Why your ATO debt can grow even while you are making payments.

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 does the ATO charge interest at all?

The general interest charge (GIC) exists because unpaid tax, unpaid GST and unpaid super guarantee charge are treated the same way any overdue account is treated: the longer the balance sits unpaid, the more it costs to carry. The ATO applies GIC to encourage timely payment and to compensate for the time value of money on amounts that should have been paid by their due date. It is not a penalty for lodging late — that is dealt with separately by the failure-to-lodge penalty — it is compensation for the debt itself remaining outstanding.

Understanding this distinction matters because owners sometimes conflate GIC with a fine. It is closer to commercial interest, and like commercial interest it compounds. The rate is published quarterly by the ATO and the calculation is applied daily, which is why a debt that looks manageable on day one can grow meaningfully by the time it is finally paid out.

How daily compounding actually works

GIC is calculated on a daily compounding basis, which means interest is added to the outstanding balance each day, and the next day’s interest is calculated on that new, slightly larger balance. Over a short period the difference between daily compounding and a simple annual rate is small. Over months, especially on a balance that is not being actively paid down, the gap widens because each day’s interest itself starts earning interest.

This is also why two businesses with an identical opening debt can end up owing different amounts of GIC. The one that makes partial payments throughout the quarter reduces the balance that compounds each day, while the one that waits until the end of the quarter pays interest on the full balance for the whole period. Payment timing is not a minor detail — it is one of the few levers a business actually controls once a debt exists.

GIC, SIC and failure-to-lodge penalties are not the same charge

It helps to separate three things the ATO can apply to an account. General interest charge (GIC) applies to overdue tax debts generally. Shortfall interest charge (SIC) applies to a shortfall amount when an assessment is amended, typically at a lower rate than GIC for the period before the amendment, with GIC then potentially applying after that point if the shortfall remains unpaid. Failure-to-lodge (FTL) penalties are separate again — they are a penalty for lodging late, not for paying late, and can apply even if the account is eventually paid in full.

Owners occasionally assume that because they have "sorted out a payment plan", all three charges stop accruing. That is not guaranteed. A payment plan addresses the schedule for paying the debt; it does not automatically mean GIC stops accruing on the unpaid balance, and it does not retrospectively remove penalties already applied. Ask your accountant to show you, account by account, which charge is driving the growth in the total.

A hypothetical illustration of how a balance can grow

The following is a hypothetical example only, using an illustrative rate for explanation. It is not the current GIC rate and should not be used to estimate your own liability — check the ATO’s published rate for the relevant quarter instead.

Suppose a business owes $80,000 and, for illustration, GIC compounds daily at a hypothetical annual rate of 11%. If no payments are made for 90 days, the balance would grow by roughly $2,170 over that period, purely from daily compounding, before any new tax liabilities are added. If the business instead pays $10,000 after 30 days and another $10,000 after 60 days, the interest accrued over the same 90 days would be noticeably lower, because less principal is sitting outstanding for the later part of the period. The exact figures depend entirely on the actual published rate and the real payment dates, so treat this only as a demonstration of the mechanism, not a forecast.

A short checklist before you decide how to respond

Work through these points with your accountant before assuming you understand the true size of the problem.

• Confirm which account(s) the GIC relates to — income tax, GST/BAS, PAYG withholding or super guarantee charge.
• Check the published GIC rate for each relevant quarter rather than relying on an old figure.
• Ask whether any failure-to-lodge penalties are included in the total, separate from GIC.
• Work out whether GIC incurred from 1 July 2025 applies to your balance, since it is not tax-deductible.
• Get a written statement of the current balance rather than estimating from memory.

Common mistakes owners make with GIC

The most common mistake is assuming the quoted balance is fixed. Because GIC compounds daily, a figure quoted last month is already out of date. Owners sometimes negotiate finance or a payment plan based on a stale number, only to find the real balance is higher by settlement.

A second common mistake is assuming GIC is deductible because older tax debts used to carry deductible interest. The rules changed: GIC and SIC incurred on or after 1 July 2025 are not deductible, regardless of which earlier income year the underlying liability relates to. A third mistake is treating remission as automatic — remission is a request, assessed by the ATO against your specific circumstances, not a standard discount applied to every account.

Questions owners ask

Does GIC apply to every type of tax debt? GIC generally applies to overdue amounts across most ATO accounts, including income tax, GST, PAYG withholding and the super guarantee charge, though the exact charge and rate can differ by liability type — your accountant can confirm the position for your specific debt.

Can I ask the ATO to stop GIC accruing while I sort out finance? You can ask, but the ATO decides whether to remit interest based on your circumstances and supporting evidence. There is no guarantee a request will be accepted, and interest generally continues to accrue until a decision is made and actioned.

Is GIC the same as a late lodgement fine? No. GIC compensates for a debt remaining unpaid; failure-to-lodge penalties are a separate charge for lodging late. You can incur one without the other, or both at the same time.

Will a payment plan stop GIC? Not automatically. Ask the ATO directly whether GIC continues to accrue on the arrangement balance, and factor that into whatever repayment structure you agree to.

Industry-specific considerations with GIC

GIC behaves the same way mathematically regardless of industry, but the practical pressure it creates differs by sector. A hospitality or retail business with thin margins and seasonal cash flow may see a tax debt grow quickly during a quiet trading period, while a construction business juggling progress payments and retentions may find a single delayed payment from a head contractor is enough to push BAS or PAYG withholding into arrears. A professional services firm may have steadier cash flow but larger PAYG withholding obligations relative to revenue if it carries a large payroll.

These differences matter when deciding how urgently to act and which option — a payment plan, remission request or finance — best fits the underlying cash-flow pattern of your sector, rather than applying a generic approach regardless of how your business actually earns and spends money.

Working with your accountant on a GIC problem

Your accountant (or registered tax agent) is usually the fastest way to get an accurate picture of a GIC balance, because they can access your ATO portal position directly and see exactly how a figure has been calculated. Before a meeting, it helps to bring your most recent ATO statement of account, details of any existing payment plan, and a simple summary of your current cash flow so the conversation can move straight to options rather than data-gathering.

Useful questions to ask include: which specific liabilities are driving the GIC total, whether any component could reasonably be the subject of a remission request, whether a payment plan is realistic given current trading, and whether the overall debt level suggests you should also get a second opinion on solvency. If you do not already have an accountant across your tax position, a referral to one who deals with ATO debt regularly can save time compared with starting from scratch.

Records and evidence worth keeping

A GIC problem is easier to manage, and easier to explain to the ATO, a lender or an accountant, when the paperwork is in order. Keep copies of the following as a minimum.

• Every ATO statement of account showing the balance over time, not just the most recent one.
• Correspondence with the ATO, including any payment plan confirmation and reference numbers.
• Evidence of any event that affected your ability to pay on time, dated where possible.
• A simple running log of payments made against the debt and the dates they were applied.
• Any loan quotes or finance correspondence considered as part of resolving the balance.

A general 30/60/90-day roadmap

There is no single correct timeline for every business, but a structured approach tends to work better than an ad hoc one. In the first 30 days, confirm the exact balance and its components with the ATO or your accountant, and have an initial conversation about options. In the next 30 days, decide on a direction — a payment plan, a remission request, finance, or a combination — and put it in writing with the relevant party.

In the final 30 days of this illustrative window, implement the chosen option and start monitoring whether it is actually working: is the balance reducing as expected, is GIC continuing to accrue faster than anticipated, and has anything changed in the business that needs the plan to be revisited? Treat the roadmap as a discipline for checking progress, not a guarantee of any particular outcome by day 90.

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.