An overdue tax bill does not sit still. From the day after the due date, the ATO adds interest to it every single day, and that interest is compounded. On a debt of a few thousand dollars the numbers look small at first, but over a year they add up to more than most people expect.
This guide explains the two interest charges the ATO uses, the rates that apply for October to December 2026, how to work out what a debt is costing you, and the changes from 1 July 2025 that mean this interest is no longer tax deductible. Every figure has been checked against ATO rates pages and the ATO Legal Database.
It is written for individuals, sole traders and small business owners who owe the ATO money or expect to. If you already have interest on your account and want it reduced, read our companion guide on how to reduce ATO interest through GIC remission.
Key takeaways
- The general interest charge (GIC) is 11.51% a year for October to December 2026, calculated daily and compounded.
- The shortfall interest charge (SIC), which applies to amended assessments, is 7.51% a year for the same quarter.
- A $10,000 debt left unpaid for 90 days at the current GIC rate costs about $288 in interest; over a full year it is about $1,220.
- GIC and SIC incurred on or after 1 July 2025 can no longer be claimed as a tax deduction.
- Interest keeps accruing on a payment plan, but the ATO can remit interest in the right circumstances if you ask with evidence.
ATO interest rates at a glance
| Quarter | GIC annual rate | GIC daily rate | SIC annual rate |
|---|---|---|---|
| October – December 2026 | 11.51% | 0.03153425% | 7.51% |
| July – September 2026 | 11.43% | 0.03131507% | 7.43% |
| April – June 2026 | 10.96% | 0.03002740% | 6.96% |
| January – March 2026 | 10.65% | 0.02917808% | 6.65% |
| October – December 2025 | 10.61% | 0.02906849% | 6.61% |
Source: ATO general interest charge rates and shortfall interest charge rates pages, checked 7 October 2026.
What is the general interest charge?
The general interest charge is the interest the ATO adds when a tax debt is not paid by its due date. It applies to income tax, activity statement amounts such as GST and PAYG instalments, and most other amounts payable to the ATO. It also applies when you pay late because you lodged late.
Under section 8AAD of the Taxation Administration Act 1953, the GIC rate is the base interest rate plus 7 percentage points. The base rate is the monthly average yield of 90-day Bank Accepted Bills published by the Reserve Bank, so when market rates move, GIC follows each quarter. The annual rate is then converted to a daily rate, and the ATO’s general interest charge page confirms it is calculated on a daily compounding basis on the amount overdue.
What is the shortfall interest charge?
The shortfall interest charge applies when your assessment is amended and you owe more tax, whether because you corrected a mistake or because the ATO found one. SIC is charged on the extra tax for the period from when the original assessment was due to be paid until the day before the amended assessment notice is issued.
SIC uses the same base rate plus a 3% uplift instead of 7%, which is why it is 4 percentage points lower than GIC. Once the amended assessment issues, any amount still unpaid after its due date attracts GIC instead.
How much is the interest really costing you?
Because the interest compounds daily, the cost of a debt grows slightly faster than the headline rate suggests. The table below assumes the October to December 2026 GIC rate stays the same for the whole period, which will not happen in practice, but it gives a realistic sense of scale.
| Days overdue | Interest on $10,000 | Interest on $25,000 |
|---|---|---|
| 30 days | about $95 | about $238 |
| 90 days | about $288 | about $720 |
| 180 days | about $584 | about $1,460 |
| 365 days | about $1,220 | about $3,049 |
Our calculation using the daily GIC rate of 0.03153425% compounded daily. Actual interest depends on the rate set each quarter.
Worked example: the late BAS
Mia runs a small cleaning business. Her June quarter BAS shows $10,000 owing, but she does not pay it until 90 days after the due date.
Daily rate: 0.03153425%. Interest: $10,000 x ((1 + 0.0003153425)^90 – 1) = about $288.
Because the interest was incurred after 1 July 2025, none of that $288 is deductible. In practice it costs Mia the same as $288 of non-deductible personal spending, which is a strong reason to set up a plan or pay early.
Is ATO interest still tax deductible?
No, not for new interest. Following the Treasury Laws Amendment (Tax Incentives and Integrity) Act 2025, the ATO’s page on interest charged by the ATO states that any GIC or SIC incurred on or after 1 July 2025 cannot be claimed as a deduction. Interest incurred before that date can still be claimed in the income year it was incurred.
There is a matching rule for remissions. If the ATO remits interest that was never deductible, you do not include the remitted amount in your assessable income. If it remits interest you previously claimed as a deduction, the remitted amount is generally assessable in the year of the remission.
Rule of thumb: treat ATO interest as an after-tax cost. At 11.51% a year with no deduction, it is usually more expensive than many forms of business finance, so compare your options before letting a debt run.
How to reduce or stop the interest
Pay as much as you can, as early as you can
Interest only accrues on the unpaid balance. Even part-payments cut the daily charge straight away. Paying before the due date avoids GIC entirely.
Set up a payment plan
If you owe $200,000 or less you can usually set up a payment plan yourself through ATO online services or myGov, or through Online services for business. The ATO’s payment plans page makes clear that debts on a plan continue to accrue GIC, compounding daily, and if you miss payments the plan can default and the full balance becomes payable at once. Check whether you qualify with our guide to ATO payment plan eligibility.
Ask for a remission
The Commissioner’s policy in PS LA 2011/12 allows remission where the delay was not caused by you and you took reasonable steps to mitigate it, where you caused the delay but it is fair and reasonable to remit, or where there are special circumstances. The ATO’s remission request page explains how to apply: individuals by phone or mail, businesses through online services, phone or mail, and agents using the remission form through Online services for agents.
Keep lodging on time
Late lodgment brings separate failure to lodge penalties on top of interest, and it makes a remission request harder to justify. If you are behind on activity statements, our ATO activity statement guide explains what to lodge and when.
What happens if the debt keeps growing?
Large unpaid debts attract firmer action. For businesses, the ATO’s disclosure of business tax debts rules allow it to report a debt to credit reporting bureaus where you hold an ABN, at least $100,000 is overdue by more than 90 days and you are not engaging with the ATO to manage it. You get written notice and 28 days to respond before that happens.
Company directors also face personal exposure. Unpaid PAYG withholding, GST and super guarantee charge can lead to a director penalty notice, so a company tax debt is never just the company’s problem.
Common mistakes with ATO interest
- Assuming a payment plan freezes interest. It does not; GIC continues every day.
- Claiming GIC as a deduction for 2025-26 or later. Interest incurred from 1 July 2025 is not deductible.
- Waiting for the ATO to waive it automatically. Remission usually needs a request, an explanation and evidence.
- Ignoring small debts. Interest compounds daily regardless of the size of the balance.
- Confusing SIC with GIC. SIC applies to the period before an amended assessment; GIC applies once a debt is overdue.
FAQ about ATO interest on overdue tax
What is the ATO interest rate on overdue tax right now?
For October to December 2026 the general interest charge (GIC) is 11.51% a year, or 0.03153425% a day. The shortfall interest charge (SIC) for the same quarter is 7.51% a year. The ATO updates both rates every quarter.
Is GIC simple or compound interest?
Compound. The ATO calculates GIC on a daily compounding basis on the amount overdue, so each day’s interest is added to the balance and attracts interest the next day.
Can I claim ATO interest as a tax deduction?
Not for interest incurred on or after 1 July 2025. GIC and SIC incurred before that date can still be deducted in the year it was incurred. If non-deductible interest is later remitted, the remitted amount is not assessable income.
Does a payment plan stop the interest?
No. Debts on a payment plan continue to accrue GIC, which compounds daily. A plan stops more serious recovery action, but the cheapest outcome is still paying the debt off as quickly as you can.
Can the ATO cancel the interest?
The ATO can remit GIC or SIC in full or in part, for example where the delay was not your fault and you took reasonable steps, or where it is fair and reasonable to do so. You need to ask, explain what happened and provide evidence.
Talk to specialist before it costs you
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Talk to a registered tax agent
If an ATO debt is growing, the most expensive option is usually doing nothing. Nanak Accountants can review your account, set up a realistic payment plan, prepare a remission request with the right evidence and bring your lodgments up to date. Call 1300 626 258 or book a discovery meeting.
This article is general information only and is not personal tax or legal advice. Figures and rules were checked against the ATO general interest charge and shortfall interest charge rates pages, the ATO pages on interest charged by the ATO, payment plans, remission requests and disclosure of business tax debts, section 8AAD of the Taxation Administration Act 1953 and PS LA 2011/12 on 7 October 2026. Rates and thresholds change, so confirm the current position before acting.
