If you have ever run your business on a tight cash flow and occasionally carried an outstanding balance with the ATO, you will be familiar with the General Interest Charge — the interest the ATO applies to overdue tax obligations. From 1 July 2026, a change that has received surprisingly little attention will make that debt significantly more expensive to hold.

What is the General Interest Charge (GIC)?

The General Interest Charge (GIC) is the interest rate the ATO applies to unpaid tax debts, including income tax, GST, PAYG withholding, and superannuation liabilities. It is calculated daily and compounds, meaning the longer a debt remains unpaid, the faster the interest accumulates. As of March 2026, the GIC rate is 11.17% per annum, a rate that has crept upward over recent years in line with broader interest rate movements.

Currently, the GIC is tax-deductible. This means that for a business paying tax at a rate of, say, 25%, the effective after-tax cost of carrying an ATO debt at 11.17% is approximately 8.4%. Not cheap, but softened by the deduction.

What changes from 1 July 2026?

From the start of the 2026–27 financial year, the GIC will no longer be deductible. This change was legislated as part of the Federal Budget and applies to GIC incurred on or after 1 July 2026.

The effect is straightforward but material:

• For a company with a 25% tax rate, the after-tax cost of carrying an ATO debt jumps from approximately 8.4% to the full 11.17%.
• For individuals on higher marginal rates, the shift is even more pronounced. Someone on the top 47% rate (including Medicare levy) previously faced an effective cost of around 5.9%. From 1 July, they will face the full 11.17%.

The Shortfall Interest Charge (SIC), a related charge that applies in more specific circumstances, such as when the ATO amends an assessment, will also become non-deductible from the same date.

Why does this matter for small businesses?

Many small business owners use ATO payment arrangements as a form of working capital finance — not through deliberate choice, but because cash flow doesn't always align with tax due dates. While we would not recommend this as a strategy, the reality is that tax debts accumulate, and some businesses have carried outstanding balances for extended periods.

After 1 July 2026, that informal financing arrangement becomes considerably more expensive. At over 11% compounding daily, with no tax offset, an ATO debt will erode business profitability faster than most commercial loan facilities.

Our recommendation

If you have any outstanding ATO obligations, including historic payment arrangements, overdue BAS liabilities, or deferred income tax assessments, please contact us now. There are several options available before 1 July that may help you clear or restructure those debts at a lower after-tax cost than will be available after the change takes effect.

What about the Shortfall Interest Charge?

The Shortfall Interest Charge (SIC) applies when the ATO amends a tax assessment and you are found to have underpaid. Currently running at 7.17% per annum, the SIC is also deductible — and that deductibility will also be removed from 1 July 2026. This is particularly relevant for anyone involved in complex tax affairs, trust arrangements, or prior-year amendments.

Please contact us if you have any questions - email us or phone our team on 02 9899 3044.