tax Debt Loan: For businesses with an ongoing ATO debt, refinancing that debt with a structured, external loan may be a viable solution. In many cases, interest on a business loan used for a legitimate business purpose (like paying off a tax debt) remains tax-deductible, unlike the ATO's GIC. This can be a more cost-effective way to manage your debt, improve cash flow, and avoid potential ATO enforcement actions.

How Ferns Finance Brokers Can Help

We understand that juggling a business, managing property investments, or simply navigating life's expenses can make it tough to stay on top of everything. The team at Ferns Finance Brokers is part of the local Logan and Beenleigh community, and we are here to help you navigate these complex changes.

While we can't give you tax advice (you should always consult your accountant for that), we can provide solutions to help you manage your financial position. If you have an outstanding ATO debt and are considering your options, we can explore structured lending solutions, such as a tax debt loan, to help you:

• Replace Non-Deductible Debt with Deductible Finance: A business loan taken out to pay off an ATO debt may be tax-deductible, providing a significant financial advantage over continuing to accrue non-deductible GIC.

• Improve Cash Flow: A structured loan with a manageable repayment schedule can help free up your business's cash flow and reduce the stress of a looming tax bill.

• Stop the Clock on GIC: By paying off your ATO debt, you stop the daily compounding of GIC, giving you peace of mind.

Don't wait for your tax debt to become more expensive. If you're a self-employed business owner or property investor in Logan, Beenleigh, Tamborine, or the Gold Coast, c the friendly team at Ferns Finance Brokers today for a free, no-obligation chat.