ATO Tax Debt in Australia 2026: GIC No Longer Deductible and How a Tax Agent Can Help

A significant and often overlooked change took effect on 1 July 2025: the General Interest Charge (GIC) and Shortfall Interest Charge (SIC) levied by the Australian Taxation Office (ATO) are no longer tax-deductible for any interest incurred from that date. For Australian businesses and individuals carrying ATO debt into 2026, this change has materially increased the real cost of owing money to the ATO — and made the role of a registered tax agent more important than ever.

Understanding the GIC and SIC Changes

The General Interest Charge is the ATO's standard interest rate applied to unpaid tax liabilities, including income tax, GST, PAYG withholding, and other obligations. For the April to June 2026 quarter, the GIC rate is set at 10.96% per annum, compounding daily. The Shortfall Interest Charge applies specifically to tax shortfalls identified through ATO audits or amended assessments.

Prior to 1 July 2025, both the GIC and SIC were tax-deductible for businesses, which effectively reduced their after-tax cost. Under the Treasury Laws Amendment (Tax Incentives and Integrity) Act 2025, this deductibility was removed. The change applies to all interest incurred on or after 1 July 2025, regardless of when the underlying tax debt originally arose.

The practical impact is significant. A business in the 25% tax bracket that previously paid GIC at an effective after-tax cost of approximately 8.2% now pays the full 10.96% — with no offset. For many businesses, ATO debt has become one of the most expensive forms of finance available, often exceeding the cost of commercial bank loans, which typically remain tax-deductible when used for business purposes.

Why ATO Debt Is Now More Expensive Than Ever

The combination of a high GIC rate, daily compounding, and the removal of deductibility creates a compounding cost burden that can escalate quickly. Consider a business with $100,000 in unpaid income tax. At 10.96% compounding daily, the interest accrual over 12 months is approximately $11,600 — none of which is deductible. Over two years, the total interest burden approaches $24,900.

By contrast, a commercial business loan at 8% per annum — which remains deductible — has an effective after-tax cost of approximately 6% for a business in the 25% bracket. The gap between ATO debt and commercial finance has widened considerably since the deductibility change.

This shift has prompted many businesses to explore refinancing ATO debt with commercial loans. A registered tax agent can assess whether this strategy is appropriate for a specific situation and help structure the approach to maximise deductibility of the replacement finance.

ATO Payment Plans: What You Need to Know

For businesses that cannot pay their ATO debt in full, a formal payment plan is the primary mechanism for managing the liability while avoiding escalating enforcement action. However, payment plans come with important conditions and limitations that many taxpayers are unaware of.

Eligibility Requirements

To be eligible for an ATO payment plan, taxpayers must generally have all outstanding tax returns and activity statements lodged. The ATO will not typically agree to a payment plan for a taxpayer who has unfiled obligations, as this prevents the ATO from assessing the full extent of the liability.

Structure and Terms

Payment plans require that the debt be repaid over the shortest period that is realistically manageable for the taxpayer. Income tax debts and activity statement (BAS) debts are typically managed under separate plans. The ATO does not generally agree to plans that extend beyond 24 months for most taxpayers, though exceptions exist for complex situations.

Interest Continues to Accrue

A critical point that many taxpayers miss: GIC continues to accrue on the outstanding balance throughout the payment plan period. Being on a payment plan does not stop interest from compounding. This makes it essential to pay down the debt as quickly as possible, even if the plan allows for a longer term.

Small Business Exceptions

Some small businesses may be eligible for interest-free payment plans specifically for overdue activity statement (BAS) debts. A registered tax agent can assess eligibility and negotiate these arrangements directly with the ATO on the client's behalf.

Common Mistakes When Managing ATO Debt

Many businesses make avoidable errors when dealing with ATO debt that compound the financial and compliance consequences. The most common include:

• Failing to lodge returns — The ATO's enforcement posture escalates significantly when returns are outstanding. Lodging all returns, even if you cannot pay the resulting liability, is always the right first step.
• Ignoring ATO correspondence — Unresponded ATO notices can trigger garnishee orders, Director Penalty Notices (DPNs), or disclosure of the debt to credit reporting bureaus. Early engagement prevents escalation.
• Defaulting on a payment plan — Missing a payment plan instalment causes the entire outstanding balance to become immediately due. If circumstances change, contact the ATO or your tax agent before missing a payment.
• Not requesting GIC remission — In cases of genuine hardship, serious illness, or events beyond the taxpayer's control, the ATO may remit (reduce) GIC or SIC. These applications must be made formally and are assessed on a case-by-case basis.
• Assuming the ATO will wait indefinitely — The ATO has significantly increased its debt collection activity since 2024. Businesses that do not engage proactively face a growing risk of enforcement action, including garnishee notices and DPNs for company directors.

Australian Regulatory Context

Registered tax agents in Australia are regulated by the Tax Practitioners Board (TPB) under the Tax Agent Services Act 2009. Only registered tax agents are legally permitted to provide tax agent services for a fee, including lodging tax returns, representing clients before the ATO, and negotiating payment arrangements on a client's behalf.

The ATO's approach to debt collection is governed by its Debt Collection Guidelines and the Taxpayers' Charter, which sets out the rights of taxpayers in their dealings with the ATO. Taxpayers have the right to be treated fairly, to have their affairs kept confidential, and to seek independent review of ATO decisions.

Director Penalty Notices (DPNs) are a particularly important enforcement tool. Under the Taxation Administration Act 1953, company directors can be held personally liable for unpaid PAYG withholding and superannuation guarantee charge (SGC) obligations. A DPN makes the director personally liable for the company's debt, bypassing the corporate veil. Tax agents can advise directors on their exposure and the steps required to avoid or respond to a DPN.

The Australian Financial Complaints Authority (AFCA) does not handle ATO disputes, but the Administrative Review Tribunal (ART) — which replaced the Administrative Appeals Tribunal (AAT) in 2024 — provides an independent avenue for reviewing ATO decisions, including objections to assessments and penalty remission decisions.

Questions to Ask a Registered Tax Agent About ATO Debt

When engaging a tax agent to help manage ATO debt, the following questions will help you assess their expertise and approach:

• Are you registered with the Tax Practitioners Board? — Always verify registration at the TPB register before engaging any tax professional.
• Can you negotiate a payment plan on my behalf? — Registered tax agents have direct access to ATO systems and can negotiate terms that may not be available through the ATO's online self-service portal.
• Should I consider refinancing my ATO debt? — A tax agent can model the after-tax cost of ATO debt versus commercial finance and advise on the most cost-effective approach.
• Am I eligible for GIC remission? — If your debt arose from circumstances beyond your control, a tax agent can prepare and lodge a formal remission application.
• What is my DPN exposure as a director? — If you are a company director with outstanding PAYG or SGC obligations, understanding your personal liability is critical.
• What are my lodgement obligations going forward? — Staying current with all future lodgements is essential to maintaining any payment plan and avoiding further penalties.

How MyMoney® Can Help

Managing ATO debt requires specialist knowledge of tax law, ATO negotiation processes, and the rapidly changing regulatory environment. A registered tax agent can assess your full situation, negotiate on your behalf, and develop a strategy that minimises the total cost of your debt while protecting you from escalating enforcement action.

MyMoney® connects Australian businesses and individuals with qualified, TPB-registered tax agents who have experience managing ATO debt, payment plans, and penalty remission applications. Getting the right advice early can save thousands in compounding interest and prevent serious consequences such as Director Penalty Notices.

Take the first step today: Post a Brief on MyMoney® to receive proposals from experienced registered tax agents, or Browse Tax Agents to find a specialist in your area. This article provides general information only and does not constitute personal tax advice.