The Australian Taxation Office (ATO) has signalled a significant shift in its compliance approach under the new Commissioner. Moving away from the supportive stance adopted post-COVID, the ATO is now emphasising timely lodgement and payment of tax debts to ensure fairness across all taxpayers.
This change in focus means that businesses and their accountants will have less flexibility in obtaining lodgement extensions. While accountants operating under the Tax Agent Lodgement Programme may still access extended deadlines, the general expectation is that businesses will proactively plan and meet their lodgement and payment obligations on time.
Adding to these changes, the Australian Government has introduced a Bill proposing that from 1 July 2025, GIC and SIC will no longer be tax-deductible. If enacted, this change will increase the effective cost of late tax payments for businesses, further compounding the ATO’s stricter compliance stance.
Tighter rules on interest remission
Previously, ATO staff often exercised discretion in remitting General Interest Charge (GIC) and Shortfall Interest Charge (SIC). However, the ATO has now indicated that remission decisions will more closely follow established guidelines, limiting the circumstances in which interest relief is granted.
The remission of interest is governed by section 8AAG of the Taxation Administration Act 1953. The Commissioner may remit interest if:
- The delay in payment was not due to the taxpayer’s actions or omissions and the taxpayer took reasonable steps to mitigate the delay.
- Although the delay was due to the taxpayer’s actions or omissions, they took reasonable action to address the delay and remission is deemed fair and reasonable.
- Special circumstances exist, making it fair and reasonable to remit all or part of the interest charge.
Given this stricter approach, businesses should expect fewer instances of interest remission and should plan accordingly to minimise exposure to GIC and SIC.
The cost of late tax payments – GIC and SIC no longer deductible
At present, businesses can deduct GIC and SIC expenses from their taxable income, effectively lowering their overall tax liability and reducing the financial impact of these charges.
Once the changes take effect, any GIC or SIC incurred from 1 July 2025 will be non-deductible, meaning that businesses will bear the full financial impact of these charges.
The combined effect of stricter remission policies and the removal of tax deductibility creates a strong incentive for businesses to avoid late payments altogether.
Actions for businesses to mitigate impact
To prepare for these changes, businesses should:
- Enhance tax planning: Work closely with advisers to anticipate tax liabilities well in advance and lodge on time.
- Strengthen financial controls: Implement systems to monitor tax obligations and avoid last-minute surprises.
- Consider alternative funding: Evaluate the cost of external financing versus the increasing burden of non-deductible ATO interest charges.
- Engage proactively with the ATO: If unavoidable, initiate early discussions with the ATO regarding payment plans or remission requests, keeping in mind that interest remission will be more difficult to secure under the new guidelines.
The ATO’s evolving stance on compliance, combined with the proposed removal of tax deductibility for GIC and SIC, marks a significant shift in tax administration. Businesses should take proactive steps to ensure timely lodgement and payment to avoid increased costs and potential penalties.
If you would like to discuss how these changes may impact your business, contact your local William Buck advisor for tailored guidance.
