Government to push ahead with GIC deduction changes

Treasury Laws Amendment (Tax Incentives and Integrity) Bill 2024 was referred to the Senate Economics Legislation Committee for inquiry and report in late November, with the committee handing down its report yesterday.

In its report, the Committee said the current arrangements where taxpayers can deduct the GIC and SIC were too generous and "undermine the deterrent purpose of these charges".

"Removing the ability to deduct these charges would ensure that interest on overdue tax liabilities remains an effective deterrent and will promote accurate self-assessment and timely payment of tax liabilities," the Committee said.

The Committee said denying these deductions would encourage taxpayers to accurately self-assess and to make prompt payments of their tax liabilities when they fall due.

"The committee notes that the ATO’s debt book has grown substantially in recent years, with collectable debt increasing by 99 per cent between 2018-19 and 2023- 24 to reach $52.8 billion," it said.

"A large portion of this debt reflects amounts businesses are required to collect and remit to the ATO. Stakeholders have generally agreed the need to address this growth."

The Committee rejected proposals made by professional accounting bodies and The Tax Institute during the inquiry, such as reducing GIC and SIC rates or removing deductibility on only GIC, as they would "dilute the measure's effectiveness".

"The committee also acknowledges concerns raised by participants about the potential impact on small businesses and individuals facing cash flow challenges," it said.

"The committee however notes that the Commissioner of Taxation will retain a discretion to remit, or partially remit, GIC and SIC where, for example, taxpayers are affected by a natural disaster, sudden illness, or financial hardship.

"The committee considers this discretion to be an appropriate safeguard that complements the measure, especially in the current uncertain economic environment, and trusts this discretion will be effectively utilised by the Commissioner where appropriate."

The Tax Institute and professional bodies previously warned that proposed measures could have significant consequences for businesses and the wider economy.

"Increased financial pressure may force businesses to divert resources from critical operations such as payroll or purchasing inventory, putting their long-term viability at risk," The Tax Institute said in its submission to the inquiry.

CPA Australia said denying GIC and SIC deductions was an excessive measure given the ATO’s firm approach to debt recovery efforts.

“With interest rates as high as they are, this will disproportionately affect businesses with cash issues, particularly sole traders on the highest marginal tax rate,” said CPA Australia tax lead Jenny Wong.

“You have to question if this really is about repaying outstanding tax debt, or just a penalty on taxpayers struggling to do the right thing and meet their obligations. The impact on existing tax debt is very concerning.”

Miranda Brownlee
31 January 2025 
accountantsdaily.com.au