CPA Australia has criticised the Australian government’s proposed legislative change that would make interest charges on tax debt non-deductible. The professional body argues that this measure could disproportionately affect small businesses and struggling taxpayers while failing to effectively target those with high levels of tax debt.
In a submission to the Senate Economics Legislation Committee, CPA Australia has urged the government to reconsider its approach and implement more targeted measures to encourage tax debt repayment without exacerbating financial difficulties for affected businesses.
Concerns Over Financial Impact
In a submission to the Senate Economics Legislation Committee, CPA Australia outlined its opposition to the Treasury Laws Amendment (Tax Incentives and Integrity) Bill 2024, which includes measures to make GIC and the shortfall interest charge (SIC) non-deductible. The professional body argued that the measure would exacerbate financial hardship for small businesses and individuals who rely on these deductions to manage cash flow.
According to CPA Australia tax lead Jenny Wong, denying these deductions amounts to a broad and punitive approach rather than a targeted measure addressing high-tax-debt accounts.
“With interest rates as high as they are, this will disproportionately affect businesses with cash issues, particularly sole traders on the highest marginal tax rate,” Wong said.
Impact on Small Businesses
CPA Australia warned that removing GIC and SIC deductions could have a “devastating” impact on small businesses, many of which already struggle to access affordable finance options. The body argued that while tax debt issues are concentrated in a small segment of taxpayers, the proposed measure penalizes a broader group, including generally compliant businesses.
The organization highlighted several key concerns:
- Increased penalty rates – The non-deductibility of GIC could effectively increase penalty rates by 25 per cent to 47 per cent for sole traders, depending on their marginal tax rate.
- Higher financial burden – Many businesses use GIC deductions to offset tax liabilities, and removing them could intensify cash flow issues.
- Disproportionate impact on small businesses – While large tax debt holders exist, the policy affects all taxpayers, including those who manage their tax obligations responsibly.
- Potential business closures – The additional financial strain could make it difficult for some businesses to continue operating, particularly those still recovering from the economic effects of the COVID-19 pandemic.
Concerns Over Ato Service Delays
CPA Australia also pointed to operational challenges at the Australian Taxation Office (ATO) as a contributing factor. The organization highlighted long delays in service delivery and inconsistent outcomes in GIC remission requests, which could unfairly penalize taxpayers experiencing difficulties in accessing ATO support.
“The operational challenges the ATO is experiencing add fuel to the argument that the proposal to deny deductions for GIC/SIC unfairly penalizes taxpayers who are facing delays in accessing Tax Office support and assistance,” CPA Australia said.
Calls for Targeted Measures
Instead of a blanket policy, CPA Australia is advocating for more targeted measures to address high-debt accounts while still allowing deductions for other taxpayers. The body suggested that higher GIC/SIC margins for large tax debt holders would be a more equitable approach to encourage repayments.
CPA Australia has also raised concerns about the lack of consultation on previous feedback. The organization noted that its September 2023 submission proposing amendments to the exposure draft was ignored.
“It’s very disappointing that our submission in September containing amendments to the exposure draft to address these critical issues has simply been ignored,” Wong said.
The proposed changes to the tax debt deduction rules have raised concerns about their potential impact on small businesses and taxpayers managing financial difficulties. While the government aims to strengthen tax compliance, CPA Australia argues that the approach is too broad and could disproportionately affect businesses that rely on these deductions for cash flow management.
