A $100,000 balance now costs north of $11,000 a year with nothing offsetting it, and the return being prepared right now is the first to carry twelve full months of it.
We’ll cover what’s changed, why an older debt doesn’t escape it, and what the interest really costs once the deduction is gone. Finally we’ll then take a look at the two things some owners get wrong about their way out of one.
In short
- GIC and SIC incurred from 1 July 2025 are no longer deductible. Your 2025-26 return is the first year to be affected by the change
- When the debt arose doesn’t matter. What matters is when the interest was incurred, so older debts are caught.
- GIC is 11.43 per cent for the July to September 2026 quarter and compounds daily. With no deduction, that behaves like a deductible facility at over 15 per cent.
- Payment plans don’t pause the interest. It keeps accruing on whatever is outstanding.
- If the debt is above $100,000, more than 90 days overdue and you haven’t engaged with it at all, the ATO can report the debt to credit bureaus.
- Remission is still possible, including after the debt is paid out, but a request has to be built properly and you generally get one shot.
- Small business restructuring is harder than its reputation suggests, and expensive to fail at.
What actually changed
The ATO charges interest when you pay late. General interest charge, or GIC, applies to anything outstanding past its due date, whether that’s income tax, GST, PAYG or super guarantee. Shortfall interest charge, or SIC, is the version that applies when an amended assessment finds you underpaid.
Both used to be deductible. You wore the interest, and it came off your taxable income like rent or wages, which is a large part of why carrying a tax debt never felt as expensive as it actually was.
The Treasury Laws Amendment (Tax Incentives and Integrity) Act 2025 removed the deduction. GIC and SIC incurred on or after 1 July 2025 can’t be claimed.
The charge itself didn’t change. Same interest, same daily compounding, same quarterly rate reset. What changed is who carries the cost, and the answer now is entirely you.
That’s why this is landing on desks this year rather than last. The 2025-26 return is the first one under the new rule, so it’s the first time a full year of ATO interest turns up with nothing against it. Owners who read about the change back in 2025 and made a note to deal with it later are seeing the number for the first time now.
Older debts aren’t grandfathered
The rule doesn’t care when the debt arose. It cares when the interest was incurred. A balance you’ve been chipping away at since 2021 is treated exactly the same as one raised last month: interest that accrued before 1 July 2025 was deductible in the year you incurred it, and every dollar since isn’t. Same debt, same arrangement, same monthly payment, two different treatments either side of a date most people didn’t mark.
Related, and worth saying plainly: a payment plan doesn’t stop the clock. GIC keeps accruing daily on the outstanding balance, and because it compounds, each day’s interest is calculated on a figure that already includes the interest added before it. A plan stretched over three or four years is costing you more today than the identical plan cost in 2024, without a single term of it changing.
If you set yours up before mid-2025 and haven’t looked at it since, the question for your accountant isn’t what the monthly repayment is. It’s what the arrangement costs in total, and how much of the balance is actually moving.
What it costs
Take a $100,000 debt carried for a year at 11.43 per cent, compounding daily. That’s a little over $12,000 in interest.
Under the old rules, a company paying tax at 25 per cent claimed that as a deduction, so the real cost after tax came in closer to $9,000. Now there’s no deduction and the full $12,000 sits on the business. To have $12,000 left over to pay it, you have to earn roughly $16,000 first.
The rate barely moved. The cost went up by about a third, and the ATO didn’t change how it charges you.
It also changes how the options compare. Non-deductible 11.43 per cent is the equivalent of a deductible facility at something over 15 per cent, so if you’re weighing up whether to finance the debt out, 15 per cent is the number to measure against, not the rate printed on your ATO statement.
Two things to keep in mind. The GIC rate resets quarterly, so the figure applying to your balance shifts through the year. And because it compounds daily, a payment plan that barely covers the interest can run for years with the principal hardly moving.
Figures assume a 25 per cent company tax rate and the GIC rate published for the July to September 2026 quarter. Your position will differ. This is general information, not tax advice.
The second cost to tax debt
The ATO can report a business tax debt to credit reporting bureaus. Four things have to be all true at once:
- You have an ABN and aren’t an excluded entity.Â
- You have at least $100,000 that’s more than 90 days overdue.
- You aren’t effectively engaging with the ATO about it.
- You don’t have an active complaint with the Tax Ombudsman about the intent to report.
The one sitting entirely in your hands is engagement. A payment plan in place and being kept to counts, and the ATO has said it won’t report a debt where you’re already working with them on it, regardless of size.
You also get a warning. Before anything is disclosed, the ATO issues a formal intent to disclose notice giving you 28 days to act. It is not a form letter to leave in the pile.
What makes this matter more than the interest is what happens downstream. Once a tax default is on your commercial credit file, your bank sees it, and so do equipment financiers, trade suppliers and insurers. It changes what funding is available and on what terms, at exactly the point you’re most likely to need some. Paying the debt later takes the record off, but it doesn’t give you back the months in between or the deals that fell over during them.
Interest can sometimes be remitted
The ATO has discretion to remit GIC in whole or in part, weighing up why the payment was late, what your compliance history looks like, and whether the circumstances were genuinely outside your control. So it’s worth asking. What’s changed is what asking properly looks like.
In the years after Covid, a phone call or a short email would often get a result. That era is over. A request now has to work through the ATO’s practice statements point by point, evidence every circumstance it relies on, and put a specific, credible proposal in front of the person deciding. Submissions that succeed regularly run to ten pages or more.
Two things to know before you start. In most cases the debt needs to be in a formal payment arrangement or paid out in full before remission will be considered at all. And you effectively get one attempt, so a thin request doesn’t just fail, it burns the opportunity.
There’s also a step almost everyone misses. Clearing the debt doesn’t close the door. If you’ve refinanced or paid out an ATO balance, the interest already charged can still be the subject of a remission request. Most owners assume the matter ended when the balance hit zero and never go back for it.
Restructuring isn’t the easy exit it was
Small business restructuring gave a lot of distressed businesses a way through after Covid, and for a while the odds were decent.
However, the ground has shifted significantly. Where most proposals once got up at 10 to 20 cents in the dollar, acceptance is now closer to four in ten, and at 35 to 50 cents.
That matters because the process isn’t free. Fees commonly run from $10,000 to $30,000, and a restructure that fails leaves you with the original debt still there, the fees gone, and a failed SBR on your record for anyone who looks.
None of which makes restructuring the wrong answer. It makes it the wrong first answer.
Where to start
Before any formal process, the question is whether the debt can simply be moved somewhere cheaper. Answering it takes two things: a clear picture of what you’re holding, and a proper comparison.
Start with the numbers. The total outstanding, how long it’s been outstanding, and how close you are to the $100,000 and 90-day marks. If a payment plan is running, ask what it costs in total rather than what the monthly figure is. Plenty of owners are surprised by how little of the balance is actually moving.
Then look at what the business has to work with. There are more routes than most owners expect.
- Secured business lending. Where there’s equity in commercial or residential property, this is usually the cheapest way to clear an ATO balance outright. It takes the longest to settle, so it suits owners who are still well clear of the 90-day and $100,000 marks.
- Cash flow lending. Unsecured, quick to settle, shorter terms and a higher rate than a secured facility. It tends to suit a business with steady turnover that needs the balance gone before an intent to disclose notice arrives, or that wants to break the compounding while a longer-term solution is arranged.
- Invoice or debtor finance. If a large share of your money is sitting in a receivables ledger, drawing against those invoices can clear the ATO without adding a new term debt to the balance sheet.
- Refinancing plant and equipment. Unencumbered vehicles, machinery or equipment can often be refinanced to release cash. Owners frequently overlook this because the assets are already paid for and don’t feel like a funding source.
Whether any of these actually beats the ATO comes down to the rate, the fees, the term, the security available and how the facility is structured, and to whether the interest is deductible in your particular circumstances. The test is whether the after-tax cost of the ATO debt is higher than the after-tax cost of a facility that could clear it, rather than whether 11.43 per cent sounds high on its own. A commercial broker can price what’s available across secured, cash flow and asset-backed options and tell you what the debt would cost somewhere else. Your accountant can confirm the tax treatment, which is the difference the whole comparison turns on. Those two conversations work best run together rather than months apart.
If the debt itself is the problem, talk to someone who negotiates with the ATO for a living. Finance isn’t always the first step. Where the arrangement needs work, or a remission is worth pursuing, that’s specialist territory now in a way it wasn’t three years ago.
Run all of this before restructuring is on the table. Options are widest while you’re still engaging and the debt is still yours to manage. They narrow once an intent to disclose notice arrives, and narrow further once enforcement or a formal insolvency process starts. If someone has pointed you straight at restructuring without that comparison happening first, get a second view before you sign anything.
Leaving a non-deductible, daily compounding debt in place because it’s familiar is a decision too, and at current rates it’s an expensive one.
Most businesses in this position are trading fine and simply have a debt that has quietly become the most expensive thing on their books. Nothing dramatic is required. The fix usually starts with knowing the real number and what the alternatives would cost, and that’s a short conversation rather than a project. Worth having before the next quarterly rate lands in October.
