The ATO charges interest if you have a tax debt and this is known as the general interest charge (GIC). The general interest charge (GIC) rate is calculated each quarter. The exact rule is set out in tax legislation to calculate the GIC rate. The GIC will be shown on your statements and transaction list. If you have a tax debt, then you need to know about it in detail, otherwise, you can take help from a small business accountant Melbourne because accountants know each and every detail associated with taxes. In today’s blog, we’ll discuss the GIC rate, how it works and when GIC applies, and more about it. Let’s dive right in:
What is a General Interest Charge (GIC)?
The general interest charge (GIC) is charged by the Australian Tax Office (ATO) for tax debts. You can receive a GIC either for late payment or non-payment of taxes. It can be shocking when you receive GIC, and you may have lots of questions about it.
How does GIC Work?
The ATO introduced a general interest charge in July 1999 to simplify the complex system of interest and penalty notices that were implemented for unpaid or late tax liabilities. The GIC will be charged if:
- Tax amount, levy, charge or penalty is paid late or unpaid.
- The wrong tax amount is paid because of the incorrect estimated income tax statement.
The GIC is charged on most taxes, such as:
- Pay As You Go
- Income tax
- Goods and services tax
- Fringe benefits tax
Therefore, it is important to pay tax debts on time, but if the reason behind unpaid or late paid debt taxes is your busy schedule, then you must take help from small business accounting in Melbourne because, in accounting solutions, your accountant will help pay your tax debts on time and on your behalf to avoid GIC. However, the thing that you need to keep in your mind is that GIC doesn’t apply to everything that is owed to the Australian Tax Office (ATO).
How is General Interest Charge (GIC) Calculated?
Every quarter the ATO calculates the general interest charge. The GIC rate for October – December 2022 is 9.31% annually, 0.02550685% daily rate. To check GIC daily rate, you need to divide this rate by the number of days in a calendar year.
Why does the ATO Charge GIC?
Generally, there are two primary reasons why the ATO charges GIC on unpaid tax liabilities:
- To act as an incentive for you for your timely tax payments
- To ensure that those who don’t pay tax debt on time, don’t receive benefits over those who meet their obligations.
You need accounting for small business if you don’t want to pay more than necessary on your taxes because tax accountants will never make you pay late.
Can You Cancel General Interest Charge?
A remission application can be made where the reason for the delay in payment is caused by ‘extenuating circumstances’. A remission of GIC is a cancellation or reduction of the penalty. The ATO will consider more favourable circumstances that are out of your control, for example, industrial action, natural disasters or sudden ill health. If you were at fault, then the ATO will consider whether the situation could have been overlooked. In some situations, such as if payment would cause financial issues, and then they may reduce payment. If you are confused about whether the GIC has been charged accurately or not, then you can ask a tax accountant as early as possible. Despite this, there are various bookkeepers in Melbourne who can help organise your business books and help accountants to prepare and lodge a tax return on time to avoid penalties.
Is a GIC Tax Deductible?
When GIC is incurred, you can claim a tax deduction for GIC. GIC is tax deductible under the ‘Cost of managing tax affairs – Interest charged by the ATO’. The word incurred means that the tax deduction is available even if you have not made payment for the GIC.
The blog shares information on a general interest charge and how it works. Now, you have an idea of what you need to do to avoid paying more than necessary when it comes to GIC. For more information regarding the GIC rate, you can contact Accounting Firms Melbourne.