Early payment of tax
This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.
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What is an early payment?
A tax payment made on or after 1 July 1994, for certain tax debts (as set out below) for the 1993-94 or later income years, will qualify for early payment interest if the payment is made more than 14 days before the due date.
Early payment interest is payable on the following:
- income tax (including Medicare levy)
- Higher Education Contribution Scheme (HECS) assessment debts
- compulsory Higher Education Loan Programme (HELP) repayment amounts
- Student Financial Supplement Scheme assessment debts
- interest on distributions from non-resident trust estates
- certain income tax penalties for the 1999-2000 and earlier income years
- a general interest charge relating to a late tax return or an amended assessment for the 1999-2000 and earlier income years, and
- a shortfall interest charge.
The following payments do not attract early payment interest:
- pay as you go (PAYG) withholding amounts including:
- amounts withheld from interest, dividends and royalties
- amounts withheld by payers (including those withheld for the purpose of repaying contributions or debts under HECS-HELP)
- PAYG instalments, and
- any part of a payment that exceeds the amount that is due and payable.
How to claim your interest on early payment
There are two ways to claim your interest. You can:
- claim it as a credit on your tax return (supplementary section) for the income year in which the entitlement to the interest arises, if it is 50 cents or more - to do this you will need to calculate the amount of your entitlement
- write to us for payment of the interest. You will not be paid interest until after the due date for payment of the relevant tax liability.
You cannot claim early payment interest if you are also entitled to claim interest on overpayment on that early payment - see Overpayment of tax for information on when you are entitled to interest on overpayment.
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 or interest you are required to make, and
- the date you make the payment.
Interest is payable up to and including the due date for payment. If your payments exceed the value of your tax debt, you do not receive early payment interest on the excess.
The date you make the payment is:
- the date shown on the receipt if you paid at the post office
- the date your bank account is debited (for direct debit arrangements) - this date is shown on your bank statement, or
- the date of postage plus three days for mailed payments.
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.
The following examples show you how to calculate your interest amount. The examples assume a normal year of 365 days and use a single interest rate of 5%. If the early payment extends over two or more interest periods, you need to do a separate calculation for the number of days in each period.
Example: Single payments
Evan paid an amount of $1,926 more than 14 days early. He calculated his early payment interest based on the following dates:
We issued Evan's notice of assessment which showed a tax debt of $1,926.
Evan's due date for payment.
He paid his tax debt at the post office on 3 November.
Evan calculated interest on $1,926 from 3 November, the date he paid his assessment, to 21 November, the due date for payment - a period of 19 days:
(19 ÷ 365) × $1,926 × (5 ÷ 100) = $5.01
Evan's early payment interest is $5.01.
Evan can claim the interest as a credit on his next tax return - see question C1 in TaxPack 2007 supplement - or write to us and ask for payment of $5.01.
He must include $5.01 as income on his tax return for the income year the interest is paid to him, or the income year in which we apply it against his tax debt.
End of example
Last modified: 27 Jun 2007QC 27894
Example: Amended assessments
John submitted an income tax return and received a notice of assessment. He paid his tax debt early. However, he had left some income out of his tax return. When he advised us of his error, his assessment was amended and a notice of amended assessment - which increased the tax payable - was issued. The amended assessment had the same due date as the original assessment. John calculated his early payment interest based on the following dates:
John's original notice of assessment was issued and showed a tax debt of $794, due for payment on 21 November.
John paid the full amount owing ($794) at the post office.
A notice of amended assessment was issued, showing an additional tax debt of $322, due for payment on 21 November.
John paid the additional $322 at the post office.
John calculated his interest separately for each payment.
To calculate the interest on the original payment of $794, John first worked out the number of days from 7 October (the day he made the payment) to 21 November (the due date for payment) - a period of 46 days. He then calculated his interest:
(46 ÷ 365) × $794 × (5 ÷ 100) = $5.00
John's early payment interest for his first payment is $5.00.
John calculated the early payment interest on the amended assessment tax debt of $322 from 3 November (the day he paid the additional amount) to 21 November (the due date for payment) - a period of 19 days:
(19 ÷ 365) × $322 × (5 ÷ 100) = $0.84
John's early payment interest for his second payment is $0.84.
Total early payment interest is $5.00 + $0.84 = $5.84.
John can claim the interest as a credit on his next tax return - see question C1 in TaxPack 2007 supplement - or write to us and ask for payment of $5.84. He must include $5.84 as income on his tax return for the income year the interest is paid to him or the income year in which we apply it against his tax debt.
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