In December 2023, the government announced it would amend the tax law to deny income tax deductions for Australian Taxation Office (ATO) interest charges. This is now law. The law change applies in relation to assessments for income years starting on or after 1 July 2025.

This means that you can no longer deduct a General Interest Charge (GIC) incurred on or after 1 July 2025 in your income tax return for income years starting on or after that date.

What is a general interest charge (GIC)?

Broadly, GIC is a mechanism designed to encourage taxpayers to meet their taxation obligations on time by applying a high interest rate to taxation liabilities that are overdue. The Commissioner, through the ATO, may remit GIC in special circumstances and when late payments were due to factors beyond the taxpayer’s control.

Importantly, small businesses and individuals who are already facing cash flow challenges are likely to be the most impacted by this change as they will now have to fund additional taxation liabilities (if they frequently incur these charges) without any corresponding deduction.

The new remission process in practice

Following on from Tax Agent feedback regarding lack of transparency in the ATO’s application of the new law, in January this year the ATO released examples of where they may be likely to accept or more likely to decline GIC remission requests. It also shifted penalty remission requests online to a dedicated team to improve consistency.

Additionally, in March this year, the Tax Ombudsman handed down her review into the ATO’s management of GIC remissions, concluding that the ATO’s approach to GIC remissions was not meeting community expectations and had led to unduly harsh outcomes for taxpayers trying to do the right thing. Issues including inconsistency, poor communication and a lack of transparency were highlighted, with these factors having led to unfair outcomes with some genuine and deserving applications rejected and others that should rightly be declined being approved.

The Ombudsman also made a series of recommendations for the ATO to address concerns about inconsistencies, which the Tax Office accepted in full.

Examples of acceptance of remission requests

The ATO is likely to remit GIC where late payment results from circumstances outside a taxpayer’s control, such as natural disasters, industrial action, collapse of a major debtor, sudden illness of the taxpayer or key personnel issues affecting a tax or BAS agent, theft or damage to essential business assets, bereavement, or experiences of financial abuse or domestic violence that affect the ability to meet obligations.

Remission is more favourably considered where the delay is inconsistent with an otherwise strong compliance history, and where the taxpayer demonstrates a clear link between the circumstances and the delay, takes reasonable steps to minimise the impact, and acts promptly to address the outstanding debt, such as by entering a payment plan or engaging with the ATO.

Examples of remission requests likely to be declined

The ATO is unlikely to remit GIC where late payment arises from ordinary business or personal circumstances within the taxpayer’s control, such as cash flow issues due to adverse business conditions, general economic downturns, currency fluctuations, or routine risks like delayed customer payments.

Remission is also typically declined where funds were available but used for other purposes, such as business expansion or reinvestment, or where delays result from poor planning, including not allowing sufficient time for an agent, being on holiday, or failing to follow up on outstanding information. Requests are further weakened where the taxpayer does not take reasonable steps to meet obligations once circumstances change, fails to engage with the ATO, or has a history of late lodgement or payment, as these factors suggest the delay could have been avoided or is part of an ongoing pattern.

In our practical experience, we have seen the ATO become extremely strict on the remission of these charges. As such, it is important that you have appropriate cash flow planning in place to ensure that you do not incur these charges going forward.

Learn more

If you would like assistance with managing your cash flow or tax planning, contact Kristy Baxter or Angela Stavropoulos via taxmed@pilotpartners.com.au or (07) 3023 1300.