ATO debt & GIC in 2026: What every business owner needs to know

Running a business is rewarding, but managing taxes can be a juggling act. For many SMEs, ATO debt and the general interest charge (GIC) are part of that challenge, especially with recent changes in rules and enforcement practices.

This guide breaks down what’s happening in 2026, what’s changed over the past year, and practical strategies to manage ATO debt. With these insights in hand, you can make more informed decisions and keep your cash flow under control.

The basics of ATO debt and GIC

Before diving into changes, it helps to know the fundamentals:

• ATO debt is money your business owes to the ATO for taxes that haven’t been paid on time. This can include GST, PAYG, and FBT, to name a few.
• General interest charge (GIC) is the interest businesses pay on overdue taxes [1]. It accrues daily from the due date of the liability until it is fully paid. The ATO reviews the GIC rate every quarter, so it can change regularly, but for reference, it is 10.65% for January-March 2026.

What’s changed in the last year: GIC & ATO debt

GIC is no longer tax-deductible

This isn’t exactly a new update – it was announced back in June 2025 and came into effect on 1 July 2025, fully in effect in 2026 [2]. Essentially, it removes a tax benefit that previously reduced the real cost of interest by around 25%, meaning businesses now have to cover the GIC with after-tax dollars.

For most SMEs, this increases the true cost of carrying tax debt and makes timely payments more important than ever.

Review of GIC remission decisions

In 2025, after receiving over 130 complaints about inconsistency and lack of clarity in remission decisions, the Tax Ombudsman launched a review into how the ATO handles requests to reduce or remove GIC.

The main question is whether the decision-making is not only consistent with the law but also reasonable and in line with what taxpayers would expect [3]. The report is expected in early 2026, so it’s one for business owners to keep an eye on.

Compliance trends over the past year

Over the past year, the ATO has been stepping up its game when it comes to overdue tax debts, particularly with:

• More proactive enforcement: The ATO is moving away from pandemic-era leniency and now prioritising reducing the backlog of unpaid tax debts.
• Director Penalty Notices (DPNs) are on the rise: Directors can be personally liable for unpaid GST, PAYG, super, and other obligations.
• Faster escalation via automation: Automated debt collection processes make it easier to spot overdue accounts, which may trigger notices or penalties sooner than before.
• Targeted small business activity: Data matching and real-time reporting help detect under-reporting, unpaid BAS, or inconsistencies, and follow up overdue or incorrect filings.
• Tighter payment plan reviews: If you miss reminders or fail to engage, the ATO may escalate faster rather than extend informal arrangements.

Bottom line? Early action and careful cash flow planning are non-negotiable, and businesses that repeatedly miss lodgment or payment obligations should expect faster enforcement and higher costs.

Alternatives to carrying ATO debt

For many SMEs, ATO debt builds up because of timing issues, not because the business is unviable. The key is knowing your options before interest and enforcement start to stack up.

ATO payment plans

The ATO offers payment plans, which allow businesses dealing with funding shortfalls to break down payments into smaller instalments to be paid back in the shortest fixed term [4]. 

One thing to note is that GIC doesn’t stop while you’re on a payment plan. It continues compounding daily, so the faster you clear your debt, the less interest you’ll pay.

Also, if you miss a scheduled instalment or another tax obligation, you may receive a letter from the ATO saying your accounts are in arrears, and you have some time to catch up before your payment plan defaults.

Short-term business finance

If cash flow alone isn’t enough, a business loan can help you clear ATO debt quickly and stop GIC from compounding. Common options include:

• Lines of credit: Draw funds as needed, then repay and redraw as cash flow allows. Useful if you’re not sure exactly how much you’ll need.
• Business term loans: Often unsecured, with predictable repayments that make cash flow planning simpler.
• Invoice finance: Access cash from unpaid invoices quickly and improve cash flow while covering tax obligations.
• Overdrafts: Access funds as needed and repay them flexibly. Ideal for short-term liquidity gaps.

Now, you might be thinking, “But doesn’t this mean taking on debt… in another form?” Technically yes, but dealing with a lender is different from owing the ATO. Loans give you predictable repayments and control, while tax debt continues to accrue interest and carries the risk of enforcement.

If you’re weighing your options, now is the time to see how short-term finance can give you control. 

At Valiant, we compare loans from 90+ lenders, we manage the paperwork, handle the application, and help get your funding sorted, so you can stop worrying about ATO debt and focus on growing your business. Get a quote today.

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Refinancing obligations

Refinancing your ATO debt with a loan can be a smart way to take control of cash flow. It gives you more flexibility, reduces admin pressure, and helps ease the burden of high-interest debt.

On top of that, it can make your cash flow more predictable, since you can spread repayments over a longer period or at a rate that suits your financial circumstances.