Key Takeaways
- The ATO General Interest Charge (GIC) is applied to overdue tax debts and accrues daily interest to encourage timely payment.
- The GIC is triggered when a taxpayer misses the due date for tax payments or when a tax return is lodged incorrectly.
- GIC is calculated based on the unpaid debt amount, a daily compounding interest rate, and the time the debt remains unpaid.
- Tax penalties and interest on unpaid debts continue to accumulate as long as the debt remains outstanding, increasing the overall amount owed.
- The GIC rate is reviewed quarterly and is based on the Australian Government’s borrowing rate, plus an additional margin.
- GIC applies to overdue tax debts, while Shortfall Interest Charge (SIC) is applied to underpaid tax amounts due to errors or audits.
- As of 1 July 2025, GIC and SIC will no longer be tax-deductible in Australia, so taxpayers can no longer claim a deduction for interest payments made on overdue tax debts.
- GIC can be remitted in certain cases, such as financial hardship, special circumstances, or administrative errors by the ATO.
- Staying updated on the GIC rate changes is important, as it can impact the amount of interest charged on outstanding tax debts.
- Seeking professional advice can help manage tax debts effectively and explore options like tax debt loans to mitigate GIC impacts.
For taxpayers in Australia, understanding tax liabilities and their associated costs is an important part of managing finances effectively. One significant aspect of this is the ATO General Interest Charge (GIC), which is a form of interest that the Australian Taxation Office (ATO) applies to overdue tax debts. Let’s explore what the ATO GIC is, how it’s calculated, the circumstances under which it applies, and whether it can be remitted.
ATO GIC Explained for Taxpayers
What is the ATO General Interest Charge? GIC is an interest rate that the Australian Taxation Office applies to tax debts that remain unpaid after the due date. It is designed to encourage taxpayers to pay their debts on time and to maintain fairness between those who pay on time and those who delay payment. The GIC is calculated on the unpaid portion of the debt and compounds daily. This charge is applied to a wide range of tax-related debts, including income tax, goods and services tax (GST), and other liabilities owed to the ATO.
What Triggers the General Interest Charge on Tax Debts?
When does the ATO apply General Interest Charges? ATO late payment interest is triggered by any overdue tax debt or liability. Specifically, it applies in the following situations:
- Failure to Pay Tax Debts: If you miss the due date for payment, the ATO will start applying GIC to the outstanding amount.
- Incorrectly Lodged Tax Returns: If you lodge a tax return late or incorrectly report your tax obligations, the ATO may apply GIC on any unpaid amount that arises as a result.
- Audit Adjustments: When the ATO conducts an audit and discovers discrepancies, you may owe more than originally assessed, and GIC will apply to the new, larger amount.
GIC Rates and How Often They Change
The GIC rate is reviewed and updated by the ATO regularly, usually on a quarterly basis. The rate is based on the Australian Government’s borrowing rate plus a margin for administrative costs. As of writing (May 2025), the GIC annual rate is 11.17% per annum, but this can change in the following quarter. Taxpayers should stay updated on any changes to the GIC rate, as this will directly affect how much interest is charged on their tax debts.
How the ATO Calculates General Interest Charge
How does the ATO calculate GIC? GIC is calculated using a daily compounding formula based on the GIC rate, which is set by the ATO. The GIC rate changes quarterly and is based on the Australian Government’s borrowing rate, with a margin added for administrative costs.
To understand how it works in practice, here’s an example of how the ATO calculates the GIC:
- Debt Amount: Suppose you have a tax debt of $10,000.
- GIC Rate: The current GIC rate is 11.17% per annum. The daily interest would be calculated as:
- Daily Interest Rate = 11.17% / 365 = 0.0306% per day.
- Daily Interest Rate = 11.17% / 365 = 0.0306% per day.
- Daily Interest: Multiply the daily interest rate by the amount of the unpaid debt.
- Daily Interest = $10,000 * 0.0306% = $3.06 per day.
- Daily Interest = $10,000 * 0.0306% = $3.06 per day.
- Accruing Interest: This interest continues to accrue daily, meaning that the longer the debt remains unpaid, the more interest you will owe.
This compounding daily interest can accumulate significantly, so it is important to pay off your tax debts as soon as possible to avoid additional costs.
GIC vs Shortfall Interest Charge (SIC)
While both the General Interest Charge (GIC) and the Shortfall Interest Charge (SIC) are forms of tax penalties in Australia, there is a key difference between them.
- GIC applies when there is an outstanding balance on a tax debt and is charged for late payment.
- SIC, on the other hand, is applied specifically when there is a shortfall in tax that was either under-reported or incorrectly calculated. This often arises during an ATO audit or when taxpayers amend their tax returns after the original submission.
SIC (currently 7.17%) is applied to the shortfall amount for the period when it is originally due and when the assessment is corrected. Like the GIC, the SIC also compounds daily. The due date of SIC is 21 days after the ATO issues the notice of the amended assessment. Once 21 days pass and the SIC is still unpaid, the GIC will apply automatically.
Can I Get GIC Remitted or Waived?
It is possible to have ATO interest charges remitted or reduced, but this is generally only allowed in exceptional circumstances. The ATO may consider remitting GIC in cases where:
- Financial Hardship: If you are experiencing genuine financial hardship and cannot pay your tax debt, you may be able to request a reduction or remission of the GIC. This would usually require providing detailed evidence of your financial situation.
- Special Circumstances: In some cases, the ATO may consider waiving the GIC if there were special circumstances that prevented timely payment, such as illness or a natural disaster. However, this is not a standard practice, and each case is assessed individually.
- Administrative Errors: If the delay in payment or error was caused by an administrative mistake on the part of the ATO, you may be eligible for remission of the GIC.
To request a remission of the ATO GIC, you would need to contact the ATO directly, provide your reasons for requesting it, and supply any supporting documentation to substantiate your claim. However, this is generally considered on a case-by-case basis and is not guaranteed.
Is GIC Tax-Deductible in Australia?
A common question is whether interest on unpaid tax debts in Australia is tax-deductible. Starting from 1 July 2025, any GIC or SIC incurred is no longer tax-deductible. This change is meant to strengthen the purpose of these charges, which is to encourage timely and correct payments. Making GIC and SIC non-tax-deductible increases the cost of delayed payments and is a major step the ATO is taking to reduce outstanding tax debts.
How a Tax Debt Loan Can Help with GIC
For taxpayers struggling with overdue tax obligations, a tax debt loan can provide an effective solution to manage and reduce the financial strain. These loans are specifically designed to help businesses pay off their tax debts, and in turn, stop the GIC from continuing to accumulate.
Here’s how they can help:
- Paying Off Tax Debts Quickly: By taking out a tax debt loan, you can pay off your outstanding debt in full, including the GIC. This clears your tax liability and halts the daily compounding interest, preventing the GIC from growing further.
- Potentially Lowering the Interest Rate: Many tax debt loans can be offered at a rate much lower than the current GIC rate of 11.17%. By consolidating your ATO debt into a loan with a lower rate, you could significantly reduce the overall cost of repaying your debt.
- Flexible Repayment Terms: Tax debt loans often come with more flexible repayment terms than those set by the ATO for their payment plans. This can make managing your repayments more manageable, as you can tailor the repayment schedule to suit your financial situation.
- Reducing Financial Stress: For many taxpayers, dealing with overdue debts and the GIC can lead to significant stress and anxiety. A tax debt loan can provide the peace of mind of knowing your tax debt is managed efficiently, allowing you to focus on other aspects of your financial and personal well-being.
If you want to learn more about this type of financing, check out our tax debt loans guide.
Final Thoughts
Understanding the ATO General Interest Charge in Australia is essential for taxpayers. GIC applies to unpaid tax debts and is calculated based on a daily compounding interest rate. Soon, it will no longer be tax-deductible, and it continues to accrue until the debt is fully paid. In some cases, you may be able to have the GIC remitted or reduced, but this is typically subject to exceptional circumstances. GIC rates change regularly, so it’s important to stay informed to avoid unnecessary costs.
When you get into debt with the ATO, the GIC is one of the toughest setbacks you’ll face. That’s why it’s important to seek solutions immediately. You can set up a payment plan with the ATO, but the GIC will still apply. Another solution is a tax debt loan, which covers all your tax debts, freeing you from GIC immediately.
Get a Tax Debt Loan for Your Business
If you're struggling with late tax payments or need a tax debt loan, it's wise to consult with a lending professional like Dark Horse Financial. We’re experts in tax debt lending, and we’ll help you face ATO debt head-on and avoid GIC.
