Senate passes $20000 instant asset write off the extension
General Interest Charge and Shortfall Interest Charge – What they are?
General Interest Charge (GIC) is a uniform rate of interest to delayed tax payments. It is compounded daily since the day the tax was originally due and remained unpaid. GIC is considered as tax deductible expense.
The GIC was introduced on 1st July 1999 to simplify complex penalties and charges applicable for late payment of most kinds of taxes such as income tax, fringe benefit tax, goods and services tax and pay as you go tax.
Sec 8AAD of the Taxation Administration Act 1953 specifies how interest is calculated. The nominal annualized GIC rate is divided by the no of days in the calendar year to obtain the daily interest rate, which is applied on a compounding basis to the balance owned by a tax payer at the end of each day. The GIC rate is adjusted quarterly to reflect the movement in the base rate. GIC rate as per ATO’s recent release for the upcoming Quarter July-Sept 2018 is 8.96% as annual rate and 0.02454794% as daily rate.
Shortfall interest charge (SIC) was introduced on 29th June 2005 for amendments of 2004-2005 and later years of income tax assessment .The SIC replaces the GIC applied to income tax shortfalls for the period before assessments are amended. SIC is calculated at a lower rate in comparison to the GIC and is also considered as tax deductible expense.
Generally, the SIC applies from the due date for payment of the earlier, understated assessment until the day before ATO issues the notice of amended assessment. SIC calculation is also compounded daily. The formula to calculate SIC has been provided under Sec 280-105 of Schedule 1 of the Taxation Administration Act 1953. It uses a base interest rate and an uplift factor of 3%. The base interest rate is defined as the 90-day Bank Accepted Bill rate published by the Reserve Bank
The due date to make payment of the revised assessed tax and SIC is 21 Days after the notice of assessment has been issued, once the due date has passed, GIC will apply automatically to any unpaid tax and SIC.
General Interest charge will continue to apply to tax shortfalls in amended assessments for the year 2003–04 and earlier income years regardless of when these amendments are made because it will be applied from the due date of the original assessment. SIC rate as per ATO’s recent release for the upcoming Quarter July-Sept 2018 is 4.96% as annual rate and 0.01358904% as daily rate.
Once the additional tax is paid, one is eligible to claim a tax deduction for SIC in the year they received the notice of assessment that includes the SIC amount. Similarly if the SIC is remitted, one must include the remitted SIC amount as interest income in their tax return in the year it was granted.
You can ask for an SIC amount (and any related GIC) to be remitted in full or part if there are justifying circumstances – for example, if ATO contributed to an error that led to a shortfall, or if the shortfall amount is paid before the notice of amended assessment is issued.
If you are having to pay interest to the ATO due to a delayed tax lodgment and would like to discus about your options with us, kindly feel free to get in touch with our friendly team and we shall assist you as per your situation. Give us a call today on 03 8609 1889 or email us on info@a1accountants.com.au and one of our friendly staff will be able to assist you with your queries.
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