Login
iscover
Reforms to remove deductions for the general interest charge will disproportionately impact small businesses already struggling with high inflation and interest rates, CPA warns.
Newsletter
Proposed GIC deduction changes cop further backlash
24 October 2024
•
12 minute read
You’re out of free articles for this month
To continue reading the rest of this article, please log in.
Create free account to get unlimited news articles and more!
CPA Australia is the latest industry body to criticize the government’s plans to deny deductions for the General Interest Charge (GIC) and Shortfall Interest Charge (SIC), warning that the reforms raise significant concerns for small businesses and individuals.
The professional body said while the measure is intended to address the growing outstanding collectible business tax debt, the approach “risks unintended financial harm”.
“Given the ATO’s recent adoption of stricter debt recovery measures, including the use of external debt collection agencies, and the current high interest rates resulting in the GIC exceeding commercial lending rates, this proposal is excessive and lacks a sound policy basis,” it said.
“We recommend that the Government reconsider its proposal to deny deductions for GIC and SIC.”
The professional body cautioned that the proposal to deny deductions for GIC and SIC will create undue financial hardship for small businesses and individuals, exacerbating existing challenges in the current economic environment.
“Small businesses already face significant challenges, such as high inflation, rising interest rates, and limited access to affordable financing,” it said in a recent submission.
==
==
“A more balanced approach is needed - one that focusses on targeted recovery efforts and promotes voluntary compliance. We urge the Government to reconsider the proposed measures and explore alternative solutions.”
The submission said the government should instead introduce targeted measures that focus on high-debt accounts rather than penalising generally compliant small businesses by denying a deduction for GIC and SIC.
If the government is to proceed with the reforms, CPA Australia said the government should hen reduce the base rate used down to a lower percentage.
“Alternatively, we suggest GIC should remain deductible for a reasonable period, such as 60 days from the date of assessment or amended assessment to provide taxpayers with sufficient time to secure financing or refinancing,” it said.
CPA Australia said shortfall interest charge, in particular, should remain tax deductible as it reflects a different type of liability compared to the GIC.
“The SIC is not related to late payments of tax but arises from tax shortfalls - meaning it is triggered by understatements or adjustments to returns,” the submission said.
The submission said the government should retain deductibility for SIC to reflect its function as an adjustment-related charge, not a late payment penalty.
CPA Australia has also called for transitional rules which it said are essential for preventing retrospective application.
“For example, if an amended assessment for the 2022 tax year is issued in July 2025, the SIC accrued before 1 July 2025 would unfairly become non-deductible under the new rules,” it said.
If the government is to proceed with the changes, the submission said the government should limit non-deductibility to interest accrued from 1 July 2025 onward to ensure fairness and prevent retrospective application.
You are not authorised to post comments.
Comments will undergo moderation before they get published.