Legislation preventing taxpayers from claiming deductions for the general interest will see many businesses “calling in the receivers”, accountants and professionals have cautioned.

The passage of legislation to permanently deny deductions for the general interest charge (GIC) and shortfall interest charge (SIC) will exacerbate financial hardship for small businesses already struggling with high inflation, high interest rates and cash flow constraints, tax professionals and accounting bodies have warned.

Last week, the bill to remove the ability for taxpayers to deduct payments of the general interest charge (GIC) and shortfall interest charge (SIC) from their assessable income passed through both houses of Parliament. The bill has now also received royal assent.

The legislation applies to GIC and SIC incurred in income years starting on or after 1 July 2025.

Tax professionals and professional accounting bodies said the introduction of these changes came at a time when many businesses were already facing a wide range of financial challenges.

Natalie Lennon, founder and director of Two Sides Accounting, said while GIC and SIC probably shouldn't have been a tax deduction in the first place, taxpayers and businesses were accustomed to claiming them as a deduction.

Lennon said many businesses were now used to doing payment plans and claiming tax deductions for interest paid to the ATO which has become quite commonplace in business, particularly at the moment.

This would now be taken away at a time when many businesses are already struggling, she said in a recent LinkedIn post.

"In over 20 years of being an accountant, I've never seen this many businesses closing down and going into liquidation," Lennon said.

"It's a really tough time with cost of living and the [many changes] introduced by the government over the past few years. The effects of Covid are also still lingering on.

"This really couldn't have come at a worse time."

Mark Chapman, director of tax communications at H&R Block, said the removal of tax deductibility for GIC and SIC would make carrying tax debt far more expensive to businesses.

Chapman said the changes were likely to provoke one of two reactions from businesses.

While the changes will encourage some businesses to pay their tax debts sooner, other businesses may defer the tax debt further in order to avoid crystallising the GIC and SIC impact, he warned.

"For businesses that choose the latter course, they are leaving themselves open to an additional and increasing cost which could prove impossible to sustain."

"Expect to see some businesses calling in the receivers as a result or the ATO doing it for them."

Chapman said that to prepare for the changes, businesses should prioritise clearing tax debts over other creditors.

He warned that the high rates of GIC and SIC being charged combined with the removal of tax deductions for them meant that running even small tax debts was no longer a viable way to finance a business.

Before the passage of the legislation through parliament last week, several of the accounting associations made a last-minute plea to crossbenchers to remove the GIC and SIC deductions changes from the bill or at least delay their start date.

In a brief provided to the cross bench, accounting bodies warned that making the interest costs on tax debts non-deductible would accelerate the accumulation of tax liabilities of small businesses to unsustainable levels, "potentially threatening the viability of many small businesses".

The bodies noted that GIC is currently 11.38 per cent, an amount that is significantly higher than commercial interest rates available to many businesses and individuals.

"Whilst it would be prudent for small businesses to obtain alternative finance from the private sector, in practice that is difficult to do as many financial institutions will not lend to businesses with tax debt. Thus, a business may not be able to swap tax debt for other forms of finance," the bodies said.