THE REDUCTION OF TAX DEDUCTIONS FOR GENERAL INTEREST CHARGE (GIC) AND SHORTFALL INTEREST CHARGE (SIC) ADDS TO TAXPAYER PAIN

The reduction of tax deductions for general interest charge (GIC) and shortfall interest charge (SIC) adds to taxpayer pain.

On 26 March 2025, Parliament passed amendments which will restrict taxpayers claiming tax deductions for GIC and SIC after 1 July 2025.

The policy behind the change is to incentivize positive taxpayer behaviour, including correct assessment in lodgments and prompt payment of liabilities.

Given the current GIC annual rate is above 11% and the ATO is taking firm steps to recover tax liabilities and bring legal proceedings in relation to taxpayers with large unpaid debts, one wonders how much further incentive the taxpaying community needs?

In many cases, the GIC is not a byproduct of poor taxpayer behaviour, but rather, adverse economic conditions or more specific reasons affecting an individual business. The matter of SIC is even more complex; in many cases, the taxpayer was not aware that they had a shortfall liability relating to a return (although in many cases it could be attributable to an aggressive tax position which the ATO takes issue with).

Whilst the ATO possesses the power to remit GIC, there has been public criticism of the ATO’s approach to such applications, with CPA Australia pointing to ‘widely varying outcomes’ and ‘inconsistencies’.

In their defence, the ATO allows a taxpayer to apply for GIC remission more than once (on new or expanded grounds) and there are avenues to continue to dispute the matter with the ATO (including in the Federal Court system). But that recourse in relation to a perceived unjust decision can be out of reach to many taxpayers who lack the resources or interest in disputing a decision with the ATO.

The ATO’s approach to tax liabilities and how the laws operate is topical; the Inspector General of Taxation and Taxation Ombudsman recently released a report in relation to financial abuse, with many recommendations raised for the ATO and Federal Government to consider. The legislation provides little discretion for the ATO in circumstances where financial abuse gives rise to unjust outcomes to victims and survivors. That should change.

Until there is legislative reform (of a taxpayer-friendly side) or a change in an approach from the ATO, taxpayers with large liabilities (including interest) will find themselves in a constant interaction with the ATO or the court system until they can find a solution, or one is reached for them.

The team at SMAILES KRAWITZ has experience in dealing with all aspects of tax administration legal matters, including GIC remission requests, tax technical disputes and judicial review applications.

The material in this article is provided only for general information. It does not constitute legal or other advice.

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Alan Krawitz4 April 2025