Australia: Removal of deductibility of ATO charges in 2023-2024 mid-year economic and fiscal outlook statement

The government’s 2023-2024 mid-year economic and fiscal outlook statement included removal of deductibility for Australian Taxation Office (ATO) charges, specifically general interest charge (GIC) and shortfall interest charge (SIC), incurred in income years beginning on or after 1 July 2025. Read TaxNewsFlash

The GIC is intentionally designed to be a higher rate than some commercial borrowings in order to discourage the use of the ATO as a source of finance and to encourage the prompt payment of tax liabilities. On the other hand, SIC is imposed at a lower rate to reflect instances where taxpayers are unaware of their tax debts (in the context of the Australian self-assessment system). Deductibility of the SIC (which was introduced later) was designed to ensure consistency with the GIC.

Taxpayers need to consider the implications of these changes, including in particular the effects of:

• Making late tax payments, including through payment arrangements
• Voluntarily amending returns or a making a voluntary disclosure
• Whether to agree to period of review (POR) extension requests from the ATO
• Delays that occur when the ATO is undertaking lengthy reviews and audits
• Certain issues (such as transfer pricing) that have an unlimited POR
• Negotiating the apportionment of settlement components with the ATO (which may include an interest component)
• Preparing robust and compelling submissions such that the ATO may exercise its discretion to remit GIC and SIC in appropriate cases, including situations in which:
  • Circumstances justify the Commonwealth bearing part or all of the cost of delayed payments (such as where the ATO was slow in their initiation of an audit, or the audit is lengthy)
  • Payments are made early or a payment arrangement is entered into
  • The taxpayer has relied on the ATO’s advice or general administrative practice
  • Circumstances existed which were beyond the taxpayer’s control (such as where there is a natural disaster or serious illness)

Despite the changes to the deductibility of GIC ad SIC, there appears to be no corresponding announcement regarding the taxation of interest on overpayments. As such, when a taxpayer overpays an amount of tax, any interest paid by the ATO to the taxpayer may continue to be assessable (subject to the final legislation to implement this measure).

A formal consultation process on the proposed changes is anticipated.