Incurring a general interest charge can be an initial shock. In this article, we’ll discuss what it is and circumstances where it applies. Further, we’ll provide some tips on what to do if you incur it.
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1. What is a General Interest Charge?
A General Interest Charge is a charge incurred by businesses and individuals for unpaid tax debits. This can apply to debts which are paid late or are not paid at all. You will receive a notice when you or your business incurs a GIC.
2. How is it calculated?
The GIC is calculated by the ATO on a quarterly basis. For July to September 2019, the annual rate is 8.54% and the daily rate is 0.0233972%. For the October to December quarter, the annual rate is 7.98% and the daily rate is 0.02186301%. This rate compounds daily, meaning that to calculate how much you owe, you will need to multiply the number of days by the daily calculated rate.
3. Can you reduce or cancel your GIC?
The Taxation Administration Act 1953 (Cth) outlines the reasons a business may receive a reduction or cancelation of the GIC they owe. The criteria that the ATO uses to determine whether they should reduce or cancel your GIC includes:
- Whether there were certain unavoidable circumstances that resulted in your inability to pay your tax liabilities
- Steps taken by your business to prevent the effects of the circumstances that led you to be unable to pay
- If you have any other special circumstances, for example, whether you will receive financial hardship if you were to pay the GIC
Delay caused by you
If there was a delay in payment by you, you may be able to have your GIC reduced or canceled. However, you must be able to show that you took reasonable steps to be able to make payment. You should also consider whether it is fair and reasonable for your GIC to be reduced or canceled.
Delay that wasn’t caused by you
The ATO will consider whether the circumstance leading to the delay in payment is your fault. The ATO will also consider whether you took reasonable steps to deal with the circumstances that led to the delay in payment. You also need to show how this was beyond your control and resulted in you not being able to pay on time. An example would be a natural disaster such as a fire, flood or sudden illness.
Special Circumstances
Special circumstances will usually be decided on a case by case basis. The ATO will again look into whether it is fair and reasonable to reduce or cancel your GIC. An example may be whether the business has made payments consistently on time in the past, and this is the only time where there has been a delay.
Other circumstances
When your company is in liquidation (or if you are personally bankrupt), you should not apply for a reduction or cancelation of your GIC. There are also options to cancel your GIC if there is a delay in paying a superannuation guarantee charge for your employees. There are other specific circumstances where you may be able to cancel or reduce your GIC, however they are subject to an assessment similar to the circumstances listed above.
Conclusion
Your business will incur a GIC if you have any unpaid tax liabilities. You are required to disclose the remitted GIC on the year the remission occurs. Consequently, any decision you make regarding the remission of your GIC must be consistent with ATO guidelines. If you are unsure about whether you are eligible for remission of your GIC, it is wise to seek further advice from a business lawyer.
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