Managing tax obligations has always been a core part of running a business. However, recent changes to how interest is treated on ATO debt have significantly increased the financial impact of falling behind.
The Australian Taxation Office (ATO) applies interest, known as the General Interest Charge (GIC), to outstanding tax debts. This interest accrues daily, including on days when payments are made
Until mid‑2025, GIC was tax‑deductible. That’s no longer the case. A business that previously absorbed a net cost of around $35,000 on a $50,000 interest bill is now required to pay the full $50,000. While the underlying debt has not increased, the financial impact has.
This shift has coincided with a sharp rise in total interest owed by Australian businesses. Over the past six years, interest has surged by 185%, while the underlying tax debt has grown by 94%. Of the current $54.2 billion the ATO is pursuing, almost one‑fifth is now interest alone, up from 13% six years ago.
For many businesses, the interest component is beginning to exceed the original debt. This trend has been a key driver behind the recent review by the Tax Ombudsman.
A Shift in the ATO’s Approach
Since late 2023, the ATO has taken a firmer stance on debt collection. Remission requests, which are applications to reduce or waive GIC, have been declined more frequently. This has led to increased concerns from tax professionals and a rise in complaints to the Ombudsman.
Following its review, the Tax Ombudsman made four key recommendations aimed at improving the fairness, transparency, and consistency of the ATO’s remission decision-making process. The ATO has agreed to implement all recommendations, including enhancements to the assessment and review of decisions.While these changes are a positive step, implementation will take time, and outcomes will continue to evolve. For businesses with existing tax debt, the focus should remain on understanding current options and taking action based on the rules in place today.
Here’s what the changes mean in practice:
Why Remission Matters More Than Ever
A payment plan can stop enforcement action, but it does not stop interest from compounding daily. To reduce the cost of GIC, a remission request is still essential and it must be submitted properly.
A key outcome of the review is a new reconsideration process. For the first time, if a remission request is declined, businesses can now request a review of the decision based on how the criteria were applied. This does not require new evidence and avoids the need for costly legal action.
Previously, challenging a refusal was usually too expensive or intimidating for most businesses. This new pathway offers a genuine second chance, particularly for businesses that may not have fully presented their circumstances in their initial application.
The Importance of a Well-Prepared Application
Approval rates for remission applications appear relatively strong, with approximately 75–77% for small businesses and 84% for large ones. However, these figures reflect a very small proportion of eligible taxpayers. Only 126,000 applications were submitted out of nearly 20 million lodgers.
Many successful applications were likely prepared with specialised help. With the ATO no longer “filling in the gaps,” the strength of the submission determines the outcome.
The effectiveness of the new reconsideration pathway will depend on how well applications are prepared from the outset.
What Many Businesses Overlook
A common assumption is that tax debt issues are automatically managed as part of standard accounting services. In practice, most accountants handle relatively few ATO debt cases, while specialists in this area deal with them regularly.
The consequences of inaction are stark: one in three businesses that defaulted on ATO debt collapsed within six months, according to CreditorWatch data from nearly 20,000 companies.
Reaching $100,000 in tax debt happens faster than most expect, especially as GIC can double a balance after just a few years without a payment plan. At $100,000, the ATO can flag the debt with credit agencies, something many businesses only discover once it’s done. Taking action earlier, for example when a debt approaches $70,000, can provide more options and better outcomes.
The Window Is Open—But Only for Those Who Act
The current environment presents both risk and opportunity. There is now a clearer pathway to challenge remission decisions and reduce the mounting interest burden. But success depends on acting early, preparing thoroughly, and working with people who understand the complexities of ATO debt management.
Don’t wait to find out whether your business is on the right side of the line. At Supervision, we see that the most effective outcomes often come from early engagement, where there is enough time to assess options, prepare strong submissions, and work through the process methodically.
Final Thoughts
ATO interest on tax debt is no longer a secondary consideration. With deductibility removed and enforcement increasing, it has become a significant financial risk for many businesses.
Understanding the available pathways, acting early, and approaching the process strategically can make a measurable difference to the outcome.
