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ATO clamps down on tax debt and interest remissions.

ATO clamping down on tax debt and interest remissions

Moore Australia

Over the last few months, we have seen a significant shift in the Australian Taxation Office’s (ATO) approach towards tax debt. There has been a substantial increase in debt collection activity and a stricter approach towards remissions of penalties and interest charges.

Interest Charges

The two main interest charges that are levied by the ATO include the general interest charge (GIC) and the shortfall interest charge (SIC).
  • GIC is levied when the ATO has assessed a tax debt and it is not paid by the due date as required e.g., payment deadlines for income tax returns or business activity statements. Currently, the annual GIC rate is set at 11.34% and GIC is levied by the ATO on a compounding daily basis. [Refer to the ATO website
  • SIC is levied by the ATO when a return is amended leading to a higher liability for tax and the annual SIC rate is set up at 7.34%. [Refer to the ATO website

Remission of Interest Charges

Historically and especially during the COVID-19 impacted years, the ATO were lenient in remitting interest charges levied due to the extenuating circumstances facing our economy. However, this is no longer the case and the ATO have advised tax agents that they are now taking a much stricter approach towards tax debt collection and interest remission applications. Anecdotally, we as a firm can confirm that since the announcement, it is far more challenging to have interest successfully remitted.

The Commissioner’s approach towards general interest charge remissions are contained in PS LA 2011/12 [refer to the ATO website]. The ATO will consider a remission of interest charges where:
  • The delay was not caused by the taxpayer which include natural disasters (such as fire, flood or drought), industrial action, an unforeseen collapse of a major debtor or the sudden ill health of the key personnel in sole trader or small business situations. Importantly, simple requesting remission due to adverse business conditions would not usually qualify for remission.
  • The delay was caused by the taxpayer but it is still reasonable and fair to remit the interest charges. A higher bar where ATO officers who are handling the remission request must ask themselves whether ordinary and reasonable members of the community who pay their taxes on time would see the circumstances as fair and reasonable to remit.
  • The delay was caused by special circumstances. The ATO can consider the payment history of the taxpayer and if the late payment is a “one-off”, it would qualify for remission if it is fair and reasonable to do so.

Payment Plans

If a business has an upcoming debt which it cannot pay on time, it is extremely important to enter into a payment plan as soon as possible. Furthermore, when negotiating a payment plan with the ATO, it’s also important to ensure that you will meet the terms because one late payment may result in the ATO cancelling the payment plan and recommencing debt collection for the entire tax debt. It is also important to note that businesses would not qualify for interest remissions solely because they were on a payment plan with the ATO and they have met the terms of the payment plan. At the time of processing the remission request, ATO officers would need to consider the circumstances which led to the late payment and whether the remission would meet one of the criteria listed above.

DPNs and Impact on Asset Protection

Over the last year, the ATO has also increased the number of director penalty notices (DPNs) being issued. It’s prudent to remember that as company director, you may become personally liable for your company's unpaid amounts pay as you go withholding (PAYGW), goods and services tax (GST) & super guarantee charge (SGC).

Final Thoughts

The ATO has been very vocal about the fact that they are not a bank, and businesses should not be treating ATO debt like a bank facility and taxpayers should be engaging with the ATO in managing their debts in a timely manner.  The ATO can also report certain unpaid business debts owing to them to credit reporting agencies. However, they will not report your debt information to these agencies if a business is actively engaged with them to manage its tax debts.

Lastly, to further prevent businesses from using the ATO like a bank, the Government announced it will amend the tax law to deny deductions for ATO interest charges which means that taxpayers will no longer be able to claim deduction for general interest charges (GIC) and shortfall interest charges (SIC) incurred on or after 1 July 2025. For further information, refer to our previous blog here. This measure has still not been legislated.

Our business advisors can assist in negotiating payment plans and interest remission applications and furthermore, our debt advisory team can assist to ensure you have adequate facilities set up to meet your payment obligations with the ATO.