Treasury details plan to remove tax-deductible status for ATO interest payments
Outstanding tax debts will become even less desirable when interest on those late payments loses its tax-deductible status next year.
Outstanding tax debts will become even less desirable when interest on those late payments loses its tax-deductible status next year.
Now, the Treasury is consulting on how to best affect that change in legislation, giving stakeholders a chance to have their say on the significant reform before it takes place.
The general interest charge (GIC) is levelled on outstanding tax payments, including the PAYG instalments paid by small businesses, to discourage late payments.
The GIC sits at an annual rate of 11.36%, compounding daily, providing a strong disincentive to overdue tax liabilities.
Relatedly, the shortfall interest charge (SIC), which applies to the gap between self-assessed liabilities and real liabilities established by the Australian Taxation Office (ATO), stands at 7.36% per annum, compounding daily.
The SIC is designed to stop entities from under-reporting their liabilities to obtain a temporary ‘free loan’ from the ATO by under-reporting how much they actually owe.
Payments intended to cover the GIC and SIC are currently tax-deductible, mitigating some of the sting of those interest payments.
However, the federal government in December 2023 announced its plan to remove tax-deductible status for those payments as of July 1, 2025.
The change is expected to result in extra tax revenues of $500 million a year, a boon for an ATO attempting to whittle away at billions in outstanding tax liabilities.
Taxpayers will still have the ability to request GIC and SIC remittances from the ATO in extenuating circumstances.
Ahead of those changes, the Treasury on Tuesday released a consultation paper and details about draft legislation to enact the change.
“Denying the deductibility of GIC and SIC will level the playing field for individuals and businesses who already correctly self-assess their tax liabilities and pay tax on time and assist in lowering the amount of collectable debt owed to the ATO,” its consultation paper says.
The Treasury is asking stakeholders to consider the draft legislation, and whether the explanatory materials are strong enough to inform taxpayers, including small businesses, of the changes.
Stakeholders can share their views with the Treasury before October 16.
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