What Is the ATO General Interest Charge (GIC) and When Does It Apply?

Why the ATO Applies a General Interest Charge

The ATO applies the GIC for three main reasons:

• To encourage timely payment of tax debts and tax return lodgments.

• To prevent an unfair financial advantage for taxpayers who delay payment.

• To offset costs to the community and government when funds arrive late.

By applying the GIC, the ATO aims to promote compliance and fairness across all taxpayers.

When GIC Applies

GIC applies in a range of circumstances, including:

• Late payment of assessed tax, instalments or Superannuation Guarantee Charge.

• Late lodgment of a tax return or activity statement where a liability exists.

• Assessments or amended assessments that create an unexpected shortfall.

• Underestimated Pay As You Go (PAYG) instalments.

The charge applies from the day after the due date until the full amount owed, including previously accrued interest, is paid in full.

How the GIC Is Calculated

Under the Taxation Administration Act, the ATO sets the annual general interest rate each quarter. That rate is divided by the number of days in the calendar year to determine the daily GIC rate. Interest compounds daily on any unpaid balance.

Quarterly Rates and Calculation

To calculate the GIC for an overdue amount:

1. Determine the outstanding balance on the day after the due date.

2. Apply the daily GIC rate for each day the balance remains unpaid.

3. Compound the interest by adding each day’s interest to the principal before calculating the next day’s charge.

Example Calculation

Imagine a business has a $10,000 shortfall on 15 April that remains unpaid. If the daily rate for the quarter is 0.03060%, the interest on day one is $3.06. On day two, the balance is $10,003.06, so the interest is $3.06 again, and so on.

Recent Amendment: Deductibility Changes

From 1 July 2025, GIC incurred is no longer tax deductible. Previously, taxpayers could claim a deduction for general interest charges in their tax return, reducing net cost. Now, any GIC paid on or after that date cannot be claimed as a deduction, increasing the effective cost of carrying tax debts.

Impact on Tax Planning

• Tax debts incurred before 1 July 2025 remain deductible.

• Post-1 July 2025 GIC liabilities must be paid in full, with no offsetting deduction.

This amendment raises the stakes for timely payment and proactive management of any liabilities.

Options for GIC Relief and Remission

In certain special circumstances—such as natural disaster impacts or ATO delays—taxpayers may request that GIC be remitted. The Commissioner has discretion under the Taxation Administration Act to reduce or waive the general interest charge when it is fair and reasonable.

Grounds for Requesting Remission

A remission request may succeed if:

• The ATO’s delay or error contributed to the shortfall.

• You made a voluntary disclosure before an audit.

• The audit process was unusually complex or lengthy.

• You faced hardship, such as after a natural disaster.

To apply for remission, submit a written request outlining the circumstances and providing supporting evidence, such as correspondence, financial records or third-party reports.

Strategies to Manage and Minimise GIC

Effective management of GIC exposure focuses on preventing overdue liabilities and examining options when payment by the due date isn’t possible.

Lodge and Pay by the Due Date

The most straightforward way to avoid GIC is to lodge returns, activity statements and pay assessed liabilities on time. Implement robust bookkeeping processes, use reminders and check that all tax obligations are on track well before each due date.

Use Instalment Arrangements to Stay Updated

If a lump-sum payment isn’t possible, consider a payment plan with the ATO. While GIC continues to accrue during instalment arrangements, shorter terms result in lower overall interest charges. Regularly review the instalment amount, especially if your income or expenses change, to prevent under- or over-estimation.

Consider Alternative Financing

If the GIC rate exceeds commercial loan interest rates, it may be more cost-effective to secure a business loan to pay down your tax debts. Interest on a business loan may be deductible, offsetting some of the cost compared with general interest charges.

Monitor and Adjust PAYG Instalments

Review your Pay As You Go (PAYG) instalment notices mid-year if your turnover or profit forecasts shift. Adjusting instalments can prevent a large shortfall and associated interest charge at year end.

Apply for GIC Remission Early

If you believe you qualify for remission due to special circumstances, submit your request promptly. Include:

• Dates of relevant lodgments or payments.

• Details of the circumstances that caused delay.

• Evidence such as financial statements or proof of hardship.

A timely, well-supported application increases the chance of GIC being remitted.

Conclusion

The ATO General Interest Charge (GIC) applies to any tax shortfall, late payment or late lodgment and compounds daily from the due date. It aims to encourage timely payment, prevent unfair financial advantage and compensate the government for delayed funds. With recent amendments removing deductibility of GIC from 1 July 2025, it’s more important than ever to manage tax debts proactively.

By lodging and paying on time, reviewing and adjusting PAYG instalments, using instalment arrangements wisely, examining alternative funding and, where warranted, requesting remission, you can minimise GIC costs and keep your business finances healthy. Review your upcoming obligations today, set up reminders for due dates and, if needed, contact a registered tax agent for personalised advice tailored to your situation.