Denying deductions for the general interest charge and shortfall interest charge
The Tax Institute welcomes the opportunity to make a submission to the Treasury in respect of its consultation on the exposure draft legislation (draft Bill) and explanatory materials (draft EM) proposing to deny deductions for the general interest charge (GIC) and shortfall interest charge (SIC) incurred for income years starting on or after 1 July 2025 (proposed measure).
Our comments in this submission are focussed on policy concerns and the proposed measure's impact on taxpayers and the tax system.
The Tax Institute supports the government’s intention to improve self-assessment accuracy and promote timely tax payments. However, given that the availability of a deduction for the GIC and SIC has been integral to the tax system for an extended period, we recognise that this is a significant change for taxpayers to navigate. We are of the view that unintended consequences can be minimised by implementing legislative amendments to ensure equity and transparency, and that this will assist taxpayers to adapt to this change.
Our recommendations to support taxpayers through this transition may be summarised as follows:
- clarify whether the proposed measure applies to amended assessments issued on or after 1 July 2025 that are referable to income years beginning before 1 July 2025;
- reduce the fixed percentage point uplift for both the GIC and SIC from 7% and 3% respectively, as the proposed measure will exacerbate the already onerous burden of these large uplifts by up to 88%. This recommendation is of particular importance as the proposed measure is slated to apply in an environment that is likely to continue to be challenging for taxpayers due to relatively high interest rates and inflation over a protracted period;
- restrict the denial of the deduction to the relevant uplift component of both the GIC and SIC such that only the base interest component remains deductible, though we acknowledge there would likely be administrative challenges in implementing such an approach;
- enhance fairness in the remission process by ensuring that remission decisions in relation to both GIC and SIC are unconditionally reviewable. Where this is not possible, we recommend that, as a base line, remission decisions pertaining to the GIC should be open to challenge on the same basis as those pertaining to the SIC; and
- while we acknowledge that the assessability of interest payable to a taxpayer on an overpayment, early payment or delayed refund of tax is a separate issue, we recommend that, in this process, the Treasury also consider the measures in place to encourage and ensure accuracy and accountability of government, specifically the ATO, in issuing amended assessments. This may assist to create a more level playing field in the context of both over and under-payments of tax.
Our detailed response is contained in Appendix A.
The Tax Institute is the leading forum for the tax community in Australia. We are committed to shaping the future of the tax profession and the continuous improvement of the tax system for the benefit of all. In this regard, The Tax Institute seeks to influence tax and revenue policy at the highest level with a view to achieving a better Australian tax system for all.