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  • Introduction

    Attention

    Warning:

    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

    End of attention

    This publication explains your entitlement to interest on early payments and overpayments of tax, and delayed refunds of running balance account (RBA) surpluses, who it affects and how it is calculated.

    The information in this publication cannot answer every question on this topic. If you still have questions after reading it, please ring the Australian Taxation Office (ATO) on 13 28 61.

    Who is entitled to interest?

    The interest arrangements apply to individuals, taxable trusts, companies and superannuation funds. This publication relates to individuals and taxable trusts and is not intended to cover interest entitlements for companies, superannuation funds, corporate unit trusts and public trading trusts. While it may be generally relevant to these entities, they should not rely on it to ascertain their entitlement to interest on early payments or overpayments.

    Interest is payable if it is 50 cents or more.

    When did the interest arrangements commence?

    The interest arrangements outlined in this publication apply to

    • early payments of tax made by taxpayers on or after 1 July 1994 in relation to a debt for the 1993-94 and later income years.
    • overpayments of tax from the 1993-94 income year (with no interest before 1 July 1994) and
    • delayed refunds of RBA surpluses that arose on or after 1 July 2000.

    Changes for 2000-01

    There have been a number of changes to these arrangements for the 2000-01 and later income years. The changes have come about with the introduction of the Pay As You Go (PAYG) system and the abolition of the provisional tax system.

    What is the interest rate?

    The interest rate used in calculating your interest is set under the law and is reviewed every quarter. Interest rates for 2000-01 are shown in the next column. Details of other quarterly interest rates are available from the ATO.

    Interest rates-early payments, overpayments and delayed refund calculations

    Period

    Interest rate(% p.a.)

    1 July 2000 to 30 September 2000

    6.00

    1 October 2000 to 31 December 2000

    5.86

    1 January 2001 to 31 March 2001

    5.86

    1 April 2001 to 30 June 2001

    5.86

    How is interest calculated?

    Interest is calculated as follows:

    Interest = (number of days ÷ 365) × amount of payment × (interest rate for period ÷ 100)

    This publication includes examples that show you how to calculate your interest on:

    Is interest assessable income?

    Yes, interest is assessable income. Include any interest on your tax return in the year it is refunded to you or in the year it is set off or applied against another debt you have with the ATO.

    Early payment of tax

    What is an early payment?

    A tax payment made on or after 1 July 1994, for a debt for the 1993-94 year or a later year, will qualify for early payment interest where it is paid more than 14 days before the due date for payment.

    Early payment interest is payable on the following:

    • income tax (including Medicare levy)
    • Higher Education Contribution Scheme (HECS) assessment debts
    • Student Financial Supplement Scheme debts
    • interest on distributions from non-resident trust estates
    • income tax penalty
    • general interest charge relating to a late return or an amended assessment
    • provisional tax or an instalment of provisional tax.

    The following payments do not attract early payment interest:

    • PAYG withholding amounts including:
      • amounts withheld from interest, dividends and royalties (formerly withholding tax)
      • amounts withheld by payers (formerly tax instalment deductions) including those withheld for HECS
       
    • PAYG instalments including payments that used to be called prescribed payments or reportable payments
    • any part of a payment that exceeds the amount that is due and payable.

    If an amount that is paid early is refunded before the day it becomes due and payable, early payment interest is not payable for any period after the day it is refunded.

    You cannot claim early payment interest if you are entitled to a credit, refund or remission. In these cases you may be entitled to interest on overpayment.

    Who calculates your interest?

    You are responsible for calculating your early payment interest.

    How to claim your interest

    You can:

    • claim the interest as a credit in your tax return for the income year in which the entitlement to the interest arises if it is 50 cents or more, or
    • chose to write to the ATO for payment of the interest if it is more than $5.

    You will not be paid interest until after the due date for payment.

    Interest on early payments can be used to offset income tax and other tax liabilities.

    How to work out the period for which interest is payable

    For most taxpayers, interest is payable from the later of:

    • the date of issue of the notice notifying you of the amount of tax, debt, interest or instalment and
    • the date you make the payment.

    For companies and trustees of certain funds, the interest is calculated from the day on which the payment is made, without reference to the date of issue of a notice.

    Interest is payable up to the due date for payment, but only on the amount of your payment up to the value of your debt.

    The date you make the payment is:

    • the date shown on the receipt if you paid at the post office or
    • the date your bank account is direct debited-this date is shown on your bank statement or
    • the date of postage plus 3 days for mailed payments.

    As mentioned earlier, the rate is reviewed every quarter. The calculations in the following examples assume a normal year of 365 days and use a single interest rate of 6 per cent. Where the early payment extends over 2 or more interest periods, you will need to do a separate calculation for the number of days in each period.

    Example: Single payments

    Evan paid an amount of $800 more than 14 days early. He calculated his early payment interest as follows:

    1 October

    Evan paid the total amount of his anticipated debt by mail.

    3 November

    The ATO issued Evan's notice of assessment which showed a tax bill of $800.

    1 December

    Evan's due date for payment.

    Evan calculated interest on $800 from 3 November, the issue date of his assessment, to 1 December, the due date for payment-a period of 29 days:

    (29 ÷ 365) × $800 × (6 ÷ 100) = $3.81

    Evan's early payment interest is $3.81.

    Evan paid by mail and calculated his date of postage (1 October) plus 3 days = 4 October. As the date of issue of the notice of assessment (3 November) is later, interest is paid from that date.

    Evan could claim the interest as a credit in his next tax return.

    He must include $3.81 as income in his tax return for the income year in which he received the interest or the income year in which the ATO applied it against a tax debt.

    End of example

    Example: Payment by instalments

    Michael paid 2 instalments more than 14 days early. He calculated his early payment interest as follows:

    1 August

    The ATO issued Michael's notice of assessment which showed a tax bill of $800.

    15 August

    Michael paid a first instalment of $400 at the post office.

    29 August

    Michael paid the final instalment of $400 at the post office.

    1 December

    Michael's due date for payment.

    First instalment

    Michael calculated the interest on $400 from 15 August, the payment date of the first instalment, to 1 December, the due date for payment-a period of 109 days:

    (109 ÷ 365) × $400 × (6 ÷ 100) = $7.17

    Michael's early payment interest for his first instalment is $7.17.

    Second instalment

    Michael calculated the early payment interest on his second payment of $400 from 29 August, the payment date of the second instalment, to 1 December, the due date for payment-a period of 95 days:

    (95 ÷ 365) × $400 × (6 ÷ 100) = $6.25

    Michael's early payment interest for his second instalment is $6.25.

    Total interest is $7.17 + $6.25 = $13.42

    Michael could claim the interest as a credit in his next tax return or write to the ATO and ask for payment of $13.42. He must include $13.42 as income in his tax return for the income year in which he received the interest or the income year in which the ATO applied it against a tax debt.

    End of example

    Example: Amended assessments

    John left some income out of his income tax return. His assessment was amended and a notice of amended assessment-which increased the tax payable-was issued. The amended assessment has the same due date as the original assessment. John calculated his early payment interest as follows:

    1 September

    John's original notice of assessment was issued and showed a tax bill of $800-due date for payment 1 December.

    7 October

    John paid the full amount owing-$800-at the post office.

    17 October

    A notice of amended assessment was issued, showing a debt of $1000-due date for payment 1 December.

    7 November

    John paid the additional $200 at the post office.

    John calculated his interest separately for each payment

    First payment

    John calculated the interest on the original debt of $800 from 7 October, the payment date, to 1 December, the due date for payment-a period of 56 days:

    (56 ÷ 365) × $800 × (6 ÷ 100) = $7.36

    John's early payment interest for his first payment is $7.36.

    Second payment

    John calculated the early payment interest on the amended assessment debt of $200 from 7 November, the payment date of the additional amount, to 1 December, the due date for payment-a period of 25 days:

    (25 ÷ 365) × $200 × (6 ÷ 100) = $0.82

    John's early payment interest for his second payment is $0.82.

    Total early payment interest is $7.36 + $0.82 = $8.18.

    John could claim the interest as a credit in his next tax return or write to the ATO and ask for payment of $8.18.

    He must include $8.18 as income in his tax return for the income year in which he received the interest or the income year in which the ATO applied it against a tax debt.

    End of example
    Last modified: 13 Feb 2020QC 16168