A large component of tax debts that are referred to us comprises interest and penalties. Often our first action when dealing with a tax debt is an application to have penalties and interest reduced or totally remitted. We have an excellent track record of success in this area. This can result in a much more manageable debt, and open up a lot of options for how to deal with it.
What is Interest?
In the case of a tax debt, Interest is a payment made by the debtor to the Tax Office of an amount above repayment of the principal sum. Interest charged on a tax debt is called GIC, short for General Interest Charge, by the Tax Office.
When Does Interest Apply to a Tax Debt?
General Interest Charge (GIC) applies in a range of situations including where:
- some or all an amount of tax, charge, levy or penalty is paid late or is unpaid
- there is an underpayment of tax for a period because the amount of tax due is increased due to an amendment of an assessment
- an instalment of tax is underestimated.
How Is Interest Calculated on a Tax Debt?
GIC is calculated on a daily compounding basis on the amount outstanding. GIC is applied to the taxpayer’s account periodically. It may be applied via an automated batch process or manually by tax officers when they are actioning accounts. The GIC rate is reviewed quarterly.
What Are Penalties?
The law allows the ATO to apply financial penalties to taxpayers when they do the wrong thing. The most commonly penalised areas of behaviour are:
- making a false or misleading statement or taking an unarguable position
- failing to lodge a return or statement on time
- failing to withhold amounts as required under the PAYG withholding system
- failing to meet other tax obligations.
The amount of penalty imposed is calculated either as a percentage of the unpaid tax (for false or misleading statement penalties for example), or a fixed amount per month for each month your lodgement is late.
If the ATO decides you’re liable for a penalty you’ll be notified in writing of the reason for the penalty, the amount and the due date for payment, which will be at least 14 days after the notice is given.
In extreme cases the ATO can refer debtors for prosecution before the courts by the Commonwealth Director of Public Prosecutions (CDPP).
If someone is found guilty of an offence the courts can impose security bonds, community service orders, fines, additional penalties and, for some offences, prison sentences.
What Does Remit Mean?
Remit means to reduce, in part or in full.
When Can GIC be Remitted?
We can ask for a GIC amount to be reduced in part or in full if there are special circumstances that would make it fair and reasonable, in the Tax Office’s eyes, to remit the amount.
The request will fully outline the circumstances that led to the delay in payment and any steps taken to reduce the delay.
When Can Penalties be Remitted?
The ATO has discretion to remit (reduce) penalties based on the tax payers circumstances. If you’ve received a penalty that you are dissatisfied with, we can ask the ATO to remit it for you. We have an excellent track record of success in getting penalties remitted for clients.
Note that only administrative penalties can be remitted, so tax shortfalls or penalties for false or misleading statements are not remittable.
The ATO takes the following factors into account when considering a request for remission:
- your compliance history
- whether tax was deferred or avoided
- the reasons for the increased tax (or reduced credits) that brought about the imposition of penalties
- whether they became aware of the tax shortfall as a result of your voluntary disclosure or their compliance efforts
- your attitude towards complying with the tax laws.
Making a good case that covers these areas puts your claim on the path to success.
How can we help?
We can make a remission application on your behalf. We know what to say and how to say it, and the supporting information that gets the best results. We usually do this as one part of a larger strategy for dealing with a tax debt.