With a federal election set for 3 May 2025, there are many issues we all need to consider including interest rates, cost of living, immigration numbers and the future direction of the country.
Two other key issues to be aware of are the controversial removal of GIC and SIC deductions and a proposed tax on unrealised capital gains in superannuation.
Here’s what you need to know.
1. Removal of deductions for general interest charge (GIC) and shortfall interest charge (SIC)
Following amendments recently passed by Parliament, from 1 July 2025, businesses and individuals will no longer be able to claim deductions for General Interest Charges (GIC) and Shortfall Interest Charges (SIC) imposed by the ATO. These interest charges apply when tax payments are late or when there’s an underpayment.
While the ATO will still have discretion to waive interest in certain circumstances, the overall cost of tax debt is set to rise.
As outlined in our article last month Labor has previously said the changes will enhance incentives for all entities “to correctly self-assess their tax liabilities and pay on time and level the playing field for individuals and businesses who already do so”.
Why this matters:
- Increased financial pressure on businesses, especially those with cash flow challenges.
- Businesses may need to seek alternative finance options, as bank interest remains tax-deductible.
- This could disproportionately affect sole traders and small businesses paying tax at higher rates.
The changes to GIC and SIC deductions have raised major concerns among accounting bodies and business advocacy groups, who warn that the removal of the deductions could have significant consequences for businesses and the wider economy, questioning is this really about repaying outstanding tax debt or just a penalty on taxpayers struggling to do the right thing and meet their obligations?
If you’re concerned about how this change affects your business, we recommend reviewing your tax strategy and considering refinancing options.
2. Tax on Unrealised Capital Gains in Superannuation
The Government is pushing ahead with its plan to tax unrealised capital gains on superannuation balances over $3 million. Under this proposal, a 15% tax will apply to the increase in a super balance even if no assets are sold.
Why this matters:
- Normally, capital gains tax is only payable when an asset is sold. This change means tax will be applied to ‘paper gains.’
- Super fund balances fluctuate with the market, and taxing unrealised gains could create cash flow issues.
- Over time, more Australians will be affected, as the $3 million threshold is not indexed for inflation.
Example: A woman with a superannuation balance of $4 million at the start of the financial year sees it grow to $4.5 million over 12 months. Under the proposed rules, this $500,000 increase is considered “earnings.” Since she is $1.5 million over the $3 million threshold, one-third of these earnings ($166,667) would be subject to an additional 15% tax resulting in a tax bill of $23,829.
Labor’s controversial plan has been stalled in Parliament since last year, with the Coalition and various Independent Senators, among others on the crossbench, refusing to support the legislation.
Critics warn this could discourage investment and impact retirees, primary producers and small business owners with property in their super funds.
The Opposition has stated they will not support this policy.
What You Can Do
These changes could have significant financial implications. If you’re unsure how they may impact you, speak with us about tax planning strategies to protect your business and retirement savings. We’re here to help you navigate these developments and make informed decisions.