Refinancing debt: Managing the non-deductibility of GIC and SIC

The ATO debt book

The ATO has been vocal about its increasing tax debt book and its efforts to collect its outstanding debt. In a speech on 8 May 2025, the Commissioner of Taxation, Rob Heferen, stated that ATO debt book is currently over $105 billion. Given tax revenue for the 2024-25 year will be around $650 million, this level of outstanding debt is a critical issue for the ATO and the government.

Changes to the deductibility of GIC and SIC

Any GIC or SIC incurred on or after 1 July 2025 will be non-deductible. This includes GIC or SIC incurred on outstanding or late payments of tax for income years both before and after 1 July 2025.

The Explanatory Memorandum to the Act making GIC and SIC non-deductible said this change was made to:

…seek to reinforce the requirements imposed on all taxpayers to correctly self-assess their income tax liability, pay their tax on time, and assist in lowering the amount of collectable debt owed to the ATO.

Impact on taxpayers

Many affected taxpayers will be on payment plans with the ATO. In addition to incurring GIC and SIC which will be non-deductible from 1 July 2025, the possibility of failing to meet obligations under payment plans and then being subject to ATO debt collection activity is a reality some taxpayers may need to face.

The ATO has numerous tools it can use in relation to debt collection, including:

• referring debts to external debt collection agencies;
• issuing director penalty notices where the debt relates to GST, PAYG withholding or superannuation;
• issuing garnishee notices; and
• reporting taxpayers to credit reporting bureaus.

These more extreme measures will only apply where taxpayers refuse to engage with the ATO. However, making GIC and SIC non-deductible, means taxpayers who may have engaged with the ATO to enter a payment plan and are continuing to meet its obligations under a payment plan will be facing a higher cost of having the ATO finance that debt.

With GIC currently at 11.17%, and no deduction available, the interest cost is steep. And taxpayers must still comply with the payment plan, which often lacks flexibility if something unexpectedly comes up. Refinancing debt with an external provider can allow businesses to properly fund their activities. It ensures businesses can meet their ATO and non-ATO cash flow requirements, possibly at a lower interest rate and potentially have it allowed as a deduction. At the same time, not having to comply with the strict requirements of an ATO payment plan (or trying to obtain a payment plan) may result in lower stress levels!

Deductibility of interest costs

The cost of borrowing money to pay tax is specifically non-deductible under section 25-5 of the Income Tax Assessment Act 1997. However, Income Tax Ruling IT 2582 gives support that a deduction may be available where “the interest incurred on those borrowings is a normal incident of conducting that business”.

Unfortunately, individuals who borrow to pay their debt and are not in business will not be able to obtain a tax deduction.

Next steps

This is an opportune time to look at your ATO and broader debt. If the debt is extensive or becoming more difficult to manage, it would be worthwhile completing a business health check to determine whether refinancing might be advantageous.

In reviewing your projected working capital requirements, consider whether bank debt could serve as a more cost-effective funding solution compared to alternative options, potentially enhancing liquidity and smoothing operational cash flow.

Book a working capital review with our team to help map your funding requirements for the 2026 and later financial years.  We can also provide access to a finance broker who can assist with your debt requirements.