ATO debt is no longer just an amount sitting on your account. It is an after-tax cash-flow cost that can continue growing while it remains unpaid.
If your business owes the ATO, waiting may reduce the options available to you.
Why ATO debt now costs businesses more
The ATO applies General Interest Charge when a tax liability remains unpaid after its due date. Shortfall Interest Charge may apply when an assessment is later increased.
Interest incurred before 1 July 2025 may still be deductible, subject to your circumstances. Interest incurred from that date is not. The interest rate can change quarterly and the charge compounds daily.
| ATO interest | Before 1 July 2025 | From 1 July 2025 |
|---|---|---|
| Tax treatment | May be deductible, subject to your circumstances | Not tax deductible |
| Interest accrual | Compounds while unpaid | Continues to compound while unpaid |
| Payment plans | Interest generally continues | Interest generally continues |
Does an ATO payment plan stop interest?
No. Entering a payment plan does not normally stop General Interest Charge from accruing.
A payment plan may give your business more time, but the repayments need to be affordable and capable of clearing the debt within a reasonable period. A plan your business cannot maintain may create more cash-flow pressure.
Signs your tax debt needs attention
- GST, PAYG withholding or superannuation funds are being used for operating expenses.
- Tax returns or activity statements have not been lodged.
- An existing payment plan is no longer affordable.
- New liabilities are growing faster than the debt is being repaid.
- The business has received formal recovery notices.
- A director has received, or may receive, a Director Penalty Notice.
Company tax debts do not always remain with the company. Read more about when company tax debts can become personal.
What to do if your business owes the ATO
Keep lodgements current
Lodge outstanding returns and activity statements even if the business cannot pay immediately.
Confirm the full debt
Review the balance, interest charges, outstanding lodgements and due dates.
Review cash flow
Work out what the business can repay without missing new tax, wages, super or supplier payments.
Compare your options
Consider direct payment, an ATO payment plan or an external business tax debt solution.
Frequently asked questions
Is ATO interest still tax deductible?
General Interest Charge and Shortfall Interest Charge incurred from 1 July 2025 are not tax deductible. Different treatment may apply to interest incurred before that date.
Does interest continue during an ATO payment plan?
Generally, yes. General Interest Charge can continue to accrue on the unpaid balance while a payment plan is active.
Can RJS deal with the ATO for my business?
RJS can review your account, communicate with the ATO and help assess payment or funding options based on your circumstances.
Do not let the debt become harder to manage
RJS can review your ATO account, cash flow and repayment options with you.
Talk to RJS about your tax debtThis article is published by R J Sanderson and Associates Pty Ltd ABN 71 060 299 783. It contains general information only and is not intended to represent personal accounting, taxation, financial or credit advice. No individual circumstances have been considered. Obtain professional advice before making a financial or business decision.