GIC is imposed on all outstanding tax debts at a rate exceeding 10% per annum, compounded daily.
Daily compounding adds up quickly – which is why credit card companies use it.
For example, over two years, a tax debt of $600,000 will increase to $730,000 due to the compounding rate of the general interest charge (GIC) – an increase of approximately 22%.
GIC is imposed on all tax liabilities including: self-assessed liabilities (for example, those arising from the lodgement of an activity statement or income tax return), penalties and any ATO notified notional amount.
Managing your tax debt is therefore crucial to ensure that you are tax effective.
Some measures and options include the following:
- A deduction for interest paid on moneys borrowed externally may be available to companies carrying on a business. Taking out a loan to pay your tax debt can be desirable in these circumstances.
- If GIC is imposed, you can ask for it to be reduced in part or full in extenuating circumstances. An example includes circumstances where the taxpayer did not cause the delay and has taken reasonable mitigating action.
- If paying your tax debt will cause you serious hardship, you can make an application to the ATO to be partially or fully released from payment. Serious hardship exists when payment of the debt would leave you unable to provide food, accommodation, clothing, medical treatment, education or other necessities for yourself or your family, or other people for whom you are responsible.
- If you debt is less than $25,000, you may be eligible to apply to make a late payment or pay the debt by instalments over a specified period. Having a formal instalment agreement is advantageous as it would prevent garnishee notices being issued and legal proceedings being commenced by the ATO.
Irish Bentley Lawyers
Irish Bentley Lawyers have an industry wide reputation for effectively representing clients in taxation matters. Our experience demonstrates that it is possible to negotiate advantageous settlements with the Australian Tax Office. We are also adept at protecting those clients who are vigorously pursued due to the internal policies of the ATO.
We can:
- Assist you in preparing hardship submission to the ATO seeking the remission of penalties, GIC.
- Advise and negotiate with the ATO for a suitable payment arrangements.
- Advise and negotiate with the ATO to reduce the assessment of taxes on compassionate grounds.
- Advise and negotiate with government agencies on the reduction of penalties and assessments imposed during delays in completing transactions.