New General Interest Charge threatens to cripple businesses with higher rates.
Highest Interest Charge rates in 7 years hit businesses harder than ever before.
The Australian Tax Office is applying the new GIC and SIC rates from the second quarter of the 2022-23 income year. These interest charges have hit a level we haven’t seen since 2015. The increase will weigh heavily on those already struggling with tax payments, making it challenging to manage their growing debt. This article outlines the new rates, how compounding interest impacts businesses and how remission of interest can change the outcome.
Refresher: what are these charges?
If you’ve had a shortfall amount owing from your income tax assessment or fallen behind with your tax payments, you’ll be familiar with these interest charges, which the ATO applies to unpaid tax liabilities.
The General Interest Charge compounding rate applies to late or unpaid: income tax, fringe benefits tax, GST and PAYG. It is worked out daily on a compounding basis.
The Shortfall Interest Charge is applied when your tax return is amended and there’s a shortfall amount; this is a lower rate.
The ATO typically applies the SIC rather than the GIC when taxpayers would be unaware of the shortfall amount until they receive an amended assessment.
The current rate increase.
General (GIC) and shortfall (SIC) interest charges will increase by more than 1% for the October-December quarter to reach their highest level in seven years.
The GIC/SIC rates have not been this high since the second quarter of 2015.
At that time, the GIC was 9.36%, and the SIC was 5.36%, compared to the current increase to 9.31% and 5.31%, respectively. The GIC daily rate from October 1st is 0.02550685%.
The ATO has surpassed the RBA’s cash rate rises.
The RBA cash rate grew from 0.35 per cent in May to 2.35 per cent in September, whereas the GIC rate went from 7.07 to 9.31.
How we help you
If you have significant amounts owing to the ATO, the added interest of these charges can be overwhelming and cripple your efforts to pay the principal debt down, with interest compounding daily.
Applying to the ATO to reduce or cancel the GIC (remission application) may be your best chance to recover financially. However, approval is not guaranteed, and if the ATO reject your request, it isn’t easy to proceed as the decision is hard to overturn.
As tax debt specialists and ex-ATO staff, we know how to prepare a remission application that the ATO will approve. This is our speciality; we thrive on saving businesses and helping stressed business owners recover from debt.
Imagine owing the ATO 130,000. Now Imagine 100,000 of that is interest!
This is how these extra charges can add up to create a burden that becomes overwhelming.
Let’s look at a real-world example of a past client who is now free of 100,000 worth of GIC and penalties.
- This 60+-year-old hairdresser was a sole trader. He had sold his salon and was still making a modest income by hiring a chair in someone else’s establishment.
- He owed the ATO $30,000 of unpaid taxes, and over time, the interest charges and penalties applied to his debt ballooned to $130,000.
- His accountant refers him to us facing bankruptcy, and you can imagine how he felt as a single person looking towards retirement in a state of financial distress.
- The outcome? He is not bankrupt, and the $100,000 of GIC and Penalties have been wiped from his slate. Our negotiations and remission application resulted in a manageable 24-month payment arrangement to finally rid himself of the remaining $30,000 debt and plan his retirement.
A satisfying and happy outcome for all, I’m sure you’ll agree!
Act now to combat the rising rates.
With interest rates at a new high, it’s more important than ever to take stock of your finances and address your debt. If you need further information or would like an expert to ease you through the process of applying for the remission of general interest charges, reach out to us today.
📩 info@tdsau.com.au
📞 1300 310 469