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14.6. Interest Compensation for Overpayment of Tax

Where tax has been overpaid, the taxpayer is entitled to interest on the amount overpaid, as provided by the Taxation (Interest on Overpayments and Early Payments) Act 1983 and the Taxation (Interest on Overpayments and Early Payments) Regulations, 1992.

The entitlement to interest may arise in several cases, including following a successful appeal against an assessment which then entitles the taxpayer to a refund or as a result of the overpayment of installments under the PAYG system. Subject to certain conditions, the provisions equally apply to situations in which tax has been overpaid as a result of adjustments made in accordance with the application of Australia’s double taxation agreements. The interest payable is based on the quarterly average Reserve Bank 90 day bill acceptance rate. The ATO has updated the Taxation (Interest on Overpayments and Early Payments) Regulations, 2018 (IOEP) wherein the interest entitlement is applicable to:

  • income derived on or after 15 September 2018;
  • income derived before 15 September 2018 where a double tax agreement was in force at the time the income was derived (as listed in Part 2 of the 2018 IOEP Regulations).

However, the former regulations are applicable to income derived before 15 September 2018 for double tax agreements listed in these regulations. If the taxpayer has any outstanding tax liabilities, the interest may be set off against amounts owed. Interest received on an overpayment is subject to tax.