CPA Australia is pressing the Senate Economics Legislation Committee to reassess proposed changes to tax legislation that would deny deductions for the general interest charge (GIC) and shortfall interest charge (SIC).
The organisation argued that the bill should not be passed without significant amendments, pointing out its potential detrimental effects on small businesses.
Jenny Wong, CPA Australia’s tax lead, has voiced strong opposition to the bill, emphasising its harsh impact on small enterprises already facing high interest rates and inflation.
“We have previously expressed significant concerns regarding the disproportionate impact on small businesses and sheer lack of fairness on taxpayers with cash-flow troubles,” Wong said.
The proposed changes are seen as a blanket approach that could penalise compliant taxpayers instead of being targeted towards those with substantial tax debts.
Despite multiple submissions from stakeholders, including a detailed proposal from CPA Australia in September to amend the exposure draft, the Treasury has moved forward without incorporating these suggestions.
“It’s very disappointing that our submission...has simply been ignored,” Wong said.
She criticised the government’s approach as indiscriminate and punitive, particularly harmful to businesses struggling with liquidity.
The non-deductibility of GIC, as proposed, could significantly heighten financial strain on businesses.
For tax-paying small companies, this change represents an effective increase in the penalty rate by 25%.
For sole traders, the increase could be up to 47%, depending on their marginal tax rate.
“This significant increase could put additional financial pressure on businesses already struggling, and it may force directors to question the viability of their operations,” Wong said.
Additionally, the Australian Taxation Office (ATO) is currently under scrutiny for service delays and inconsistent outcomes regarding GIC remission requests. These operational issues further complicate the situation for taxpayers seeking clarity and support.
Wong suggested that making these interest costs on tax debts non-deductible only exacerbates the problem, potentially driving small businesses towards unsustainable tax liabilities.
CPA Australia advocates for a more nuanced approach to tax policy that encourages compliance without imposing undue burdens.
Wong proposed that transparency and fairness should be paramount, with a focus on measures that genuinely support taxpayers and small businesses during challenging economic times.
“In the interest of transparency and fairness to taxpayers, repayments should be encouraged through a higher GIC/SIC margin rather than hidden costs that are realized through tax assessments,” Wong said.
