As the new financial year approaches, a significant change could see many facing steeper tax debts moving forward.
A new policy by the Australian Taxation Office (ATO) has already sparked outrage and concern among taxpayers, particularly small business owners who are already navigating the turbulent waters of high interest rates and inflation.
With this, the ATO is under fire as many are urging for a reconsideration.
Starting July 1, the ATO is set to implement a policy that will make overdue tax debts more costly, as the general interest charge (GIC) and shortfall interest charge (SIC) will no longer be tax-deductible.
Jenny Wong, the tax lead at CPA Australia, has voiced strong opposition to this change, highlighting the ‘devastating impact’ it could have on small businesses. CPA Australia has made submissions to the Treasury and government, urging them to apply this policy only to those with significant tax-debt accounts, rather than imposing it across the board.
Wong criticises the policy as ‘indiscriminate and punitive,’ emphasising that it could ‘disproportionately affect’ businesses struggling with cash flow, especially sole traders who are taxed at the highest marginal rate.
She also sees the ATO’s decision to remove the tax deductibility of GIC and SIC as a penalty rather than a measure to facilitate the repayment of outstanding tax debts, adding, ‘The impact on existing tax debt is very concerning.’
Wong added that small companies could potentially face penalties of up to 25 per cent, while sole traders could see rates as high as 47 per cent, depending on their tax bracket.

The government first announced its intention to alter the tax deductibility of GIC and SIC in the 2023-24 Mid-Year Economic and Fiscal Outlook (MYEFO).
The GIC, which is applied to tax debts unpaid by the due date, currently stands at 11.42 per cent. Meanwhile, the SIC, which may be applied if a tax return is amended and results in an increased tax liability, is at 7.42 per cent.
Defending the change, the Treasury stated that it would ‘level the playing field’ for taxpayers who self-assess their liabilities and pay taxes on time, and assist in reducing the ATO’s collectable debt, with an expected additional $500 million per year in revenue.
Wong argues that the ATO’s operational challenges further justify the ‘unfairness’ of the proposal, suggesting that ‘transparency and fairness’ would be better served by encouraging repayments through a higher GIC/SIC margin, rather than through ‘hidden costs’ realised through tax assessments.
In recent weeks, the ATO has intensified its efforts to engage with taxpayers who have overdue tax returns, with many receiving phone calls. An ATO spokesperson has emphasised the importance of engaging with the office early to avoid penalties.
With the potential for increased financial burdens, many are calling for a more nuanced approach that targets those with significant tax debts without penalising those who are earnestly trying to comply with their tax obligations.
Are you worried about how these tax changes might affect you? Share your thoughts and concerns with the YourLifeChoices community in the comments below.
Also read: Here’s why ignoring a phone call from ATO could be costly
This is complete BS! How can you expect people to pay bad the tax debt if you just keep raising the price? But I guess that’s why the ATO is hitting the people with a tax debt with more frequent GIC and SIC charges, because they won’t be classed as a deductible when the time to put a tax return in this year. Absolutely disgusting! They’ll happily ask no questions when a tax return was mistakenly lodged incorrectly and the result being a tax debt, but when it comes to amending the mistake, so the ATO has to pay the tax payer they ask everything trying to find a way to pay less of your hard earned money back to you, and if they aren’t satisfied with your answer they’ll cancel your amendment and leave you stuck with the tax debt you shouldn’t of received in the first place. THE ATO IS MORE CROOKED THAN MOST CROOKS