The Changing Landscape - A Shift from COVID Leniency to Stricter Measures

The Changing Landscape - A Shift from COVID Leniency to Stricter Measures

The ATO had been quite accommodating in supporting businesses and individuals throughout the challenging times brought on by the COVID-19 pandemic. However, as the situation evolves and the economy rebounds, that has all changed. The ATO has shifted its stance, now emphasising the importance of adhering to tax obligations and imposing penalties for non-compliance.

​During the peak of the pandemic, the ATO provided much-needed relief by offering lenient measures to ease the burden on taxpayers. This included extended payment deadlines, deferred lodgements, a more flexible approach to entering into payment plans, a relaxed attitude to taxpayer debts and recognising the economic hardships faced by many.

All very nicey-nicey! However, as we move past the crisis, the ATO is tightening its grip on debt management, signalling a return to normalcy in tax compliance. Gulp!

Interest Remissions – Deductions no longer allowed?

You may or may not have been aware but each day - yes daily - you are late with paying your tax debt the ATO charges you or your entity interest for being tardy.

You may have seen the words General Interest Charges (GIC) or Shortfall Interest Charges (SIC) on your tax statement. This interest compounds daily and likewise applies to an excessive shortfall or incorrectly varied or estimated income tax instalment.

Currently, you can claim a deduction for the interest charges that were applied in the relevant tax year. Conversely, you also must declare any interest remission received as assessable interest income in the income year that it was remitted to you.

But…(and that’s a big but!)..

As part of the ATO’s stricter attitude to managing tax debts means obtaining an interest remission these days is increasingly more difficult than during Covid times.

It is not a simple exercise of just getting on the phone to the ATO, speaking to 2-3 people, listening to the hold music for 40 minutes and asking for a refund. With tongue in cheek, those days are gone. The government is doing all it can to recoup the millions of dollars spent during the pandemic and is eager to hold onto every penny they can. In trying to make a fair playing field for all and encourage compliance, to be successful to receive interest remission you will need to have all your ducks in a row.

That requires not only additional paperwork, a good history of lodgement & payment but also a detailed and reasonable explanation that aligns with the ATO’s Practice Statement before they consider returning a cent to your bank account.

However (now, wait for it) as part of the 2023-2024 Mid-Year Economic and Fiscal Outlook, the Government has announced that it will deny a tax deduction for ATO interest charges from 1 July 2025. This means GIC and SIC incurred from 1 July 2025 will no longer be allowed to be ‘claimed’ in your tax returns nor will it be a requirement to report the interest remission received as assessable income. Stay tuned for that one.

Stricter Requirements for Payment Plans

One noticeable shift since the end of the pandemic is the increased scrutiny and stringent requirements for taxpayers seeking payment plans.

The ATO now demands thorough documentation to prove your capacity to pay your tax debt, making the process more challenging for individuals and businesses. Bank statements, financial statements and other reports are just a few of the documentation you will need to have on hand and up to date as your ‘proof’. Taxpayers also need to detail the factors that led up to the debt and inability to pay on time.

This change has resulted in some taxpayers facing difficulties in entering into feasible payment arrangements. If you have defaulted on previous payment plans or have a history of late lodgements and payments, this may not be in your favour.

Oh, and don’t ignore this part. If you have a previous tax debt and expect to receive a refund after lodgement of your next tax return, don’t get too excited. The ATO are allowed by law to take their portion of the debt before the balance of your refund (if any) is returned to you. This is called Offsetting and can be applied across your tax accounts. For example, you may have lodged your BAS and expect a refund however, the ATO can apply this refund to your income tax debt held with the ATO. Expected refunds also apply to Debts on Hold with the ATO and other government departments, such as Services Australia.

In a perfect world the ATO would be a silent partner, ensuring it collects taxes in a seamless and unobtrusive way with advanced & streamlined technology, supporting individuals and businesses positively to thrive, recognising the natural fluctuations in changing circumstances and reducing the compliance red-tape and stress that accompanies it.

Well, until that day comes, communication and being proactive is key when faced with a cash flow predicament in paying your tax debt. Contacting the ATO or engaging Hansens to assist you with managing the tax debt is imperative to staying in the ‘good books’ with the ATO.

We are here to help you and only a phone call away on 03 8805 8000.