Tax Planning
How Australia’s Non-deductibility of General Interest Charges Reshapes Tax Planning
Australia’s recent law change ending the deduction of general interest charges (GIC) from 1 July 2025 means individuals and businesses must rethink how they carry tax debt and structure payments.
By NomadicTax Research Team • 5-8 min read • November 15, 2025
## What’s changed?
From **1 July 2025**, the new law introduced by the *Treasury Laws Amendment (Tax Incentives and Integrity) Act 2025* makes **General Interest Charges (GIC) incurred on late payments or underpayments of tax non-deductible**. Previously, many taxpayers could deduct this interest when calculating taxable income.([ato.gov.au](https://www.ato.gov.au/media-centre/ato-reminder-on-interest-deductibility-changes-from-1-july?utm_source=openai))
## Immediate implications for you
- Tax debts and outstanding liabilities will now be more costly. The current GIC rate of ~11.17% compounds daily, which can quickly increase the total payable.([ato.gov.au](https://www.ato.gov.au/media-centre/ato-reminder-on-interest-deductibility-changes-from-1-july?utm_source=openai))
- Expenses tied to carrying these debts (the interest component) no longer reduce your taxable income. This means higher taxable profits for businesses with recurring liabilities and for individuals with delayed payments.
## Tax planning strategies to mitigate the impact
### 1. Prioritize timely payments
- Keep strong cash flow forecasts to avoid late payment culture.
- Set aside funds for PAYG, super, and GST obligations so they’re met when due.
- Where possible, negotiate payment arrangements **before** interest compounds heavily.
### 2. Pre-pay where practical
- For self-employed and small businesses, accelerate or bundle payments before year-end if feasible.
- Consider cashing in reserves or holding fewer liabilities toward end of year.
### 3. Use voluntary disclosures and corrections proactively
- Overclaimed offsets or misstatements? Correct early. If amended, shortfall interest (also non-deductible) applies from **1 April 2025** for overclaimed tax offsets.([ato.gov.au](https://www.ato.gov.au/about-ato/new-legislation/in-detail/businesses/strengthen-penalty-and-shortfall-interest-charge-provisions?utm_source=openai))
## Compliance essentials
- Maintain documentation showing your due date, amounts unpaid, and when you paid to track when GIC begins.
- Liaise with your tax agent or the ATO if you expect challenges meeting due dates. Payment plans avoid harsher consequences.
- Monitor updated guidance as the ATO rolls out detailed interpretation of what “deductible vs non-deductible” means in nuanced scenarios.
## Real-world example
**Case**: Jane owns a small consulting business. She misses her GST remittance due date and incurs a GIC of $5,000. Under prior rules, she could reduce her taxable income by that $5,000; now she cannot. If Jane’s business profit margin is 20%, that change means she pays approximately **$1,000 more tax**, purely because the interest is no longer deductible.
**Action**: Jane adjusts her cash flow model and starts using reminders and segregated accounts to ensure key tax liabilities are met promptly. Or she considers arranging a payment plan.
## Key takeaways
- Delaying tax payments now carries **greater financial cost** than before.
- Tax planning must integrate liability management, not just revenue and expenses.
- Non-deductibility of GIC shifts the premium toward staying compliant and avoiding delays.
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Need help applying this to your situation? Speak to a tax adviser early — especially if you often carry liability over due dates. The policies are enacted now and already affecting tax years beginning 1 July 2025.