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Permanent denial for the GIC deductions could see a further accumulation of tax liabilities and could cause small businesses to stop lodging returns.
Thou give it, thou take it – ability to claim deductions for ATO interest charges
11 April 2025
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7 minute read
Parliament passed into law the extension of the instant asset write-off for the current year and the permanent denial for deduction for GIC from 1 July 2025.
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The denial for a deduction for ATO interest is going to hurt, particularly the small business sector who disproportionally use the ATO as a funding provider. Using the ATO to fund tax debt will now become prohibitively more expensive and swapping it for other forms of finance is challenging and time consuming for many small business operators.
Small businesses are confronted with unprecedented challenges which explains the disturbing trends. Their contribution to GDP has plummeted from 40 per cent in 2006 to just 33 per cent today, while their share of private sector employment has fallen from 53 per cent to 42 per cent.
Nearly half of our small businesses are operating at a loss, and the majority of self-employed owners are earning less than the average full-time wage.
The recent federal budget offered little assistance to the small business sector to halt the decline. There was no meaningful new support to help small businesses digitise and adopt emerging technologies. No return of the bipartisan Technology Investment Boost, no AI-readiness funding, and no new programs to support small businesses in embracing e-commerce are fast becoming non-negotiables. Small businesses need tools to help navigate rising operational costs, economic uncertainty and shifting consumer behaviours.
Rightly, there is a focus on cost-of-living relief for households, but self-employed business owners continue to go backwards. The energy bill relief and the delayed income tax changes will barely make a dent in the additional costs these businesses have experienced in recent years.
The small business sector has the lion share of undisputed debt book, so we understand the rationale for the policy change. The ATO however has an array of tailored options to chase down debt. We are already seeing the results of this affirmative action.
Alongside these measures, the ATO has tightened its grip on receiving a GIC remission. It’s damn hard to obtain one on behalf of a client particularly if you are a tax practitioner.
GIC non deductibility is a blunt instrument as it treats all taxpayers (slow versus delinquent payers) equally. An uplift factor of 7 is already applied to the GIC rate to impose a penalty on those taxpayers who do not pay on time to level the playing field with taxpayers that do.
I fear we will see more business owners giving up under the weight of accumulating tax liabilities as the debts will grow faster. Some small businesses may stop lodging returns which maybe an unintended consequence.
The headwinds just keep coming as the SG rate increases from 11.5 to 12 per cent. The introduction of payday super will be another cashflow blow from 1 July 2026 putting further strain on the sector.
Small businesses are the fabric that ties many communities together, so their continual demise will turn our business landscape into a big corporate economy at the expense of the viability of small and family enterprise businesses.
Tony Greco, senior tax advisor, Institute of Public Accountants
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