GIC non-deductibility ‘affecting viability of small businesses’, warns tax expert

She added that consideration needs to be given to the rate and the non-deductibility of the GIC.

“If you look at the three levers, rate, non-deductability and remission … going hard on the three of them is creating this environment.” 

“So one of the levers needs to be pulled back to ensure that businesses and taxpayers can move forward.”

While WIlliamson understood that the reason behind the ATO’s stronger action is that tax debt is at an all time high, she stressed that other factors need to be taken into account.

“But you can't just work to protect revenue without also looking at the vulnerabilities of the taxpayers.”

“We've got a look at whether the interest rates are viable, whether non-deductability, is viable and also whether more effort should be put into remission applications.”

Williamson said that some taxpayers are forced into a corner where bankruptcy is one of the last options, a position when tax agents must begin a support journey for their struggling client.

“This journey with clients to get them to understand that with GIC accruing, it's going to be very hard to get out unless they've got access to some asset that they can sell or someone else can lend them the money.”

To prevent this, Williamson emphasised that it is crucial that accountants ensure that their clients do not have accruing tax debt.

“[They must] do everything possible to try to have their clients comply with their obligations as and when they arise, and then monitoring it, and making sure that the clients understand that if they get into that debt position, it's very hard to get out given the rate and the non-deductability.”

“It needs to be avoided at all costs.”

When non-deductibility was introduced to the GIC on 26 March 2025, it faced backlash from accounting bodies, who called it excessive and punitive.

In March this year, the Tax Ombudsman Ruth Owen handed down her review into the ATO’s management of general interest charge (GIC) remissions concluding that its approach did not meet community expectation, leading to unduly harsh outcomes for taxpayers trying to do the right thing.

Aimed at “encouraging timely payment of tax”, ATO’s website said that the general interest charge (GIC) was designed to remove an “unfair financial advantage” for late-paying taxpayers over punctual taxpayers.

Previously, an ATO decision was overturned after it decided to scrap the remission of FTL. Last month, a 76-year-old taxpayer was granted relief on their GIC following incurring a $100k income tax. Williamson said that the GIC issue is a lot more prevalent now.

“I think you see it a lot more now, probably in the last 18 months, two years, and that's probably given that combination of the non-deductability, there were the three things: interest rates have gone up, non deductib[ility], and then the ATO hardened its line on remissions.”

“[The ATO] want a level playing field for everybody. Even if it's going to be a level playing field, people are entitled to have full consideration of their issues and entitled to feel like they've been heard and been give due process.”

Williamson stressed that the non-deductibility of GIC has lifelong impacts for small business owners. 

“You often see along the way the strain on marriages, on friendships, and other relationships.”

“People who have finally turned the corner and got their businesses up and running, then face this situation where … they need to effectively walk away from it if they can't find another way to pay the debt and to stay there. So it has lifelong impacts.”