With a steep rise in interest rates, a cost-of-living crisis, escalating tensions abroad, and having just experienced a pandemic, many small businesses have done it tough in recent times.
As a result, an escalating tax debt may be getting difficult to manage, despite your best efforts to get on top of it. In fact, it may feel like every payment you make just goes towards paying the interest, rather than your primary debt.
So, what can be done?
The ATO applies two types of interest charges:
- The ATO applies general interest charge (GIC) on unpaid tax debts, and
- Shortfall interest charge (SIC) on shortfall amounts.
The ATO's reasoning for charging interest is to ensure that:
- Taxpayers who complete their tax returns correctly and pay their tax on time are not worse off than taxpayers who lodge incorrect returns and pay less tax than they should (even if this is by mistake)
- Government revenue is not disadvantaged by taxpayers who don't pay their tax on time.
Request for remission
In certain circumstances, the ATO may remit (reduce) GIC or SIC upon request.
In deciding whether to remit GIC or SIC, the ATO considers the following factors:
- The existence of extenuating circumstances that caused the delay in payment, and
- The steps taken to relieve the effects of those circumstances.
The ATO may ask for documents to support the request.
They may remit all, some or none of the interest charge.
In most cases, remission of GIC must be made in writing.
Tips when making a remission request.
- If the delay in payment was not your fault, explain what happened that was outside of your control, for example, a natural disaster such as fire or flood, and how this affected your ability to pay.
- Outline the steps you are taking to address the circumstances, for example, refinancing or selling assets.
- If the delay was caused by you, explain what has been done to reduce the effect of the circumstance that caused this delay, for example, engaging an accountant to assist with budgeting, and why it would be "fair and reasonable" to remit the interest charges, for example, you otherwise have a good compliance and lodgement history.
- Ensure lodgements are up to date prior to making the request.
- Work with your tax agent to come up with a realistic plan for reducing your primary debt and consider providing this plan as part of the request.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.