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The Institute of Public Accountants has said the government should rethink its proposal to deny deductions for the general interest charge and consider alternative options for addressing the ATO’s growing debt book.
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Lower threshold for reporting tax debts ‘to increase transparency’: IPA
08 October 2024
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The government has been urged to rethink or delay its proposal to remove deductions for the general interest charge (GIC) and shortfall interest charge (SIC) with small businesses already overwhelmed with other regulatory changes in the pipeline such as payday super while battling tougher economic conditions.
Institute of Public Accountants (IPA) general manager of technical policy Tony Greco there are other options the government could explore for reducing the amount of outstanding tax debt held by small businesses.
"One of the tools in the toolbox that the government has is disclosure to credit agencies. The current threshold for reporting debts is very high at $100,000 and could be lowered to a much lower figure," Greco said.
Greco said the high level at which the current threshold is set is placing other small businesses at risk as there is often little transparency in relation to a business's debts below this figure.
"Lowering that threshold will increase the transparency of information because those tax debts will then be included in publicly available information," he said.
"Otherwise, other unsuspecting people can get caught up [with these businesses] either as an employee or a business and they've racked up all these taxes. If the ATO then starts applying affirmative action against these debts, employees and businesses dealing with them could then become collateral damage so we support lowering the threshold."
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Greco acknowledged that while the growing pool of small business tax debt has been an ongoing challenge for the government and ATO, he noted that the ATO has been taking stronger, affirmative action to collect the debt and has tightened up on the remission of general interest charge.
"GIC is not remitted as easily as it has been in the past. The Commissioner has the discretion to remit the interest charges where it is fair and reasonable to do so, taking into consideration the circumstances which led to the delayed payment of tax liabilities, but the ATO has tightened up on its generosity with remissions," he said.
The IPA said the proposal to remove deductions for SIC and GIC will disproportionally impact small businesses which will be forced to find alternative tax-deductible finance.
"Such businesses will be at the mercy of the market trying to obtain an unsecured loan," Greco said.
He also stressed that small businesses are already facing other issues affecting their cash flow including the rising cost of doing business.
"Costs have increased and discretionary spend by consumers has been subdued and cashflow has suffered as a consequence," Greco said.
The introduction of payday super is another looming cashflow impost which will significantly impact small businesses.
Greco also noted that GIC already has a penalty component and currently is set at 11.36 per cent, which far exceeds the Commonwealth's cost of borrowings.
The IPA has also raised concerns about timing issues with the policy.
"The amendments apply to SIC and GIC incurred in income years commencing on or after 1 July 2025," he said.
"If someone is in litigation with the ATO and loses their appeal, any GIC relating to prior period before the change will be subject to the new non deductibility rule."
Greco also highlighted the need for accountants to be proactive in dealing with these changes with the removal of deduction set to increase the cost of tax debts significantly in some cases.
"We've only got to the start of July next year so it's important to ensure that clients are aware of the changes and start to seek alternative, external sources of funding and find out what the costs are," he said.
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