Practice Statement Law Administration

PS LA 2006/8

Remission of shortfall interest charge and general interest charge for shortfall periods

• This Practice Statement is being reviewed to incorporate the amendments made by Future Made in Australia (Production Tax Credits and Other Measures) Act 2025.

  The changes extend the imposition of shortfall interest charge to overclaimed tax offsets refunds and apply to amended assessments made on or after 1 April 2025.

  For more information, see Strengthen penalty and shortfall interest charge provisions.

  This Practice Statement is being reviewed to ensure alignment of the ATO's approach to remission of interest and penalties charges.

  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

  Relying on this Practice Statement

This Practice Statement is an internal instruction to ATO staff, published externally in the interest of open tax administration.

Taxpayers can rely on this Practice Statement to provide them with protection from interest and penalties in the following way. If a statement turns out to be incorrect and taxpayers underpay their tax as a result, they will not have to pay a penalty, nor will they have to pay interest on the underpayment provided they reasonably relied on this Practice Statement in good faith. However, even if they do not have to pay a penalty or interest, taxpayers will have to pay the correct amount of tax provided the time limits under the law allow it.

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This Practice Statement provides guidelines on the remission of shortfall interest charge and general interest charge accrued during shortfall periods.

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What this Practice Statement is about

1. This Practice Statement sets out circumstances in which you should consider remitting interest charges that are imposed on shortfalls and accrue during the shortfall period.^[1] Where this Practice Statement mentions 'interest charges' it is talking about:

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shortfall interest charge (SIC)

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'shortfall' general interest charge (GIC) – that is, GIC accrued during the shortfall period on the shortfall amount, and

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interest and GIC imposed under section 170AA of the Income Tax Assessment Act 1936 (ITAA 1936).

2. A summary of the relevant legislation and the main provisions relating to the imposition of interest charges is provided at the end of this Practice Statement.

Note: this Practice Statement does not apply to:

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remission of GIC that is not shortfall GIC (generally GIC for late payment)

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remission of shortfall GIC imposed on superannuation guarantee charge. For guidelines on these, see Law Administration Practice Statement PS LA 2011/12 Remission of general interest charge.^[2]

Why we have interest charges

3. Taxpayers have a responsibility to lodge, report correctly and pay their tax debts on time. GIC and SIC are intended to encourage the timely payment of tax. They also deny late payers, including people who have paid late because they have reported too little in tax or claimed too much, an advantage over those who pay on time. Taxpayers who have underpaid have had the use of those moneys.

4. Interest charges also serve to compensate the Australian Government and the community for the impact of late payments.

Shortfall period

5. The shortfall period starts on the day the tax debt was due for payment (or would have been due for payment had the shortfall been correctly reported) and ends on the day before the Commissioner gives the taxpayer a notice of assessment which includes the shortfall amount (or an equivalent notification for taxes other than income tax).

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Example 1 – Shortfall period for amended assessment

6. A taxpayer has an income tax liability for the 2004–05 income tax assessment of $500 due for payment on 21 November 2005. The taxpayer requests amendment of the assessment on 1 March 2006. An amended notice of assessment is given to the taxpayer on 20 March 2006 increasing the tax payable by $125 to $625. The shortfall amount is $125, and the shortfall period is from 21 November 2005 to 19 March 2006.

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The relationship between shortfall interest charges and penalties

7. Interest charges are intended to restore a fair balance between taxpayers, as mentioned in paragraph 3 of this Practice Statement. They apply regardless of whether or not the taxpayer is liable to any administrative penalty, and do not depend upon, nor imply, culpability on the part of the taxpayer.

8. Shortfall penalties, however, relate to the taxpayer's behaviour leading up to and making a statement that results in a shortfall amount. Imposition of a shortfall penalty or reduced or remitted shortfall penalty does not mean a reduction or remission of the SIC will be given.

Remitting shortfall interest charge

9. We may remit all or part of the SIC where we consider it is fair and reasonable to do so. The legislation for SIC says that when we do so, however, we must have regard to the principle that remission should occur where the circumstances justify the Commonwealth bearing part or all of the cost of delayed payments.^[3]

10. The extent of any remission must take into account the individual circumstances of a case and the extent to which factors beyond the taxpayer's control were responsible for the size and duration of the shortfall.

Initiating the possible remission of shortfall interest charge

Audit cases

11. We will make a GIC or SIC remission decision in audit cases where there is a shortfall period, regardless of whether the taxpayer requests remission or supplies information to the ATO, except for fully automated data-matching audit cases. Taxpayers can supply information to support a remission request or request remission at any time during the audit.

12. Automatic amendment and fully automated data-matching cases are not reviewed by a case officer and the ATO is generally not in a position to consider remission. However, a taxpayer may request remission once they receive the amended notice of assessment, which includes the SIC amount or an equivalent notification. At this point, consideration will be given to the circumstances relevant to remission and remission may be granted.

Amendment requests

13. Where the taxpayer has requested an amendment and a shortfall occurs because of the amendment, we may remit in limited circumstances to address processing delays or certain offsetting credits without the taxpayer providing any information.

14. Taxpayers are required to contact us and provide information relevant to remission for further remission. They can request remission at any time. The taxpayer can request remission, or provide information for us to consider remission, by calling or writing to us.

15. If a remission decision has been made during an audit, the taxpayer will need to write to us requesting a review of the remission decision.^[4]

When shortfall interest charges should be remitted

16. Examples of particular circumstances in which remission may or may not be appropriate are provided in this Practice Statement. These are not exhaustive and are not intended to limit the discretion to otherwise remit SIC when it is fair and reasonable to do so.

17. Also, you should note that more than one circumstance might apply to an individual case.

Base rate

18. GIC and SIC accrue each day on a daily compounding basis. The interest charge rates are set by law and are reviewed and generally change every 3 months. The law uses an established bank rate calculation as the base rate for interest charges. A further 3 percentage points is added to the base rate for SIC rate, and 7 percentage points for GIC. See paragraphs 115 to 132 of this Practice Statement for more details.

19. Remission to base rate is the recommended outcome in some situations in this Practice Statement.

Partial remission for 2003–04 and earlier income years

20. SIC only applies to income shortfalls for the 2004–05 and later income years. GIC applies to income shortfalls for earlier years. This can have the effect of being inequitable to those taxpayers whose assessments were amended before the introduction of the SIC, and at odds with parliament's decision that the GIC rate was excessive during a shortfall period.

21. Therefore, it is considered fair and reasonable that shortfall GIC (for income tax shortfalls only) generally be remitted to the SIC rate for the period from 1 July 2005 to the day before the amended assessment is issued.

22. GIC applies to most other taxes for the shortfall period. Remission to the SIC rate does not apply for these taxes.

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Example 2 – Partial remission for 2003–04 income year

23. An amendment to Service Co's 2002–03 income tax assessment issues on 15 March 2006. Shortfall GIC accrues from 1 December 2003.

24. The GIC would be remitted to the SIC rate for the period from 1 July 2005 to 14 March 2006. Further remission during the shortfall period may occur if some other circumstance exists which would warrant further remission in accordance with the guidelines contained in this Practice Statement.

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Delay in commencing an audit

25. The timeframe for commencing an audit after self-assessment by a taxpayer depends on the allocation of our resources.

26. As a rule of thumb, it could be expected that an audit will commence by halfway through the relevant period of review. However, audits may commence later, for example, where information is provided to us at a later time.

27. Where there has been an unreasonable delay in allocating a case for audit, it may be appropriate for you to remit SIC to the base rate for the period of the delay – that is, usually from 50% of the period of review to the day prior to the commencement of the audit. If the audit only commenced because of new information received after halfway through the period of review, remission to base rate may be more appropriate from the later date.

Note: if an unlimited period of review applies, you should adopt the standard period of review applicable to the year being adjusted. For pay as you go withholding, you should use a nominal period of review of 4 years.

Expected audit completion date is exceeded

28. When notifying a taxpayer of an intention to audit, we will generally provide an expected audit completion date in that notice.^[5] This date is based on cycle timeframes we have set for specific types of audit activity, or a shorter time having regard to the circumstances of the case.

29. Providing the scope of the audit remains much the same throughout the course of the audit, you may remit SIC to the base rate for the period the audit goes beyond the expected completion date.^[6]

30. This will not apply, however, if the taxpayer has caused the delay unreasonably, or obstructs the progress of the audit, for example, by repeatedly failing to:

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keep appointments or supply information, or

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respond adequately to reasonable requests for information. This will include excessive or repeated delays in responding, not replying to the request for information, giving information that is not relevant or that does not address all the issues in the request or supplying inadequate information.

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Example 3 – Remission to base rate where audit completion date exceeded

31. The GST record-keeping audit cycle timeframe is 30 days. If the GST audit takes 40 days, remission to base rate for the 10 days exceeding the cycle time may be appropriate.

Example 4 – Base-rate remission not granted where audit scope increases, resulting in an extended audit cycle timeframe

32. A specific GST audit of a taxpayer's business is commenced by a GST case officer on 23 June 2014. The audit cycle timeframe is 90 days. However, on 26 July 2014, 33 days into the audit, it becomes apparent to the auditor that there are several risks involved in the case and that the work is more appropriately considered a GST comprehensive audit with a 240-day cycle timeframe. On 28 August 2014, the case is transferred to a GST field auditor for completion. The cycle timeframe will extend to 240 days from 23 June 2014. Any remission for exceeding the expected audit completion date will be from 18 February 2015, 240 days after the audit commenced.

Example 5 – Audit cycle timeframe extended by agreement, but base-rate remission still applies from original expected completion date

33. An audit commenced on 10 February 2015 with a cycle time of 180 days. After initial discussions, the auditor concludes that a further risk has been identified and needs to be examined, the taxpayer has advised they will need some time to obtain some of the records, and the factual situation for some transactions are quite complicated. After discussions with the taxpayer regarding the information needed, it is agreed that the audit cycle time will be extended from 9 August 2015 to 13 October 2015. The extended audit completion date or cycle time, while agreed to by the taxpayer, does not change the remission principle, and remission to base rate will generally be given from 9 August 2015.

Example 6 – Audit completion date exceeded and base-rate remission for one liability but not another

34. A tax audit for pay as you go (PAYG) withholding amounts and superannuation commenced. It has an audit cycle timeframe of 120 days. The taxpayer is notified of the liability for the PAYG amounts on day 110 and of superannuation guarantee liability on day 135. Although the audit continued to day 135, the shortfall period for the PAYG withholding amounts ceased on day 110, and so the expected audit completion date is not exceeded, and it is not necessary to consider remission of GIC on this ground. However, the GIC that accrued on the shortfall amount for the superannuation guarantee liabilities would be remitted to base rate from day 121 to day 135 for exceeding the expected audit completion date.

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35. It may still be appropriate for you to remit shortfall interest charges for periods during the cycle timeframe if there are other grounds for remission. But if you do so, you may need to defer remission for the period beyond the expected completion date.

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Example 7 – Prior full remission reduces the period eligible for base-rate remission

36. An audit commences on 1 February 2012 and has an expected audit completion date of 30 June 2012. The audit is not completed until 30 September 2012. Due to an unreasonable ATO delay (see paragraphs 39 to 46 of this Practice Statement for further explanation of this ground), full remission is granted for the period 1 April 2012 to 31 May 2012. Normally remission to the base rate would be applicable for the 3 month period which exceeded the expected audit completion date – 1 July 2012 to 30 September 2012. However, as full remission has already been granted for a period of 2 months, remission to the base rate is only appropriate for one month – 1 September 2012 to 30 September 2012.

Example 8 – Base-rate remission not warranted where audit delay is caused by the taxpayer

37. Company 1 claims losses in its 2009–10 tax return. The auditor asks for a copy of the loss schedule and other information, which should have been prepared in order to lodge the return, to be provided within 28 days. On the 30th day following the request, Company 1 advises that it had overlooked the enquiry and would deal with it quickly. Fourteen days later the auditor contacts the company and is unable to speak with anyone who knows about the request. The auditor then sends a further request for information to the company. At the end of the 28-day period after the second request, the auditor receives a copy of the profit and loss statement for the 2009–10 year but not the loss schedule and the remaining information is only partially provided. This would be a delay due to the taxpayer's conduct. Remission under paragraph 30 of this Practice Statement would not be warranted unless the taxpayer could adequately explain the delay and lack of information being provided.

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38. If you are a case authorising officer for an audit case that is completed after the expected audit completion date, you must undertake a full review of the reasons for the delay to determine whether further remission grounds apply.

Unreasonable delay caused by the ATO

39. Even if an audit is completed before the audit completion date, remission of interest charges might still be appropriate if there have been unreasonable delays or periods of inactivity during the audit that were outside the control of the taxpayer.

40. As a general rule, where there has been no action on a case for 30 days or more and it was possible for the case to progress during that time, you should remit the SIC for the period of unreasonable delay (number of days exceeding 30 consecutive days).

41. The cycle timeframe is set to enable our auditors to complete the audit as well as carry out other appropriate duties that may occur concurrently in the majority of cases. Therefore, provided the audit completion date is met, ordinary delays of up to 30 days where the auditor did not work on the audit would not, of themselves, warrant remission.

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Example 9 – Remission for unreasonable ATO delay after audit work is completed

42. An audit of John's 2011–12 tax return commences on 1 July 2013, with an expected audit completion date of 27 November 2013.

43. On 2 September 2013, the auditor seeks more information from the taxpayer, which requires a response by 30 September 2013.

44. By 30 September 2013, all the necessary information to determine a shortfall has been received and interviews have occurred.

45. On 2 October 2013, the auditor submits his final audit report to his team leader to authorise the case result. The team leader does not review the submission until 15 November 2013 and then authorises the result without change. The amendment issues on 20 November 2013.

46. Assuming there are no other circumstances relevant to the remission of interest charges, full remission of the SIC will be appropriate from 2 November 2013 to 15 November 2013 (total period of inactivity which exceeds 30 days).

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Delay in obtaining information from a third party

47. Where either we or the taxpayer experiences a delay when actively seeking information from a third party and this information is not otherwise available to the taxpayer, you may remit interest charges to the base rate for any excessive period of the delay.

48. However, you should generally not grant remission if the third party is an associate of the taxpayer or is not dealing at armslength with the taxpayer, unless the delay is reasonable and beyond anyone's control.

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Example 10 – Remission may be appropriate for reasonable delay in obtaining information from a third party

49. A tax agent is unable to provide information requested by us for several weeks due to their commitments under their tax agent lodgment program and other compliance obligations. This delay is attributable to the taxpayer. However, if the delay is reasonable, interest charges may be remitted to the base rate for the period of delay.

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Longer resolution times due to complexity of issues

50. Where the issues underlying a shortfall are complex, it may naturally take us longer to come to a view as to the proper operation of the law.

51. Resolution of the issues, including through referral to specialists, does not in itself constitute a delay that would warrant remission of interest charges. The cycle timeframes for the audit generally factor in issues of complexity and the time taken for their resolution.

52. However, you should consider remission to the base rate where the resolution of the issue took longer than would be reasonably expected and resulted in the case exceeding the expected audit completion date.

Large business audits – delay based upon a reasonable time for completion of audit

53. For large corporate audits that commenced on or after 1 July 2005, you should remit shortfall GIC and SIC to the base interest rate for the period that the audit extends beyond 2 years.^[7]

54. The only exceptions will be cases involving blatant obstruction, delays or obfuscation.

Cases involving fraud or evasion

55. Where a case involves fraud or evasion, you should not normally remit the SIC. This is so notwithstanding that there may have been some delay attributable to us or that the expected audit completion date is exceeded.

56. Remission in these cases would still be considered on a case-by-case basis but having due regard to the circumstances giving rise to the shortfall. In such cases, the taxpayer would have been aware of the potential shortfall and could have taken steps to reduce their exposure to interest charges.

Delay is outside the taxpayer's control

57. It may be appropriate for you to grant full remission for the period of a delay where the taxpayer can demonstrate the delay in supplying information or documents for the audit was directly attributable to:

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natural disasters (such as, flood, fire, drought, and earthquake)

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other disasters that may have, or have had, a significant impact on the taxpayer or region

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experiences of vulnerability (such as, family violence, financial coercion, homelessness, serious mental health challenges or other relevant circumstances), or

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the serious illness of the taxpayer or key personnel where there is no other person that could have mitigated the length of the delay.

58. However, it would not be appropriate to remit the interest charges where the reasons for the delay are within the taxpayer's control – for example, where the taxpayer takes an extended vacation after the commencement of the audit. In that example though, if the taxpayer had booked the vacation prior to the commencement of the audit or needed to travel overseas for business purposes, you could take those circumstances into account in considering remission to the base rate.

Taxpayer requires further time

59. Taxpayers may request a deferment of action during an audit, for example, by requesting significant further time to supply information. If the circumstances indicate that the extra time is necessary, you may remit the SIC to the base rate for the period of extra time.

60. However, where we experience delay in obtaining information because the taxpayer has been unwilling or unable to supply information that they should have, or that they are readily able to obtain, you should generally not grant remission.

61. Where, for example, at the request of the management of a taxpayer group, amended assessments are deferred until the completion of the audit of the group, interest charges would not normally be remitted for the period of that particular delay.

Claims for legal professional privilege or access to professional advisers' working papers

62. Taxpayers may seek advice from professional advisers on issues such as the application of legal professional privilege to certain documents or the right of access to professional accounting advisers' working papers. Such claims form part of the normal dealings of a taxpayer with us. Should reasonable claims lead to the case being completed beyond the expected audit completion date, then interest charges would generally be remitted to the base rate for the period beyond the expected completion date attributable to obtaining that advice.

'Unprompted' voluntary disclosure

63. Where a taxpayer makes a voluntary disclosure of a shortfall amount prior to being told that an audit or review is commencing (often referred to as a self-amendment request), the disclosure itself is not a ground for remission.

64. A taxpayer, who has self-assessed incorrectly, even if reasonable care was exercised, should not end up in a more beneficial position than a taxpayer who has self-assessed and reported and paid correctly.

65. However, there may be some cases where the circumstances surrounding the voluntary disclosure will make it fair and reasonable to remit interest charges. Where remission on the basis of a voluntary disclosure is considered appropriate, it will generally be to the base rate.

66. When considering any remission of SIC on the basis of a voluntary disclosure, you should have regard to the following:

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the timeliness of the disclosure after the error was first detected

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whether the disclosure was made before being told of the commencement of an examination, or publication of an ATO initiative which may have led to the discovery of the shortfall by the Commissioner (remission is more unlikely if such notification or publication had occurred)

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whether the Commonwealth in any way contributed to the taxpayer taking their original position

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the size of the shortfall, either in monetary terms or in relation to the whole of the taxpayer's affairs, and

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the taxpayer's compliance history, including the number of times a taxpayer has had to disclose shortfalls following an initial self-assessment of liability.

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Example 11 – Remission for voluntary disclosure outside an audit

67. Big Co has an internal assurance practice of reviewing its previous tax return in preparation for lodging its next return. As part of this process, Big Co identifies a shortfall and immediately lodges an amendment request. We are not conducting an audit. Remission of interest charges to the base rate would be appropriate in this case.

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Delay in processing requests for amendment by taxpayers

68. We have published service commitments for processing amendments or adjustments (where the taxpayer voluntarily seeks to correct an error in an earlier return or statement).^[8]

69. Once we have all information needed to process the amendment or adjustment, we will generally remit in full the SIC for any delay beyond the published standard.

70. This does not apply to a voluntary disclosure that is made after the taxpayer has been told a review or audit has started or will start for that period.

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Example 12 – Remission for delayed processing of an amendment request

71. Raji lodges a 2013–14 amendment request on 2 January 2015. All the information is included in the request. This amendment is lodged in writing and should be processed within 50 business days of receipt, that is, by 13 March 2015. Because of a backlog in work, the amended notice of assessment is not given to the taxpayer until 31 March 2015. Remission in full should occur for the period from 14 March 2015 to 30 March 2015.

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Advance payment of shortfall amount

72. Paying the shortfall amount before the issue of an amended assessment does not stop SIC accruing.^[9] That is, the SIC is calculated to the day before the amended assessment is given to the taxpayer and on the total shortfall, regardless of whether the shortfall amount has been paid in full or in part before that date.

73. However, any benefit a taxpayer may have from not paying the shortfall amount ceases when full payment is made.

74. Therefore, you should remit the SIC for the period after payment in full, reduced by the amount of any interest on early payment (IEP)^[10] that accrues to the taxpayer between the date of payment and the day before the notice of amended assessment is given to the taxpayer. Where a part payment of the shortfall has been made, a partial remission reflecting the portion of the shortfall paid will be given for the post-payment period.

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Example 13 – Remission for early payment of a shortfall

75. After discovering a shortfall, on 1 July 2006 Compliant Co lodges an amendment request and on the same date makes payment of $1,000 – the tax payable on the shortfall. An amended assessment for the $1,000 shortfall is given to the taxpayer on 1 August 2006 and is due for payment on 22 August 2006.

76. Under the law, SIC on the $1,000 shortfall is payable for the period from 1 December 2005, the due date of Compliant Co's original assessment, to 31 July 2006, the day before the notice of amended assessment is given to the taxpayer.

77. However, as payment of the shortfall was made on 1 July 2006, remission of SIC for the period 1 July 2006 to 31 July 2006 is justified.

78. As Compliant Co is entitled to interest on early payment for the period from 1 July 2006 (the day the early payment was made) to 22 August 2006 (the due date of the amended assessment) the amount of the SIC remission would be determined as follows:

SIC for period 1 July 2006 to 31 July 2006 − interest on early payment entitlement for period 1 July 2006 to 31 July 2006.

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Income incorrectly apportioned between taxpayers

79. Where income has been incorrectly apportioned between taxpayers and one taxpayer has paid the tax on that income, some remission may be appropriate when the amendment to correct the error occurs.

80. Having regard to the principles behind the imposition of interest charges though, any remission would be to the extent of offsetting the disadvantage (if any) to the revenue, and take into account the timing of the payment, any entitlement to interest on overpayment, and the extent of the shortfall.

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Example 14 – Remission where income is incorrectly allocated between taxpayers

81. John and Mary have a joint bank account and in the 2012 income year, receive $5,200 interest. Initially, John declares all the interest in his return. Both John and Mary's assessments are due on 21 November 2012. They have the same marginal rate of tax.

82. Subsequently, both John and Mary seek to have their 2012 assessments amended: John, by reducing his taxable income by $2,600 and Mary by increasing her taxable income by $2,600. The amended notices of assessment issue on 1 September 2013. Mary's shortfall is $819 ($2,600 31.5%, 31.5% being Mary's marginal tax rate of 30% plus Medicare levy of 1.5%).

83. Mary would be liable to SIC on $819 for the period from 21 November 2012, the due date of her original assessment, to 31 August 2013, the day before notice is given of the amended assessment. Assuming a SIC rate of 6.6% per annum during this period, SIC of $56.67 will be imposed.

84. If John had paid his original assessment on 21 November 2012, then some remission of Mary's SIC is warranted for the period from when John had made payment. John is entitled to interest on overpayment of $36.47, which in this example would be at a rate of 3.6% per annum. He is entitled from the date of payment to the day before the notice is given to him. That is, from 21 November 2012 to 31 August 2013. Mary's SIC would be remitted by $20.20 and SIC of $36.47 would remain payable with the amended assessment.

85. If on the other hand John had not paid his original assessment, then no remission of Mary's SIC is warranted as the Commonwealth will continue to bear the $819 shortfall until Mary pays that amount.

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Offset because of increase in pay as you go withholding or other credits in amendment

86. SIC or shortfall GIC on income tax shortfalls is calculated on the additional amount of income tax that is properly payable and doesn't take into account certain credits such as PAYG withholding credits.^[11]

87. However, where an additional amount of credit is also included on the amended assessment but does not form part of the assessment, it would be appropriate for you to grant full remission of SIC to the extent of the additional credit.

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Example 15 – Remission where PAYG withholding credits are applied to amended assessment

88. After the issue of her 2012 assessment, Betty receives a payment summary from a former employer. The payment summary shows $5,000 income and $1,200 PAYG withholding credits. She had not declared this income or the credits in her 2012 return.

89. Betty requests an amendment of her assessment to reflect the additional income. The additional tax payable under the amended assessment is $1,575 but after the PAYG withholding credit of $1,200 is applied against this amount, Betty is required to pay $375.

90. As SIC is calculated on the additional tax payable because of the assessment shortfall of $1,575, remission equivalent to the amount of SIC calculated on $1,200 for the entire shortfall period will be given. That is, after remission, only the SIC on $375 will remain for the shortfall period.

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Remission as an incentive for some compliance programs

91. We sometimes may remit interest charges according to specific interest rate remission guidelines adopted as part of particular compliance programs or to ensure consistency of treatment with similar situations that have already been determined and announced.

92. However, this does not rule out other remission grounds consistent with these guidelines having regard to the facts and circumstances of the particular case.

Costs of administration

93. We may remit amounts because the amount of the interest charge is minimal. For example, the imposition of an amount of SIC or GIC below a small threshold amount will result in remission as part of our automated processes.

Reliance on ATO advice or general administrative practice

94. Under the law^[12], a taxpayer will be protected from the interest charges that relates to a shortfall if the taxpayer reasonably relies in good faith on:

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advice given to them or their agent by the Commissioner, or a statement in a publication approved in writing by the Commissioner (unless the advice or the statement or publication is labelled as non-binding), or

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the Commissioner's general administrative practice.

95. A general administrative practice is a practice which is applied by the Commissioner generally as a matter of administration and which consists of the repeated adoption of a view in multiple cases. Taxation Determination TD 2011/19 Tax administration: what is a general administrative practice for the purposes of protection from administrative penalties and interest charges? provides our view on what we will consider to be a general administrative practice.

96. This statutory protection applies to interest charges under most of the tax laws^[13], including income tax, Medicare levy, fringe benefits tax, indirect taxes and petroleum resource rent tax (PRRT). However, even where the shortfall technically is not afforded protection from the shortfall interest charges under the law (for example, because it is about a tax law that is not covered), provided the taxpayer has in good faith relied on ATO advice, a statement in a publication approved in writing by the Commissioner or a general administrative practice, you should remit the shortfall interest charges in full.

Reliance on subsequently overturned judicial interpretation

97. There will be situations where a taxpayer prepares a return or activity statement in a particular way, having regard to a decision of an independent tribunal or a court and, subsequent to lodgment of the return or activity statement, a court of higher authority overturns that decision, resulting in an unexpected shortfall.

98. You should remit SIC in full in this situation, provided that:

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the court or tribunal decision relied upon in the preparation of the return clearly applied to the taxpayer's circumstances, and

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appropriate amendment requests are lodged within a reasonable time after the date of the final court decision. (There may be some circumstances where we will initiate amendments after the date of the final court decision.)

99. If the taxpayer did not lodge an amendment request within a reasonable time, you should generally not remit any interest charges that accrue from the date of the final court decision.

Taxpayer could not have been aware of shortfall when lodging return

100. A shortfall amount may arise in situations where the taxpayer did not know and could not have known that a shortfall would arise when they lodged their original return or activity statement. This would occur where the return or activity statement is correct, and it is only future events that trigger the need to adjust a liability. Examples of this include:

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where a taxpayer becomes entitled to a receipt of compensation in a particular year, which may in some circumstances trigger an adjustment to capital proceeds and affect capital gains or losses in an earlier year's return

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where member companies of a consolidated group are affected by the requirements of section 701-70 of the Income Tax Assessment Act 1997 (ITAA 1997), when the head company makes an election to consolidate after the member company has already lodged its tax return for the year

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where the Commissioner makes an amended assessment of Division 293 tax for an individual, after a superannuation provider amended their Member contribution statement (MCS) or self-managed super fund annual report and the fund's reporting is outside the control of the individual. (Remission will not be warranted if the fund is a self-managed super fund and the individual is a trustee, as it would be considered that the individual should have been aware of the potential shortfall.)

101. Each case must be examined on its merits. In the points outlined in paragraph 100 of this Practice Statement, it may be appropriate for you to grant full remission of interest charges related to the shortfall, usually on the condition that appropriate amendment requests are lodged within a reasonable time after the need to amend arises, if required.

102. Remission does not apply to taxpayers who, for example, mistakenly believed the law operated in a way such that a shortfall would not arise.

Change or potential change in legislation with retrospective effect

Income tax

103. If a change in legislation has retrospective effect and results in a shortfall, you should remit the shortfall interest charges in full, provided the taxpayer seeks to amend their returns within a reasonable time after the enactment of the new legislation. If they do not, then interest charges will apply from 28 days after the amending law receives royal assent.

104. Where a proposed legislative change has been announced but not enacted and a taxpayer acts reasonably but still underestimates their income, you should remit interest to the base rate, provided the taxpayer seeks to amend their returns within a reasonable time after the enactment of the new law.

Indirect taxes

105. Amending Acts to indirect taxes cannot impose penalties or GIC earlier than 28 days after royal assent is given to the particular Act.^[14]

106. Therefore, if an indirect tax law has retrospective effect, GIC in respect of the increased liability will only apply from 28 days after the amending Act receives royal assent.

GST 'revenue neutral' corrections

107. Because of the nature of GST, some corrections to reporting errors will be revenue neutral. This occurs where a correction increasing GST for one party also gives rise to an entitlement to an GST tax credit equal to that increased GST, or where the correction involves equal and offsetting GST tax credits for the same transaction.

108. Law Administration Practice Statement PS LA 2008/9 Goods and services tax 'revenue neutral' corrections provides details of the policy on remission of the shortfall GIC for GST 'revenue neutral' corrections.

More information

109. For more information, see:

•

The relevant SIC rate for a period – Shortfall interest charge (SIC) rates

•

The relevant GIC rate for a period – General interest charge (GIC) rates

•

What constitutes a general administrative practice – Taxation Determination TD 2011/19 Tax administration: what is a general administrative practice for the purposes of protection from administrative penalties and interest charges?

•

Law Administration Practice Statement PS LA 2008/9 Goods and services tax 'revenue neutral' corrections

•

Commitments to service .

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Appendix 1 – Imposition of interest charges

Interest charges that apply to shortfalls

110. The SIC was introduced for shortfall amounts for income tax^[15] amendments for the 2004–05 and later income years. It is charged at a lower rate, for the reason that taxpayers who are genuinely unaware of the shortfall may be unable to take any steps to reduce their exposure to GIC.

111. Shortfalls in respect of other taxes, and shortfalls that relate to income tax liabilities for the income years 2000–01 to 2003–04 will attract GIC from the original due date for payment.

112. Income tax amendments for the 1999–2000 and earlier years attract interest in the shortfall period under section 170AA of the ITAA 1936. Although, for shortfall periods from 1 July 1999, this interest is imposed as GIC.

113. Table 1 of this Practice Statement details the main provisions relating to the imposition of interest charges during the shortfall period.

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Appendix 2 – Relevant legislative provisions

114. This Appendix provides some further information on some of the legislative provisions for imposition, notification and remission of SIC and GIC.

Shortfall interest charge

115. The SIC provisions are contained in Division 280 of Schedule 1 to the TAA.

116. A taxpayer is liable to pay SIC on any additional amount of income tax payable as a result of an amended assessment for an income year (subsection 280-100(1) of Schedule 1 to the TAA).

117. The liability to SIC is for each day in the period:

•

beginning at the start of the day on which income tax under the first assessment for that income year was due to be paid, or would have been due to be paid if there had been any, and

•

ending at the end of the day before the day on which the Commissioner gave notice of the amended assessment (subsection 280-100(2) of Schedule 1 to the TAA).

118. However, if an amended assessment reinstates all, or part of, a particular item that had been reduced by an earlier amended assessment, the SIC calculation period for the reinstated liability starts from the due date of the earlier amended assessment. If the earlier amended assessment was a net credit, the calculation starts from the day any tax would have been payable (subsection 280-100(3) of Schedule 1 to the TAA). This later start date is because the shortfall does not arise from an error in the original assessment, but from the taxpayer subsequently requesting an amendment that incorrectly reduces their liability.

119. The SIC rate for a day is worked out by adding 3 percentage points to the base interest rate for that day and dividing that total by the number of days in the calendar year (subsection 280-105(2) of Schedule 1 to the TAA). This has the effect of producing a SIC rate that reflects benchmark business borrowing rates.

120. For each day in a particular quarter of the year, the base interest rate equals the monthly average yield of 90 day Bank Accepted Bills for a prescribed previous month. For example, for the quarter 1 January to 31 March, the base interest rate is the monthly average yield of 90 day Bank Accepted Bills for the preceding November (subsection 8AAD(2) of the TAA).

121. The SIC is worked out daily on a compounding basis (subsection 280-105(1) of Schedule 1 to the TAA).

122. The Commissioner must give the taxpayer a notice stating the amount of the SIC liability. This amount can be included in another notice that the Commissioner gives to the taxpayer, such as the notice of amended assessment (subsections 280-110(1) and (2) of Schedule 1 to the TAA).

123. The SIC is due and payable 21 days from when notice of the amount of the charge is given to the taxpayer (subsection 5-10 of the ITAA 1997).

124. The Commissioner may remit all, or part of, an amount of SIC if the Commissioner considers it fair and reasonable to do so (subsection 280-160(1) of Schedule 1 to the TAA).

125. Without limiting the general remission power, in deciding whether to remit the Commissioner must have regard to:

•

the principle that remission should not occur just because the benefit received from the temporary use of the shortfall amount is less than the SIC, and

•

the principle that remission should occur where the circumstances justify the Commonwealth bearing part or all of the cost of delayed payments (subsection 280-160(2) of Schedule 1 to the TAA).

126. If a remission request is made in the approved form, the Commissioner must give a written statement of the reasons for a decision not to remit an amount of SIC (section 280-165 of Schedule 1 to the TAA).

127. However, if a remission request is not made in the approved form, it does not prevent the Commissioner from considering the request. Where this happens, the Commissioner will generally provide written reasons of the decision.

128. The content of a statement of reasons for a decision is provided in section 25D of the Acts Interpretation Act 1901. That section states '… the instrument giving the reasons shall also set out the findings on material questions of fact and refer to the evidence or other material on which those findings were based'.

129. A taxpayer may object using the provisions in Part IVC of the TAA against a decision of the Commissioner not to remit an amount of SIC where the amount not remitted is more than 20% of the additional amount of income tax on which it is calculated (section 280-170 of Schedule 1 to the TAA).

130. The rights to a statement of reasons and the formal objection rights relating to decisions not to remit an amount of SIC are in addition to, and do not replace, existing rights under the Administrative Decisions (Judicial Review) Act 1977.

Example 16 – Objection rights and the 20% SIC threshold

131. SIC of $2,000 is payable in respect of a shortfall of $8,000. We make a decision not to remit any SIC. As the amount of SIC not remitted ($2,000) exceeds 20% of the shortfall ($2,000 $8,000 = 25%), the taxpayer may object to the remission decision.

132. If we had remitted $500 SIC so that $1,500 remained payable, the taxpayer would not be able to object to the decision as the SIC not remitted does not exceed 20% of the shortfall ($1,500 $8,000 = 18.75%).

General interest charge

133. The legislative scheme for GIC is in 2 parts. Liability to GIC is dealt with in various provisions in the tax laws. For example, liability to GIC in respect of late payment of an income tax liability is provided at section 5-15 of the ITAA 1997. The second part of the scheme, which describes the basis for calculation of GIC, is set out in Part IIA of the TAA.

134. The liability to GIC for late payment is for each day in the period:

•

starting at the beginning of the day by which the tax was due to be paid, and

•

finishing at the end of the last day on which, at the end of the day, any of the tax (or GIC on that tax) remains unpaid.

135. The GIC rate for a day is currently worked out by adding 7 percentage points to the base interest rate for that day and dividing that total by the number of days in the calendar year (subsection 8AAD(1) of the TAA). This has the effect of producing a GIC rate that may be high (compared with indicator rates for commercial borrowing) for many taxpayers to encourage prompt payment of tax liabilities.

136. The base interest rate is the same as that used for SIC (see paragraphs 115 to 132 of this Practice Statement).

137. GIC is worked out daily on a compounding basis (section 8AAC of the TAA).

138. There are no notification requirements for GIC; it is payable at the end of each day (section 8AAE of the TAA).

139. We may remit all, or part of, GIC (section 8AAG of the TAA). However, remission can only be made if circumstances set out in the law are met (subsections 8AAG(2) to (5) of the TAA). These include special circumstances where it is fair and reasonable to remit.

140. When notifying a decision not to remit GIC, we will provide the reasons for the decision.

141. While a taxpayer can, in some circumstances, object against a decision not to remit SIC, there are no objection rights under the taxation law against a remission decision relating to GIC. A taxpayer can seek formal review of remission decisions under the Administrative Decisions (Judicial Review) Act 1977.

142. This Practice Statement only deals with remission of GIC that accrues during the shortfall period. PS LA 2011/12 details the policy for remission of GIC in other circumstances.

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Amendment history

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© AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA

You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).

Date of Issue: 1 August 2006

Date of Effect: 1 July 2005

File 1-1BG43X04

Related Rulings/Determinations:
TD 2011/19

Related Practice Statements:
PS LA 2008/9
PS LA 2011/4
PS LA 2011/12
PS LA 2015/4

Other References:
Commitments to service
Shortfall interest charge (SIC) rates
General interest charge (GIC) rates
Mutual agreement procedure

Legislative References:
Acts Interpretation Act 1901 25D
ITAA 1936 170AA
ITAA 1936 214A
ITAA 1997 5-1
ITAA 1997 5-10
ITAA 1997 5-15
ITAA 1997 Div 293
ITAA 1997 701-70
FBTAA 1986 93
TAA 1953 Sch 1 16-80
TAA 1953 Sch 1 Subdiv 105-D
TAA 1953 8AAC
TAA 1953 8AAD(1)
TAA 1953 8AAD(2)
TAA 1953 8AAE
TAA 1953 8AAG
TAA 1953 8AAG(2)
TAA 1953 8AAG(3)
TAA 1953 8AAG(4)
TAA 1953 8AAG(5)
TAA 1953 Sch 1 105-85
TAA 1953 Sch 1 280-100(1)
TAA 1953 Sch 1 280-100(2)
TAA 1953 Sch 1 280-100(3)
TAA 1953 Sch 1 280-105(1)
TAA 1953 Sch 1 280-105(2)
TAA 1953 Sch 1 280-160(2)(b)
TAA 1953 Sch 1 280-165
TAA 1953 Sch 1 280-170
TAA 1953 Sch 1 284-80
TAA 1953 Sch 1 361-5(1)
TAA 1953 Sch 1 357-55
Taxation (Interest on Overpayments and Early Payments) Act 1983

Case References:

David Cassaniti v Commissioner of Taxation
[2010] FCA 641
186 FCR 480
2010 ATC 20-192
79 ATR 340

Business Line:  FC

ISSN: 2651-9526