ATO penalty

General interest charge and shortfall interest charge – a new ATO “penalty?”

Saveen Mathews ||

After 1 July 2025, taxpayers will no longer be able to claim a deduction for general interest charge (GIC) and shortfall interest charge (SIC), incurred in the 2025-2026 income year.

The reason for the change can be attributed to an increase in outstanding debts owed to the government. GIC and SIC is another mechanism that is used to ‘encourage’ taxpayers to self-assess tax liabilities correctly and pay tax debts on time. Interest charge was introduced to combat the time value of money benefit where tax liabilities were not paid on time. This no longer seems to be the intent behind the deductibility changes, and interest charge can now be seen as another penalty imposed on taxpayers by the Australian Taxation Office (ATO).

Despite the onerous process to request a remission of GIC and SIC – often to no avail – it should be considered whether GIC and SIC should be applied in narrower situations. A very likely situation could be that a taxpayer operates in a manner that is considered to show a ‘lack of reasonable care’, attracting an administrative penalty of 25% of the shortfall payable. On top of this, the taxpayer will still have to pay SIC, and maybe even GIC. If the taxpayer is not successful, which is the case in most situations, the taxpayer may pay upwards of 30% penalties, at least. This is in addition to any shortfall the taxpayer must bear.

To add insult to injury, unlike administrative penalties, a decision to not remit GIC and SIC is not a reviewable decision in the Administrative Appeals Tribunal or the Federal Court. This simply means that unless you want to make a complaint to the Inspector General of Taxation, there is very little that can be done to further reduce the GIC and SIC if the discretion to remit the interest charge isn’t granted.

The rate of GIC and SIC have also been increased from 11.15% to 11.38% and 7.15% to 7.38% respectively, which commenced on 1 January 2024.

Now that the GIC and SIC is no longer an “interest charge” but more like a credit card late payment penalty, it would be prudent for taxpayers to be more aware when such “interest charges” are imposed. Situations where the Commissioner exercises his discretion to remit should be closer aligned to administrative penalties.

Taxpayers with outstanding debts must be wary where GIC and/or SIC continues to accrue even after 1 July 2025 and must be vigilant, where ATO personnel take longer than ‘expected’ to respond to requests, commence audits or make administrative mistakes.

If you need help in reducing the amount of GIC and SIC you have incurred, please contact Coleman Greig’s Taxation lawyers for assistance.

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