Author
Domenic CalabrettaChief Executive Officer & ASIC Registered Liquidator
Managing tax debt in Australia has fundamentally changed due to recent legislative updates. The Treasury Laws Amendment (Tax Incentives and Integrity) Act 2025 has introduced significant changes to how ATO interest charges are handled, specifically regarding tax deduction rules that affect your bottom line.
For years, many companies relied on the fact that interest charges from the Australian Taxation Office (ATO) were tax-deductible. This deduction effectively subsidised the cost of borrowing from the government. However, under the new rules, this is no longer the case.
What are the interest charges?
The ATO applies two primary interest charges to encourage the timely payment of tax and ensure a level playing field for all taxpayers.
- General Interest Charge (GIC): This is applied to any late payment of tax or unpaid tax debts.
- Shortfall Interest Charge (SIC): This applies when your tax return is amended, and a tax shortfall is identified. Because this usually happens before you’re aware of the error, the rate is lower than the GIC.
What has changed?
GIC and SIC incurred on or after 1 July 2025 are no longer tax-deductible. While the rates haven't changed, the real cost has.
Before, there was a built-in offset. You could claim the interest as deductible interest, which softened the impact on your cash flow. Now, every dollar of ATO interest charges is paid from after-tax income.
Here’s what that means in practice:
- The ATO GIC rate continues to compound daily
- The amount of interest grows the longer the debt remains unpaid
- There’s no tax deduction to reduce the cost
- Your cash flow carries the full weight of the interest
How the change impacts your business
Without deductible interest, the real cost of an ATO GIC interest rate depends on your company tax bracket.
For example:
A $10,000 interest charge might have only cost a company $7,500 after a 25% tax deduction previously. After the change, that same $10,000 charge now costs exactly $10,000.
There is, however, a small offset to consider. Because you can no longer claim a deduction for these charges, any subsequent remission of that interest is no longer treated as assessable income. While this does not make up for the loss of the initial deduction, it means you won't be taxed on the relief you receive for non-deductible interest.
bracket.
For example:
A $10,000 interest charge might have only cost a company $7,500 after a 25% tax deduction previously. After the change, that same $10,000 charge now costs exactly $10,000.
There is, however, a small offset to consider. Because you can no longer claim a deduction for these charges, any subsequent remission of that interest is no longer treated as assessable income. While this does not make up for the loss of the initial deduction, it means you won't be taxed on the relief you receive for non-deductible interest.
Why Small Business Restructuring is the tax-efficient alternative
Small Business Restructuring (SBR) is a formal process that allows you to compromise your tax debt. Unlike a payment plan where you eventually pay the full amount plus high interest, an SBR allows you to propose a plan to pay only a portion of what is owed.
This process is legally superior because it addresses the core debt rather than just spreading out the payments. Advantages of Small Business Restructuring include:
- It covers various tax obligations, including PAYG and superannuation guarantees.
- You remain in control of your business throughout the process.
- Unsecured debts, including ATO debt, are typically significantly reduced.
- Payment for our Small Business Restructuring service is tax-deductible.
It offers a fresh start that bypasses the need for the complex ATO GIC remission form.
Changes to the ATO remission process
The Australian Taxation Office (ATO) has recently tightened the rules for how businesses can ask for relief from interest charges. Historically, many directors could resolve smaller debts or penalties through a quick phone call.
Following a review by the Tax Ombudsman in early 2026, the ATO has moved to a more formal, standardised system. This change aims to improve consistency, but it also means more paperwork for your business.
How to lodge an ATO GIC remission request
Under the new guidelines, almost all requests must now be submitted using a specific ATO GIC remission application form. This shift from informal phone discussions to a formal written application requires you to provide:
- Detailed evidence of the special circumstances that caused your late payment.
- Specific dates showing when these events impacted your business.
- Documentation of the steps you took to try to pay on time.
While you can still call to discuss a remission of GIC, ATO staff will no longer make immediate decisions on the spot for amounts exceeding $2,500. Instead, they will help you complete the digital form and escalate it to a centralised, dedicated review team.
Why payment plans may no longer be cost-effective
A standard ATO debt arrangement often involves high interest. Because you can no longer remit the cost through a deduction, the burden on your income tax and GST obligations grows.
Instead of struggling with a late payment penalty that compounds, consider these factors:
- Interest costs have effectively risen by up to 30% for many companies because they are now non-deductible.
- The new ATO GIC remission process is more rigid and requires formal written applications for almost all requests.
- Payment plans do not reduce the principal amount of your unpaid tax debts.
- The ATO GIC continues to accrue on the outstanding balance every day while you wait for a remission decision.
Comparing Small Business Restructure vs ATO payment plans
The following table outlines how these two options compare under the current income year rules.
| Feature | ATO Payment Plan | Small Business Restructure |
| Total Debt Amount | You pay 100% of the debt. | You pay a percentage (e.g., 20c in the dollar). |
| Interest Deductibility | ATO GIC is non-deductible. | Not applicable (debt is compromised). |
| Impact on Cash Flow | Monthly drain plus interest. | Single or short-term structured payment. |
| Legal Protection | Limited protection. | Formal stay on creditor actions. |
| Finality | Debt remains until paid in full. | Once completed, the remaining debt is wiped. |
How to manage tax debt effectively
Addressing these new rules requires a proactive approach to ensure your business remains viable.
If you are facing mounting liabilities, we suggest the following tips:
- Review your current interest costs using an ATO GIC calculator to understand the true, non-deductible impact on your cash flow.
- Collate all documentation regarding late payments early if you intend to lodge a remission request.
- Avoid relying on a phone call for debt relief, as the ATO now requires detailed written evidence for most remission decisions.
- Assess your eligibility for a Small Business Restructure if your total liabilities are under $1 million to potentially wipe away a portion of the debt.
- Act before the due date of your next lodgement to prevent further compounding interest from the Australian Taxation Office.
Seeking expert advice early can prevent a temporary cash flow squeeze from becoming a permanent problem.
Taking action with Mackay
Goodwin
Our team has helped many directors move away from the cycle of late payment and compounding interest. We focus on using the Small Business Restructuring framework to provide a fresh start and financial stability.
You don't have to face these tax liabilities alone. If you are concerned about an amended assessment or rising tax debt, there is a path forward. Speak to our team today for a free consultation.
FAQs
Are ATO interest charges tax-deductible?
No. General Interest Charge (GIC) and Shortfall Interest Charge (SIC) incurred on or after 1 July 2025 are no longer tax-deductible (debts incurred before this date are still tax-deductible). This change means you must pay these interest costs using after-tax dollars, significantly increasing the effective cost of tax debt for your business.
What is the meaning of remission in income tax?
In income tax, a remission refers to the ATO's decision to reduce or cancel a penalty or interest charge that has already been applied to your account. It is essentially a waiver of a debt obligation, usually granted when a taxpayer provides evidence of genuine hardship or exceptional circumstances.
What changed regarding FTL penalty remission requests?
From 22 January 2026, the ATO introduced a more formal process for Failure to Lodge (FTL) penalty remission requests. Instead of making simple requests over the phone, you must now submit a dedicated application form via Online Services for Agents or by mail. These requests are now reviewed by a specialised team to ensure greater consistency and transparency in decisions.
What are the reasons for GIC remission from the ATO?
The ATO may consider a GIC remission if you can demonstrate that the delay in payment was due to circumstances beyond your control or where it is otherwise fair and reasonable. Common reasons include:
- Natural disasters or serious illness.
- Administrative errors made by the ATO.
- Unforeseen disruption to business operations.
- A clear and prompt effort to rectify the debt as soon as possible.
Does the Commissioner have the discretion to consider a GIC remission if it relates to an SGC debt?
The Commissioner has very limited legal discretion regarding Superannuation Guarantee Charge (SGC) debt. Under the Superannuation Guarantee (Administration) Act 1992, the ATO is legally restricted from remitting the nominal interest component of an SGC debt, as this money belongs to your employees.
While they may consider remitting the GIC portion in exceptional circumstances, the ATO is generally far less likely to provide relief for superannuation debts compared to other tax liabilities like GST or income tax.
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