Accounting bodies continue fight against GIC deduction changes

Making the general interest charge non-deductible would unduly penalise taxpayers who have made honest mistakes in their returns, accounting bodies have warned.

The proposal to make the general interest charge (GIC) and shortfall interest charge (SIC) non-deductible is inappropriate and inconsistent with the original policy intent of the GIC and SIC, the government has been told.

CA ANZ, the SMSF Association and the Institute of Public Accountants urged the government to scrap the proposed changes with existing measures to improve collectable debt now beginning to make an impact.

If legislated, the proposed amendments would apply to SIC and GIC incurred in income years starting on or after 1 July 2025.

The changes were introduced by the government as part of a broader shift towards stricter tax collection and enforcement measures, following a relatively lax approach during and directly after the pandemic.

The submission argued that the ATO has better mechanisms at its disposal to improve the collection of tax debts and that increasing the impact of GIC and SIC will not reduce the rate of honest mistakes made in tax returns.

It also warned that the changes would have a disproportionate effect on small businesses.

The accounting bodies referred to the policy intent of the GIC and SIC outlined in the Review of Self Assessment (RoSA), which found that the GIC rate is sufficiently high to encourage the on-time payment of tax by discouraging its use for business or private finance. The review also noted that the GIC and SIC are not intended to serve as penalties to taxpayers.

Furthermore, the bodies noted that the SIC rate was largely determined by factors unrelated to the size of the shortfall or culpability of the taxpayer, such as the period taken for the shortfall to be identified.

The submission also said there was already a penalty regime in place for taxpayers who were found to deliberately pay their taxes incorrectly. This regime included penalties for recklessness, intentional disregard, and failure to take reasonable care.

The submission said the penalties for such offences could be increased if the government wanted to crack down on deliberate taxpayer noncompliance.

“Making SIC non-deductible results in it having a penalty component that is applicable to taxpayers who have made an honest mistake as well as those who have been reckless or deliberately fraudulent,“ the submission said.

“There are already a wide range of targeted measures that the Australian Taxation Office can undertake to improve the collection of tax debt, and the latest annual report indicates that such measures are beginning to make an impact.”

The accounting bodies also said if the government retains its policy changes to GIC and SIC, then remission decisions by the ATO concerning both GIC and SIC should be unconditionally reviewable.