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  • Overpayments of tax

    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

    As from the 1993-94 income year, interest on overpayment of tax is payable in the following circumstances:

    • you are entitled to a refund or credit of tax and it takes more than 30 days after the return is lodged to issue the assessment. Where a return is lodged without all the required information, the 30-day period starts from the date the ATO receives all the information.
    • you are entitled to a refund of tax as a result of an amendment to an assessment, including as a result of a successful objection against an assessment or a successful appeal in relation to an objection.

    Tax in this regard includes certain income tax penalties and general interest charge imposed on an amended assessment that increases your tax liability, good and services tax GST, wine tax, luxury car tax, a Higher Education Contribution Scheme (HECS) assessment debt, a Student Financial Supplement Scheme debt, fringe benefits tax and certain fringe benefits tax penalties.

    • as a result of a request, you receive
      • a refund or credit of income tax, certain income tax penalties, HECS assessment debt, Student Financial Supplement Scheme assessment debt, provisional tax (including an instalment) or
      • a remission of the general interest charge and
       

    the refund, crediting or remission occurs more than 30 days after the date you made the request.

    • you are entitled to a refund as a result of an amendment of an assessment of superannuation contributions tax (superannuation surcharge) or of termination payments tax (termination payments surcharge).

    Who calculates the interest on your overpayment?

    The ATO will calculate your interest. Interest will be refunded to you with your overpayment or set off or applied against any outstanding debts you may have with the ATO. The following example shows how interest on an overpayment is calculated. As in the earlier examples, a single interest rate of 6 per cent has been used.

    Example: Balance of assessment was a credit

    Jim's balance of assessment was a credit. The ATO issued a notice of assessment which included a refund for interest on his overpaid tax.

    15 August

    Jim lodged his tax return

    18 November

    Jim's notice of assessment was issued.

    Jim's notice of assessment looked like this

     September, 30 days after lodgment date, to 18 November, the issue date of the notice of assessment - a period of 66 days: (66 divided by 365) multiplied by $969.45 multiplied by (six divided by 100) equals $10.52

    Jim must include the $10.52 interest 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.

    The following examples show how interest is calculated where an assessment has been amended.

    End of example

    The following examples show how interest is calculated where an assessment has been amended.

    Example: Original assessment was a credit

    Peter lodged his tax return on 28 October. His credit assessment and refund were issued on 18 November. As this was within 30 days of lodging his return, no interest was payable. Later, however, an amendment resulted in a further refund. His notice of amended assessment included a refund for interest on his overpaid tax.

    18 November

    Peter's notice of assessment was issued.

    31 December

    Peter's notice of amended assessment was issued.

    Peter's notice of amended assessment looked like this.

    Income Tax  Assessment Act 1936 and Income Tax Assessment Act 1997Notice of Amended Assessment for the year ending 30 June xxxx (or substituted accounting period)Your taxable income is $31,010Label A Tax on taxable income: $6,565.40 DRLabel O Medicare levy: $465.15 DRLabel E Total credit for payment summaries: $8,000 CRLabel L Balance of assessment: $969.45 CRLabel M Balance of previous assessment: $700 CRLabel N Difference: $269.45 CRLabel Y Credit for interest on overpaid tax (see note): $1.95 CRAmount refundable: $271.40 CRNote: The ATO calculated interest on $269.45 from 18 November, the issue date of the notice of assessment, to 31 December, the issue date of the notice of amended assessment - a period of 44 days:(44 divided by 365) multiplied by $269.45 multiplied by (6 divided by 100) equals $1.95

    Peter must include the $1.95 interest 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: Original assessment was a debit

    Glenn's original notice of assessment showed that he had to pay tax of $1,000. Later, an amendment resulted in a refund.

    His notice of amended assessment included a refund for interest on his overpaid tax.

    18 November

    Glenn's original notice of assessment was issued.

    1 December

    Glenn paid $1,000, due under that assessment, at a post office.

    31 December

    Glenn's notice of amended assessment was issued.

    Glenn's notice of amended assessment looked like this.

    Income Tax  Assessment Act 1936 and Income Tax Assessment Act 1997
Notice of Amended Assessment for the year ending 30 June xxxx (or substituted accounting period)
Your taxable income is $31,010
Label A Tax on taxable income: $6,565.40 DR
Label O Medicare levy: $465.15 DR
Label E Total credit for payment summaries: $6,308.38 CR
Label L Balance of assessment: $722.17 CR
Label M Balance of previous assessment: $1,000 CR
Label N Difference: $277.83 CR
Label Y Credit for interest on overpaid tax (see note): $1.42 CR
Amount refundable: $279.25 CR

Note: The ATO calculated interest on $277.83 from the payment date of 1 December to 31 December, issue date of the notice of amended assessment - a period of 31 days:
(31 divided by 365) multiplied by $277.83 multiplied by (6 divided by 100) equals $1.42

    Glenn must include the $1.42 interest 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: Original assessment-a debit-should have been a credit

    David lodged his tax return on 27 October. His notice of assessment showed that he had to pay tax of $1,000. Later, an amendment resulted in a refund that was more than the amount he paid.

    His notice of amended assessment included a refund for interest on his overpaid tax.

    18 November

    David's original notice of assessment was issued.

    1 December

    David paid $1,000, due under that assessment, at a post office.

    31 December

    The notice of amended assessment was issued.

    David's notice of amended assessment looked like this.

    Income Tax  Assessment Act 1936 and Income Tax Assessment Act 1997
Notice of Amended Assessment for the year ending 30 June xxxx (or substituted accounting period)
Your taxable income is $31,010
Label A Tax on taxable income: $6,565.40 DR
Label O Medicare levy: $465.15 DR
Label E Total credit for payment summaries: $8,000 CR
Label L Balance of assessment: $969.45 CR
Label M Balance of previous assessment: $1,000 CR
Label N Difference: $1,969.45 CR
Label Y Credit for interest on overpaid tax (see note): $12.11 CR
Amount refundable: $1,981.56 CR

Note: The ATO calculated interest on $969.45, the balance of the amended assessment, from 18 November, the date of issue of the notice of assessment, to 31 December, the date of issue of the notice of amended assessment - a period of 44 days:
(44 divided by 365) multiplied by $969.45 multiplied by (6 divided by 100) equals $7.01

    David is also entitled to interest calculated on $1,000 from 1 December, the payment date, to 31 December, the issue date of the notice of amended assessment-a period of 31 days:

    (31 ÷ 365) × $1,000 × (6 ÷ 100) = $5.10

    David must include the ($7.01 + $5.10) = $12.11 interest 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