The Australian Taxation Office (ATO) actively pursued tax debts, especially targeting small businesses and private groups, as these debts were typically larger and less managed compared to public groups and multinationals. However, during the pandemic, the ATO and other agencies paused many enforcement actions, leading to significant debt accumulation, particularly among businesses that continued to operate despite being non-viable, often termed "zombie companies." Since mid-2022, the ATO has intensified its debt collection efforts, supported by increased budget allocations to address rising debts, focusing on small businesses and the lower end of the private wealth spectrum.
The ATO employs a risk management approach in its debt collection strategies, using a compliance model that segments taxpayers based on their likelihood of non-compliance and the impact of such non-compliance. This model, often depicted as a pyramid, aims to encourage willing participation in the tax system. At the bottom of the pyramid are taxpayers who comply voluntarily and need minimal enforcement. In contrast, at the top are those who resist compliance, necessitating the full force of legal measures. The ATO's activities, including the imposition of interest charges like the General Interest Charge (GIC), are designed to deter non-compliance and ensure timely payment of tax liabilities.
The GIC serves multiple purposes: it incentivises timely tax payments by imposing a higher-than-commercial interest rate on late payments, prevents late payers from gaining an unfair advantage over those who pay on time, and compensates the government for delayed tax receipts. The power to remit GIC is detailed in the Tax Administration Act, allowing the commissioner discretion to reduce or cancel the charge under specific circumstances, such as natural disasters or serious health issues affecting taxpayers. This discretion is guided by ATO practice statements, promoting fairness and reasonableness in remission decisions, especially when delays are beyond the taxpayer's control.
Taxpayers can request GIC remission multiple times, providing sufficient evidence to justify their request. The ATO considers various factors, including the taxpayer's efforts to mitigate adverse events and their compliance history. Special circumstances, such as those arising from external events or disputes over tax liabilities, can also justify remission. The ATO's approach aims to balance enforcement with support, encouraging early engagement from taxpayers to resolve outstanding debts through payment plans and other supportive measures, while reserving stricter actions for those who consistently refuse to engage.
PAYG instalments present complexities as they act as advance payments for future tax liabilities, potentially leading to discrepancies. The rules for deceased estates share similarities with those for bankruptcies and liquidations. International tax matters, though currently infrequent, are expected to rise as the ATO increasingly collects on behalf of overseas agencies.
Taxpayers dealing with business and family difficulties may seek remission of GIC due to unforeseen and severe circumstances. Successful remission applications often hinge on presenting comprehensive evidence of the taxpayer's personal and business challenges, such as illnesses or adverse events. Engaging early with the ATO and using their practice statements as a framework for submissions can enhance the chances of remission.
We have assisted numerous clients in obtaining GIC remission. Our persistent and meticulously documented approach, bolstered by substantial evidence, significantly enhances the likelihood of a successful outcome.
Disclaimer: The material and contents provided in this blog are general guide and informative in nature only. They are not intended to be seen as legal and tax advice. If expert assistance is required, you should seek your own advice for any legal, tax or investment issues raised in your affairs.