Removal of GIC & SIC deductions
It’s important to consider how these changes may affect affect those with complex tax affairs or pending disclosures.
Private wealth clients will likely be familiar with the concept of the General Interest Charge (GIC) and the Shortfall Interest Charge (SIC). They will be familiar with these concepts not through any fault of their own but rather through the inherently complex Australian tax legislation, which can often require taxpayers to “go back” and amend previous tax returns due to a missed tax consideration. This inevitably gives rise to SIC and GIC.
Put simply, when a taxpayer receives notice from the ATO that they have underpaid tax for a previous income year, they will receive an amended assessment initially comprised of two amounts that must be paid:
- the shortfall amount itself; and
- the SIC, which is imposed on the shortfall amount.
If the taxpayer does not pay the additional tax within 21 days of receiving the notice, then GIC will begin to accrue on the sum of the shortfall amount and the SIC. The GIC will continue to accrue until the unpaid tax is paid.
Both GIC and SIC are mechanisms designed to ensure the timely payment of tax and have historically been “deductible”, meaning that, by paying these amounts, a taxpayer could previously reduce the amount on which tax is imposed in a subsequent year.
From 1 July 2025, GIC and SIC are no longer tax-deductible. Any GIC or SIC already incurred prior to 1 July 2025 remains deductible for the 2024-25 and earlier income years. However, this is potentially of limited assistance in the context of SIC because SIC is taken to be incurred on the day on which the ATO tells a taxpayer that they have underpaid tax.
For example, a taxpayer could notify the ATO that they have underpaid tax for the 2023-24 income year and receive an amended notice of assessment on 2 July 2025. Despite relating to unpaid tax in the 2023-24 income year, the SIC imposed in this example will be non-deductible because it is imposed after the changes have been implemented (i.e. after 1 July 2025).
Next steps
It is critical for taxpayers to consider their impending tax debts and the effect that the non-deductibility of GIC and SIC will have on their cash flow. Irrespective of their level of wealth, an unexpected notification that they have underpaid tax and are subject to additional amounts is an unwelcome surprise. Taxpayers should also consider requesting the ATO to remit GIC and SIC in appropriate circumstances, given the ATO has a broad discretion to do so. In deciding whether to remit GIC, the ATO will consider factors such as:
- the circumstances that caused the delayed payment resulting in GIC;
- how these circumstances have prevented the taxpayer from paying by the due date; and
- what steps a taxpayer has taken to reduce the delay.
Our team has extensive experience in preparing successful GIC and SIC remission requests. If you have any questions or would like to us to prepare an application on your behalf, our team is here to help.
This article was written by Joel Kurta (Paralegal) and Harry Giannakidis (Principal).
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