You’ve got a tax bill that you can’t pay. It’s growing by the day at a rate of interest that’s almost twice what you’re paying on your home loan.
You want to get on top of it, but it feels like every payment you make just goes towards paying the general interest charge (or GIC), not your actual tax debt.
If this is happening to you, then you can ask the ATO to remit (or reduce) the general interest charge. The ATO can reduce your tax debt by the amount of the interest if you show that your circumstances justify it. This can really help when the ATO is chasing you for an unpaid debt.
You can even ask for a remission of general interest charge that you have already paid.
How do I qualify for a remission of the general interest charge?
There are four circumstances in which the ATO can remit all or part of the GIC.
1. When the circumstances causing the delay in payment are not your fault
Your GIC can be remitted where:
- the circumstances that are contributing to the delayed payment are not your fault, and
- you have taken reasonable steps to address those circumstances or reduce their effect.
To apply for a remission on this basis, you need to tell the ATO a few things:
- What happened that was outside of your control. For example, this could have been:
- a natural disaster (such as fire, flood or drought),
- industrial action,
- the unexpected collapse of a major client, or
- the sudden sickness of a key person in your small business
- how this affected your ability to pay your tax debt
- what steps you are taking to address the circumstances that are outside of your control. For example:
- are you selling assets, or taking out a loan to help you pay the tax debt?
- are you putting better systems in place to help you keep on top of things in the future?
Jenni is a hairdresser. She runs her own salon. She’s been experiencing pain in her wrist for the last 12 months and has had to take several days off at a time work to help recover. She recently had surgery to fix her wrist, which meant more time off work.
Every time that Jenni has to take a day off, she has to cancel all her clients and loses her income for that day. Some clients go elsewhere.
While all this was happening, her mother was diagnosed with cancer and needed a lot of help and support. Jenni is the only family member who lives near her mum. She took more time off to drive her mum to and from the hospital for her chemotherapy and radiotherapy. It’s been a tough 12 months, but her mum is recovering now and Jenni’s wrist is feeling better.
Jenni had always done her own tax lodgments but got behind with them in the last year. She now has an accountant to help her catch up. Unfortunately, she doesn’t have the money to pay the tax debt and the interest that has accrued on that debt.
Given what she has been through, Jenni may be able to have the interest on her tax debt remitted. She should explain the circumstances to the ATO. She should tell the ATO that these events were not her fault. She should show what she is doing now to get back on top of her taxes.
2. When the delay was caused by you, but it’s fair and reasonable to remit the GIC
Your GIC can also be remitted where:
- something that you did do, or didn’t do, has contributed to the delay,
- you have taken reasonable steps to address those circumstances or reduce their effect, and
- considering the particular circumstances, it is fair and reasonable to remit the GIC.
To apply for a remission on this basis, you need to tell the ATO a couple of things:
- what is causing the delay in payment,
- what you have done to reduce the effect of the circumstance that is causing the delay, and
- why it would be ‘fair and reasonable’ to remit the GIC for you. This is ‘fair and reasonable’ both to you and to the community in general. You should try to explain how ordinary members of the community who pay their taxes on time would consider it fair that your interest is remitted.
The ATO provides an example of a remission where the delay has been caused by you. The example is:
the community may view it as fair and reasonable that a partial or full remission be granted where you have made a soundly advised or well-considered decision which results in unforeseen severe consequences affecting your ability to pay. In this instance, you would need to demonstrate that plans were in place to pay your tax on time.
3. When there are special circumstances
Your GIC can also be remitted where:
- there are special circumstances relating to your case, and
- because of those special circumstances, it would be fair and reasonable to remit the GIC.
The kind of ‘special circumstance’ might be where you have a good history of paying on time, but you were unable to pay on time on a one-off occasion.
4. When it is ‘otherwise appropriate’ for the interest to be remitted
The last way that you might be able to have your general interest charge remitted is if the Commissioner considers it is ‘otherwise appropriate to do so’.
This is a very broad discretion that can only be exercised by senior tax officers. The ATO says that a remission where it is ‘otherwise appropriate’ is most likely to be granted in cases affecting a group of taxpayers, but could also apply to single taxpayers with unusual circumstances.
For example, the ATO has a program for remitting interest on activity statement debts that are less than $50,000 and that have been unpaid for 12 months. This applies to small businesses who have a good compliance history. To access this remission, you need to agree to a payment plan that allows the debt to be paid by direct debit within 12 months.
Do I have to pay all my debt before I can get a remission?
The ATO will often tell me or my clients that it will only consider a remission of the general interest charge once all the debt is paid. This isn’t true. It’s important to understand that the ATO is a big organisation, which means that just because one person tells you something, it doesn’t mean they’re right.
It is possible to receive a remission of interest even when you have a big debt outstanding. Sometimes it is even necessary. Often the debt is so big that the only way you can tackle it is if the ATO remits the interest.
Make sure your lodgments are up to date before asking for the remission
It’s best to have all of your tax lodgments up to date before you ask the ATO for a remission.
The ATO usually won’t consider your request when you have outstanding lodgments. This is because the total amount of your debt is unknown until you have lodged everything. If the ATO granted a remission whilst there are outstanding lodgments, then it’s very likely that you will incur more general interest charge when you get everything up to date.
Asking over the phone or in writing?
I usually recommend putting in a written remission request if your general interest charge totals more than a few thousand dollars.
This isn’t a hard and fast rule. But there are a couple of things to consider.
Firstly, how difficult will it be to explain the circumstances that led to the non-payment of the tax debt? The more difficult it is to explain, the better it is to write a letter.
Secondly, how confident are you on the telephone? Some people hate speaking on the phone, so a letter may be better for them. Or they can authorise someone such as myself to call the ATO and make the request on their behalf.
Finally, it sometimes depends on the ATO officer who answers the phone. I’ve had mixed responses. I have had some who are more than happy to consider remitting $10,000 of general interest charge over the phone. Others have said they won’t consider a request of that size. Unfortunately, there’s no way of knowing this in advance.
If you do want to make request a remission over the phone, make sure you have all of the information with you before you call. The article in this link is about writing a letter, but it can help you prepare for a phone call too. Be courteous and polite. If you change your mind midway through the call, you can always tell the ATO officer that you’ve decided to put the request in writing instead.
What can I do to increase my chances of having my GIC remitted?
The best way to increase your chances of having the interest reduced is to get an expert to help.
This is because applying for a remission of interest requires great care. If you get it wrong, the tax law says you don’t get a second chance with the ATO. If the ATO refuses your request, the only way to have it re-looked at is to apply to the Federal Court. You can’t ask the ATO to have another look at it (e.g. by lodging an objection).
A Federal Court appeal will generally be very hard to win and very expensive to run. It’s much better for you if you take the time to get the right advice and help to make the best application possible.
A tax law expert is the best person to put this application together. They should ask you a long list of questions to get to the bottom of really went on – how did you end up with the tax debt? Sometimes this stuff can be hard to remember, particularly when you’ve lived with a bad situation for so long. It can be hard to sit down and remember it all on your own. You lose track of the timeline and things get jumbled up. An expert can un-jumble it for you.
Once you’ve been asked all the right questions, your tax lawyer will help you with the next steps. They know the processes involved and can tell you if you have a good shot at getting the remission, and what you can do to increase your chances.
Here’s what some of my clients have said about how I have helped them to deal with the interest on their tax debt
Catriona was thorough, non-judgemental and informed and helped me establish clarity around various conditions of my situation that led to my ATO debt that I might otherwise wouldn’t have considered or thought relevant.
I feel such a great sense of relief that I have finally taken action on this area of my life that was fast becoming an anxious-making ordeal. I wouldn’t hesitate in recommending Catriona to family or friends — or anyone else who knows they need to take action when it comes to their taxes and the ATO.
If you have a tax debt that includes interest and you would like help to ask the ATO to remit this, then call me on 0421 120 379, or 1300 75 84 84. You can also get in touch with me here to arrange a consultation.