Your taxes could skyrocket by mid-year—here’s why ATO is to blame
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As we approach the new financial year, Australians are bracing for a significant change that could see many facing steeper tax debts.
Starting mid-year, the Australian Taxation Office (ATO) has been set to implement a policy shift that will make overdue tax debts more costly for individuals and businesses alike.
Experts are concerned that the added financial burden could create even greater challenges for individuals already struggling with current economic pressures.
Jenny Wong, the tax lead at CPA Australia, has voiced strong opposition to this change, highlighting the potential 'devastating impact' it could have.
Many are already facing the challenges of high interest rates and inflation, and the additional financial strain could be crippling.
The general interest charge (GIC) and shortfall interest charge (SIC) will no longer be tax-deductible, a move that has sparked considerable concern and criticism.
CPA Australia has submitted the proposal to the Treasury and government, advocating for a more nuanced approach.
‘Introducing a blanket policy instead of a targeted measure to address accounts with high levels of tax debt is indiscriminate and punitive,’ Wong said.
‘With interest rates as high as they are, this will disproportionately affect cash flow issues on the highest marginal tax rate.’
The impact is significant, with penalties potentially reaching up to 25 per cent, and in some cases, rates as high as 47 per cent, depending on the individual's marginal tax rate.
‘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.’ Wong added.
It's a situation that could exacerbate existing tax debts and create a cycle of financial hardship for those affected.
The government's rationale for this change, as outlined in the 2023-24 Mid-Year Economic and Fiscal Outlook (MYEFO), is to create a level playing field for taxpayers who self-assess their tax liabilities and pay on time.
It's also seen as a measure to reduce the amount of collectable debt owed to the ATO.
The Treasury expects this move to generate an additional $500 million yearly in revenue.
However, this comes when CPA members report long delays in ATO service delivery and inconsistent outcomes regarding GIC remission requests.
‘The ATO’s operational challenges also add fuel to the argument that the proposal to deny deductions for GIC/SIC unfairly [penalises] taxpayers who may already face delays in obtaining certainty and assistance from the ATO,’ Wong explained.
The GIC, currently at 11.42 per cent, is applied to tax debts unpaid by the due date, while the SIC, at 7.42 per cent, may apply if your tax return is amended and your tax liability increases.
With these charges no longer tax-deductible, the financial implications could be severe for those with tax debts.
For our readers grappling with tax debt or concerned about the upcoming changes, it's crucial to stay informed and seek professional advice if needed.
If you need guidance or wish to share your experiences with tax debt, we encourage you to join the conversation. Your insights could be invaluable to others in similar situations.
How could this change affect people already facing financial problems? What can people do to handle the impact of this new tax rule? Feel free to share your thoughts and opinions in the comments below.
Starting mid-year, the Australian Taxation Office (ATO) has been set to implement a policy shift that will make overdue tax debts more costly for individuals and businesses alike.
Experts are concerned that the added financial burden could create even greater challenges for individuals already struggling with current economic pressures.
Jenny Wong, the tax lead at CPA Australia, has voiced strong opposition to this change, highlighting the potential 'devastating impact' it could have.
Many are already facing the challenges of high interest rates and inflation, and the additional financial strain could be crippling.
The general interest charge (GIC) and shortfall interest charge (SIC) will no longer be tax-deductible, a move that has sparked considerable concern and criticism.
Criticism is being faced by the Australian Taxation Office (ATO) for a change that makes overdue tax debts non-deductible, raising costs for Australians. Credit: Depositphotos
CPA Australia has submitted the proposal to the Treasury and government, advocating for a more nuanced approach.
‘Introducing a blanket policy instead of a targeted measure to address accounts with high levels of tax debt is indiscriminate and punitive,’ Wong said.
‘With interest rates as high as they are, this will disproportionately affect cash flow issues on the highest marginal tax rate.’
The impact is significant, with penalties potentially reaching up to 25 per cent, and in some cases, rates as high as 47 per cent, depending on the individual's marginal tax rate.
‘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.’ Wong added.
It's a situation that could exacerbate existing tax debts and create a cycle of financial hardship for those affected.
The government's rationale for this change, as outlined in the 2023-24 Mid-Year Economic and Fiscal Outlook (MYEFO), is to create a level playing field for taxpayers who self-assess their tax liabilities and pay on time.
It's also seen as a measure to reduce the amount of collectable debt owed to the ATO.
The Treasury expects this move to generate an additional $500 million yearly in revenue.
However, this comes when CPA members report long delays in ATO service delivery and inconsistent outcomes regarding GIC remission requests.
‘The ATO’s operational challenges also add fuel to the argument that the proposal to deny deductions for GIC/SIC unfairly [penalises] taxpayers who may already face delays in obtaining certainty and assistance from the ATO,’ Wong explained.
The GIC, currently at 11.42 per cent, is applied to tax debts unpaid by the due date, while the SIC, at 7.42 per cent, may apply if your tax return is amended and your tax liability increases.
With these charges no longer tax-deductible, the financial implications could be severe for those with tax debts.
For our readers grappling with tax debt or concerned about the upcoming changes, it's crucial to stay informed and seek professional advice if needed.
If you need guidance or wish to share your experiences with tax debt, we encourage you to join the conversation. Your insights could be invaluable to others in similar situations.
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