iscoverMatters of interest to consider following the recent law change to GIC.
ATO interest charges: matters of interest
04 September 2025
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14 minute read
The philosophy of interest charges
The principle (pun intended) of charging interest on borrowed funds is nearly as old as time itself. For thousands of years, borrowing funds have attracted a charge which is regarded as the cost of using someone else’s funds. Interest compensates the lender for their risk and forgoing the opportunity to use the capital for their own purposes.
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The same philosophy applies to tax debts owed to the Commonwealth, which attract the general interest charge or the shortfall interest charge. Tax debts owing to the ATO represent amounts that are not available to the Commonwealth to fund services to the Australian community. The 90-day bank bill rate is uplifted (by 7 per cent for GIC and 3 per cent for SIC) to dissuade taxpayers from using the ATO as a pseudo bank.
GIC is incurred if a tax debt has not been paid on time. The lower rate of SIC applies instead of GIC if a tax liability has been incorrectly self-assessed which results in a tax shortfall and an amendment to the tax return. The lower rate of SIC is justified on the basis that taxpayers are usually unaware they have a tax shortfall until they receive an amended assessment.
GIC replaced various existing late payment penalties from 1 July 1999, while SIC commenced on 1 July 2005. Both are calculated daily, compound and, until 1 July 2025, were fully deductible.
GIC and SIC incurred on or after 1 July 2025 are no longer deductible. The change in policy seeks to reinforce that all taxpayers have an obligation to correctly self-assess their income tax liability, pay their tax on time, and assist in lowering the amount of collectible debt. Collectible debt is debt owed to the ATO that is not in dispute. As of 30 June 2024, collectible debt was $52.8 billion, and has increased substantially in the last few years. The policy change also sends a message that those who do not pay their tax on time should not gain advantage over those who pay on time.
The amendments to deny claims for deductions apply to assessments of GIC and SIC for income years starting on or after 1 July 2025. GIC and SIC incurred before this date continue to be deductible. The law change applies to assessments of GIC and SIC issued on or after 1 July 2025, irrespective of whether they are referable to tax liabilities relating to income years beginning before 1 July 2025. Accordingly, a GIC assessment raised in, say, September 2025, in relation to a family trust distribution tax liability triggered decades ago by a distribution made outside the family group of the individual specified in a family trust election will be non-deductible.
The recent law change has spurred queries and discussion across the profession on a range of related matters. Pleasingly, the ATO released a fact sheet on 27 August 2025, which explains the law change. These matters are discussed below.
What you need to know about GIC and SIC
When are GIC and SIC incurred?
When GIC is incurred varies depending on the circumstances in which the tax debt arises. In the case of:
- Amended assessments for income tax – GIC is incurred when a notice of assessment is served, triggering the liability to pay the GIC.
- Returns that are lodged late – GIC is calculated from the statutory date on which a tax payment was due, but GIC is not incurred until the day on which the notice of assessment is served.
- RBA deficit debts – GIC is incurred at the end of each day on which there is an RBA deficit debt.
SIC is incurred when the notice of amended assessment is served, but SIC can be notified separately from the notice of amended assessment. This can happen, for example, because the due date for payment of SIC falls in the next income year (see TD 2012/2).
What if the taxpayer has a substituted accounting period?
The standard income year for most taxpayers ends on 30 June. The new law applies differently to taxpayers with an approved substituted accounting period (SAP).
For taxpayers with an approved SAP, the law change operates to deny deductions for GIC and SIC in relation to assessments for SAPs starting after 1 July 2025. The law change does not apply to a SAP that started before 1 July 2025.
Remission of GIC and SIC
The Commissioner has the discretion to remit GIC and SIC if the circumstances warrant it. This means interest charges can be reduced where it is fair and reasonable to do so, taking into consideration the circumstances that led to the delayed payment of tax liabilities or the tax shortfall. In doing so, ATO officers are expected to have regard to practice statements PS LA 2011/12 and PS LA 2006/8.
No changes have been made to the discretionary provisions that give the Commissioner the power to remit GIC and SIC, or to the ATO’s existing remission policy.
Review rights
Similarly, no changes have been made to the avenues and ability of taxpayers to seek review of an ATO decision not to remit GIC and SIC.
If the ATO decides not to remit:
- SIC – taxpayers have objection rights, provided the amount of SIC not remitted is more than 20 per cent of the shortfall.
- GIC – taxpayers have no objection rights.
Judicial review of GIC remission decisions
Importantly, GIC remission decisions by the Commissioner are non-reviewable. This means that taxpayers cannot seek a review of a GIC remission decision by the Administrative Review Tribunal (Tribunal). Instead, the only pathway is to seek judicial review of the decision under the Administrative Decisions (Judicial Review) Act 1977 (Cth) (ADJR). Not only can this avenue be very costly for taxpayers, but the likelihood of success will disappoint most taxpayers.
In the case of reviewable decisions, the Tribunal stands in the shoes of the Commissioner and remakes the decision ‘on the merits’ by taking a fresh look at the relevant facts, law and policy, and arriving at its own decision.
In contrast, when seeking a judicial review under the ADJR of an ATO administrative decision that is non-reviewable, the taxpayer is essentially seeking to demonstrate to the court that there was a lack of fair procedure. They cannot argue the merit of the decision; rather, that the Commissioner’s decision-making process was flawed. This rarely occurs.
Access by taxpayers to an administrative review, as opposed to a judicial review under the ADJ, is sorely lacking. It is confounding why GIC remission decisions cannot be reviewed by the Tribunal, when almost all other administrative decisions of the Commissioner can. What is clear is that legislative change in this regard is clearly warranted.
Are remitted amounts assessable?
Whether an amount of GIC or SIC that has been remitted is assessable depends on whether a deduction has been claimed.
- Remissions of GIC and SIC are assessable as an ‘assessable recoupment’ only if the original interest was deductible under section 25-5 of the Income Tax Assessment Act 1997 (Cth). Any assessable recoupment must be declared in the income year in which the remission is granted.
- If a deduction for an amount of GIC and SIC cannot be claimed, any remission of that amount is not assessable.
Payment plans and GIC
GIC continues to accrue if an ATO debt is being paid off through a payment plan, but any GIC incurred on or after 1 July 2025 is no longer deductible.
Even though a taxpayer may have a payment plan in place, they can limit their exposure to GIC by paying as much as they can, as early as they can. Being in a payment plan does not preclude additional repayments being made.
Is credit interest paid by the ATO still assessable?
No changes have been made to the assessability of interest paid by the ATO, such as interest on early payments. The credit interest that the ATO pays remains assessable (see PS LA 2011/23).
Debts on hold and GIC
A ‘debt on hold’ is a tax debt the ATO has paused taking action to collect as it is considered ‘uneconomical to pursue’.
Debts on hold may not appear in taxpayers’ account balances, and the ATO won’t make efforts to try and collect it, however, the debt remains due and legally payable. Further, as the amount remains outstanding, the ATO will apply any credits or refunds the taxpayer is entitled to against the debt to reduce it — this is referred to as ‘offsetting’.
The ATO recently advised that debts placed on hold on or after 1 January 2017 are now included in account balances. The ATO is not doing this for debts placed on hold before 1 January 2017, as they may be impacted by a proposed law change.
The ATO’s position on applying GIC to debts on hold is that:
- It will remit the GIC that is applied when debts on hold are not included in account balances.
- Once a debt on hold has been included in the account balance, the ATO will continue to remit GIC for an additional six months.
- Once a debt on hold has been included in the account balance for more than six months, the GIC will not be remitted.
Deductibility of interest on borrowings used to pay tax debts
With GIC and SIC now being non-deductible, chatter has turned to obtaining third party finance to pay a tax debt. Assuming this is commercially an option and finance is approved, the tax implications need to be considered.
Taxpayers can generally deduct expenses relating to their tax affairs, but deductions for expenses incurred in borrowing money, including interest, are specifically excluded under paragraph 25-5(2)(c) of the ITAA 1997. That said, interest on borrowings to pay tax may still be deductible for business taxpayers under the general deduction provision in section 8-1 of the ITAA 1997.
Business taxpayers
Taxpayers that carry on a business are not necessarily prevented by paragraph 25-5(2)(c) of the ITAA 1997 from claiming a deduction for interest incurred on borrowings used to pay a tax related liability, and may be able to deduct such interest under the general deduction provisions. However, the interest would need to be necessarily incurred in carrying on the business for the purpose of gaining or producing assessable income. Whether investment activities of a company amount to carrying on a business is a question of fact, and must be assessed on a case-by-case basis (see TR 2019/1).
If the necessary business nexus exists, interest on borrowings used to pay income tax, GST or other non-income tax liabilities, such as fringe benefits tax, is deductible.
Individuals not in business
Individual taxpayers who do not carry on a business are subject to paragraph 25-5(2)(c) of the ITAA 1997 and cannot claim a deduction for interest on borrowings used to pay tax related liabilities under the general deduction provisions.
This is because these expenses are not incurred in gaining or producing assessable income as tax is paid after the income has been derived or earned.
Individual partners in a partnership
Individual partners in a partnership cannot deduct interest on borrowings used to pay tax-related liabilities under the general deduction provisions.
Personal expenses of an individual partner, including interest on borrowings to pay a tax debt relating to a distribution from the partnership, are not incurred in carrying on a partnership business and are not incurred in gaining or producing assessable income as tax is paid after the income has been derived or earned by the partnership.
Closing comments
The GIC and SIC landscape is changing, not only through law change, but also because of firmer administrative action being taken by the ATO to collect tax debts. While the ATO continues to remit GIC and SIC in some cases, many practitioners have expressed their concern that it is increasingly more difficult to obtain remission. The ATO’s approach to charging interest needs to strike a balance between function and empathy; that is, appropriately charging taxpayers with tax debts for having the use of Commonwealth funds, and remitting these charges when it is fair and reasonable to do so.
From a tax policy perspective, providing taxpayers with the right to seek an administrative review of GIC remission decisions should be a no-brainer for the Government, particularly now that GIC is non-deductible and there is seemingly a reduced willingness by the ATO to remit.
About the author
Robyn Jacobson is a senior advocate at The Tax Institute.
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