Which description describes deficiency interest?

Which description describes deficiency interest?

• A. It accrues at 6% from due date to FAN/FDDA
• B. It accrues from FAN/FDDA to payment
• C. It accrues at 12% per annum from the original due date to FAN/FDDA
• D. It accrues only on civil penalties

Answer: (C)

Deficiency interest is the interest charged on an underpaid tax amount, intended to compensate for the government’s use of funds from the time the payment was due. The rate is 12% per year, and the accrual runs from the original due date up to the point the Final Assessment Notice (FAN) or Final Demand for Deposit (FDDA) is issued. This timing reflects that the taxpayer had an obligation to pay by the original due date, and interest grows during that period regardless of later notices. It’s not limited to the time after a FAN/FDDA, and it’s not restricted to civil penalties—the interest applies to the deficiency amount itself. For example, if something is due on January 1 and a FAN/FDDA is issued on February 1, deficiency interest accrues for that month at 12% per year, roughly proportional to one month’s portion of 12%.

Deficiency interest is the interest charged on an underpaid tax amount, intended to compensate for the government’s use of funds from the time the payment was due. The rate is 12% per year, and the accrual runs from the original due date up to the point the Final Assessment Notice (FAN) or Final Demand for Deposit (FDDA) is issued. This timing reflects that the taxpayer had an obligation to pay by the original due date, and interest grows during that period regardless of later notices. It’s not limited to the time after a FAN/FDDA, and it’s not restricted to civil penalties—the interest applies to the deficiency amount itself. For example, if something is due on January 1 and a FAN/FDDA is issued on February 1, deficiency interest accrues for that month at 12% per year, roughly proportional to one month’s portion of 12%.