Compliance
Shortfall interest charge (SIC)
The shortfall interest charge is a lower-rate interest charge applied when an amended income tax assessment shows more tax is payable than originally assessed.
When a taxpayer's income tax assessment is amended, and the amendment increases the tax payable, the ATO may charge the shortfall interest charge, known as SIC. It compensates the government for the time value of the money it should have received when the original assessment was made. SIC applies for the period from the original due date until the amended assessment is issued, not from the date the mistake was found.
SIC is calculated at a rate that is lower than the general interest charge. The rate is set quarterly, based on a market benchmark plus a smaller uplift than that used for GIC, and the ATO publishes it. The figure changes, so check the ATO website for the current rate. The intention is that SIC is a more moderate cost for people who make honest errors in their returns, compared with the stronger charge for debts that are simply left unpaid.
SIC is mainly relevant to income tax assessments, such as individuals, companies and trusts that amend returns or are amended following an audit or review. For GST and BAS matters, the position is different. A shortfall of GST usually attracts the general interest charge rather than SIC. Business owners who deal with both areas should be careful not to assume that the lower rate applies to GST corrections.
A key feature is that SIC is calculated on the shortfall, and it generally does not compound in the same way as GIC. It runs until the amended assessment date. After that, if the extra tax is not paid by the new due date, GIC can start to apply on the unpaid balance. This means paying promptly after receiving an amended assessment is important to avoid moving to the higher charge.
The ATO may remit SIC in certain situations, for instance when the taxpayer was affected by factors beyond their control or when the ATO caused or contributed to the delay. A voluntary disclosure of an error before an audit can also lead to a lower overall cost, since penalties may be reduced and the ATO can consider the circumstances for interest. Records and a brief explanation help make a remission request.
SIC is separate from any shortfall penalty. A taxpayer may be charged the interest and a penalty if there was a false or misleading statement, or only interest if the error was an honest mistake and no penalty applies. When reading a notice from the ATO, it helps to distinguish between the tax, the interest and the penalty components.
As the exact treatment depends on the type of tax, this page is general information only. Confirm your position with the ATO or a registered tax professional.
Worked example
A sole trader amends the prior year return after finding unreported income, and the amended assessment shows extra tax of $6,000. The ATO charges SIC on the $6,000 from the original due date until the amended assessment is issued, at the SIC rate published for each quarter. The sole trader pays the extra tax and SIC by the new due date, so GIC does not start.
Practical tips
- Pay an amended assessment by its due date, so the higher general interest charge does not begin.
- Do not assume SIC applies to GST corrections, since a GST shortfall usually attracts GIC.
- Keep notes explaining the reason for the error so you can request remission if it is reasonable.