Still paying interest while paying down the debt? Here is why.

GIC is interest on certain unpaid tax liabilities

The Australian Taxation Office applies the general interest charge to certain unpaid tax amounts. It is generally calculated daily on the unpaid amount and compounds daily. The published annual rate changes each quarter.

A payment plan does not generally stop GIC from accruing on an unpaid balance. Paying down the principal can reduce the balance on which future interest is calculated. Check your ATO statement and the official rate for the relevant period.

An estimate is a starting point, not your actual ATO balance

A simple calculator cannot account for every adjustment, tax type, payment date or remission decision. Your actual statement remains the source of truth. Our calculator lets you enter a rate rather than assuming an unverified current rate.

If comparing with finance, include establishment fees, broker fees, repayment timing and the loan term. A lower monthly repayment can conceal a higher total cost. Ask your accountant about tax treatment and whether remission may be available in your circumstances.

Why the balance may fall more slowly than expected

An instalment and a reduction in principal are not always the same number. Continuing interest and other account activity can affect the balance. Reconcile what was paid against the statement before concluding that a payment was missed.

Ask your accountant to explain the allocation and expected remaining term using the current balance. A historic opening balance or an assumed constant rate can make a repayment estimate look more optimistic than the actual account.

The frustration of paying down a debt that still grows

It is a common and genuinely frustrating experience: you set up a payment plan, make every instalment on time, and yet the balance does not seem to shrink as fast as expected. The reason is usually general interest charge (GIC), which generally continues to accrue daily on the outstanding balance for as long as the debt remains unpaid, including during an active arrangement, unless the ATO agrees to remit some or all of it.

Understanding how GIC behaves — rather than assuming a plan is interest-free simply because it is “arranged” — is the first step to judging whether your current repayment structure is actually working for you.

Daily compounding, in plain terms

GIC generally compounds daily, which means interest is calculated on the balance each day, including any interest already added from previous days. This is different from a simple annual rate applied once a year, and it means the unpaid balance on any given day — not just the balance at the start of the plan — determines how much interest accrues. Making a payment earlier in a billing period, where possible, can reduce the balance interest is calculated on sooner.

The published GIC rate is also reviewed and can change quarterly, so a rate that applied to your debt six months ago may not be the rate applying now. Always check the current rate rather than relying on a figure from an earlier conversation or an old quote.

The 1 July 2025 deductibility change

A significant change for businesses is that GIC and the shortfall interest charge incurred on or after 1 July 2025 are no longer deductible for income tax purposes. This differs from the historical treatment, where ATO interest charges were generally deductible. The date the interest is incurred is what matters, including where the underlying tax debt relates to an earlier income year.

This change affects the real after-tax cost of running a long payment plan, and it is worth discussing explicitly with your accountant rather than assuming historical comparisons between GIC and loan interest still hold in the same way.

Step by step: estimating what a plan will actually cost in interest

You do not need to be an accountant to get a rough sense of what a plan will cost in interest over its life. The sequence below gives a workable estimate you can then have checked against the actual figures with your accountant.

• Step 1 — Confirm the exact opening balance and the current GIC rate from the ATO.
• Step 2 — Map your proposed instalment schedule, including dates, not just amounts.
• Step 3 — Use a daily-compounding estimate, acknowledging it is indicative rather than exact.
• Step 4 — Compare the estimated total interest against the cost of alternative finance, fee-inclusive.
• Step 5 — Revisit the estimate if the GIC rate changes during the life of the plan.

Hypothetical: two businesses, same debt, different payment timing

Consider two hypothetical businesses that both start with the same ATO debt and the same headline GIC rate. One pays its instalment at the very start of each billing period; the other pays at the very end. Because GIC compounds daily on the outstanding balance, the business paying earlier generally accrues less interest over the life of the plan, even though both businesses technically paid the same total instalments on the same monthly schedule.

This is an illustrative example only, built to demonstrate the mechanics of daily compounding — it does not reflect actual ATO figures, rates or any specific case, and should not be used as a calculation for your own debt.

Can you ask for interest to be reduced?

The ATO can consider remitting GIC in some circumstances, generally where there is a reasonable explanation for the delay and supporting evidence. A remission request is not automatic and is not guaranteed — it needs to set out the relevant period, the events that caused the delay, and the steps taken to address the debt. Do not reduce the balance you are repaying in anticipation of a remission that has not yet been confirmed.

Checklist: before assuming your plan is the cheapest path

It is easy to assume a payment plan is automatically the cheapest way to deal with an ATO debt simply because no lender is involved. The questions below are worth working through before relying on that assumption.

• Have you confirmed the current GIC rate, not an older one?
• Have you accounted for GIC no longer being deductible from 1 July 2025?
• Have you compared the realistic total interest against a specific, fee-inclusive loan quote?
• Have you considered whether an early remission request is appropriate for your circumstances?
• Have you asked your accountant to sense-check any estimate before acting on it?

Common mistakes when thinking about GIC

A frequent error is assuming a payment plan is interest-free because it has been formally agreed — it generally is not. Another is using a flat annual rate calculation when the real mechanism compounds daily, which understates the true cost over longer plans. A third is comparing ATO interest against loan interest without adjusting for the 1 July 2025 deductibility change, which can make an older comparison misleading today.

Questions owners ask

Does GIC apply from day one of the debt? Generally yes, GIC typically starts accruing from the original due date of the liability, not from when a payment plan is agreed.

Can GIC ever be fully removed? In limited circumstances the ATO may remit GIC in part or in full, but this depends on your specific facts and supporting evidence, and is never guaranteed.

Is it worth paying off a plan early if I can? Generally yes in pure interest terms, since reducing the balance sooner reduces the amount interest compounds on, but check there is no other reason — such as cash-flow needs — to hold funds back first.

How do I know the current GIC rate for my situation? Always check the ATO’s current published rate rather than relying on a figure quoted to you previously, since the rate is reviewed and can change quarterly.

Does your industry change the borrowing calculation?

Yes, in practical terms, even though the underlying decision framework stays the same. A construction business may want a loan term that lines up with an expected run of progress payments. A hospitality or retail business may prefer financing timed around its stronger trading season rather than a flat 12-month term that spans a known quiet period. A healthcare practice with steady billing may be comfortable with a fixed monthly repayment that a more seasonal business would find risky. A transport operator should factor in that fuel and maintenance costs can move independently of revenue, which affects how much buffer to build into any forecast used to test loan affordability.

Bringing your accountant into the borrowing decision properly

Before approaching any lender, sit down with your accountant and bring the current ATO statement, your most recent financial statements, and a realistic cash-flow forecast covering at least one weaker trading period. Ask them directly whether the business could service the proposed repayment if trade dipped, whether a variation to the existing ATO arrangement might be a better first step, and whether there are tax implications — including the 1 July 2025 change to GIC deductibility — that should factor into the comparison.

What documents a lender will actually ask for

Expect to be asked for recent financial statements, up-to-date BAS lodgements, the current ATO statement of account, and details of any existing security over business assets. Some lenders will also ask for a short explanation of why the debt arose and what has changed since. Having these ready before you apply tends to speed up the process, though every application remains subject to individual lender assessment and eligibility criteria, and approval is never guaranteed.

Signs it is worth getting insolvency advice before borrowing at all

If more than one of these applies, it is worth getting an independent view from a registered liquidator or small business restructuring practitioner before taking on new debt, rather than after. Borrowing to clear a tax debt can be the right move for a fundamentally sound business going through a rough patch, but it is rarely the right move for a business whose underlying model is no longer working.

• You would need an optimistic sales forecast just to service the proposed loan repayment.
• The ATO debt is only one of several debts the business is struggling to meet.
• You have already defaulted on a previous ATO arrangement or loan.
• You are unsure whether the business would be viable even without the ATO debt.

Why dates and payment allocation change the result

Two businesses with the same opening debt can incur different interest if they pay on different dates. Daily compounding means the unpaid balance matters each day, not just at month end. A rate change between quarters also changes the calculation. An annual rate multiplied by the opening debt is therefore only a rough guide, not a reconstruction of an ATO account.

Gather the statement periods, payment dates, credits and adjustments before trying to reconcile the balance. If a calculator assumes equal principal reductions, check whether the actual arrangement follows that pattern. Ask your accountant about discrepancies instead of treating a simplified estimate as an amount the ATO must accept.

The tax treatment changed from 1 July 2025

The ATO states that GIC and shortfall interest charge incurred on or after 1 July 2025 are no longer deductible. The date the interest is incurred matters, including where the underlying tax liability relates to an earlier year. Do not reuse a historic comparison that assumes all ATO interest reduces taxable income.

That change does not mean every alternative loan is deductible, or that finance automatically saves money. The use of the funds and your circumstances affect the treatment of loan interest and fees. Have your accountant check the tax assumptions separately from the lender quote; this website’s calculator excludes tax effects.

Make a like-for-like cost comparison

Use the same debt, a realistic payment timeline and every compulsory fee. Record whether a loan rate is fixed or variable and whether quoted costs include establishment, ongoing, legal or valuation charges. Include early payout conditions if you expect to repay sooner. A lower repayment is not the same as lower interest or lower total cost.

Consider non-price risks too. A secured loan may expose property; an unsecured facility can still carry guarantees and business asset security. If requesting interest remission, do not deduct hoped-for relief from the debt until the ATO has confirmed it. Borrowing should be evaluated against the actual liability and a sustainable operating forecast.