On 1 July 1999, the penalty arrangements for late payment and other obligations were rationalised and simplified pursuant to Taxation Laws Amendment Act (No 3) 1999.
This was done by the introduction of a uniform tax deductible general interest charge (GIC). The GIC replaced a complex system of interest and punitive culpability penalties imposed following late payment of outstanding amounts due to the Tax Office.
Section 8AAD of the Taxation Administration Act 1953 determines the rate of the charge. The daily rate can be calculated by dividing this rate by the number of the days in a calendar year.
From 1 July 1999 to 30 June 2000, the GIC was based on the relevant 13-week Treasury Note rate plus 8 percentage points. In June 2000, the Australian Office of Financial Management announced that fixed term Treasury Notes, including the 13-week Treasury Note, would no longer be issued. Accordingly, the GIC rate of 13.86% remained fixed from June 2000 until the new legislative basis, the 90 day Bank Accepted Bill rate and a reduced uplift factor of 7% was adopted from 1 July 2001.
In the first year (that is, 2000 financial year), the GIC daily compounding rate only applied to Pay As You Earn (PAYE), Prescribed Payment System (PPS), Reportable Payment System (RPS) and Sales Tax with a simple interest rate applying to other taxes. However, the GIC compounding rate now extends to most taxes, including income tax, fringe benefits tax, goods and services tax and pay as you go.
The GIC is updated quarterly (refer table below) with rates for the next quarter generally announced two weeks before the start of that quarter.
**Although the GIC rate for January – March quarter has slightly decreased, the daily compounding rate has increased. The reason is that 2004 was a leap year and the daily rate for each quarter in 2004 was calculated by dividing by 366 instead of the usual 365.
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