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The Coalition has promised to urgently review the proposed changes to GIC deductions if they are legislated before the election.
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Coalition slams GIC deduction changes as ‘brazen cash grab’
06 February 2025
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8 minute read
Shadow assistant treasurer Luke Howarth has criticised the government’s move to push ahead with measures to deny deductions for the general interest charge (GIC) and shortfall interest charge (SIC), labelling them as “punitive”.
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Speaking in Parliament on Tuesday, Howarth said the existing design of the GIC and SIC is already effective in putting a taxpayer who is late paying tax in the same position as a taxpayer who has paid tax on time.
However, Howarth said making these interest charges non-deductible went beyond neutralising this loan benefit.
“The interest charges are already calculated using an uplift to the 90-day bank bill rate. This uplift is seven per cent plus for the GIC, and this is to discourage the use of tax debts as a source of finance,” he said.
“Denying deductibility to every small business across Australia goes well beyond discouraging. It's punitive. It is a penalty.”
Howarth said the government had failed to listen to stakeholders during the consultation process by rejecting all alternative policies put forward by groups including the professional accounting bodies.
The Tax Institute in its submission said that if the measure was to proceed, then the uplift rates for GIC and SIC should be reduced.
It also suggested limiting the non-deductibility of GIC and SIC to the relevant uplift component as another alternative to the proposed policy.
Professional bodies also called for more targeted measures that focus on high-debt accounts, rather than penalising all small- and medium-sized family businesses.
While the explanatory memorandum for the bill points to the ability of a taxpayer to apply for remission of an interest charge, Howarth said this is likely to be costly and complicated in practice.
“Stakeholders report that the measure comes at a time of long delays in the ATO service delivery and inconsistent outcomes on remission requests.”
“Disputing decisions is already time-consuming and costly, and this will become costlier with the risks of non-deductibility if a remission request is denied,” he said.
Howarth said these delays from the ATO will now cost taxpayers even more.
“This government is clearly blinded by the revenue that this measure brings in. It is a brazen cash grab,” he said.
“If this measure ultimately passes, I can assure the small and family business communities that the coalition would urgently review its impact on small businesses, when in government and given that opportunity.”
The bill to implement the measures was referred to the Senate Economics Legislation Committee in late November last year, with the committee handing down its report last week.
The Senate committee said the changes to GIC and SIC deductions would incentivise timely compliance and the reduction of tax debts.
“The committee considers that the current arrangements, where taxpayers can deduct the GIC and the SIC, are too generous and undermine the deterrent purpose of these charges," it said.
“Removing the ability to deduct these charges would ensure that interest on overdue tax liabilities remains an effective deterrent and will promote accurate self-assessment and timely payment of tax liabilities.”
The committee noted that the ATO’s debt book had grown substantially in recent years, with collectable debt increasing by 99 per cent between 2018–19 and 2023–24 to reach $52.8 billion.
“A large portion of this debt reflects amounts businesses are required to collect and remit to the ATO,” it said.
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