Does the ATO charge interest on payment plans?

Yes, the ATO charges interest on payment plans. General interest charge (GIC) generally accrues for as long as the plan runs, because a payment arrangement doesn't change the date the debt was due (Taxation Administration Act 1953 (TAA), Sch 1 s 255-15(2)). It compounds daily on the unpaid balance until the debt and the interest on it are paid in full.

There are two main ways to have that interest taken off: the ATO's interest-free plan for eligible small businesses, or a request to remit it under TAA s 8AAG. Both are part of our work on GIC remission.

Why does the ATO charge interest on payment plans?

The Commissioner can let you pay a tax debt by instalments (TAA Sch 1 s 255-15(1)), but the arrangement does not vary the time the amount is due and payable (s 255-15(2)). The note to that section confirms that GIC still accrues from the original due date, or from the deferred date if the ATO has formally deferred it.

The ATO's debt collection practice statement says the same: arrangements state that GIC applies from the original due date and continues while the debt is outstanding (PS LA 2011/14 para 64). A plan gives you time to pay, not time free of interest.

How GIC is worked out while you pay

• Daily, on the balance. Each day's GIC is the daily rate multiplied by the unpaid amount plus unpaid GIC from earlier days (TAA s 8AAC(3)). For activity statement debts in a running balance account, it is worked out on the account's debit balance at the end of each day (s 8AAC(2), s 8AAZF).
• At a rate that can change each quarter. The rate is the base interest rate (the Reserve Bank's monthly average 90-day Bank Accepted Bill yield for a set month before the quarter) plus 7 percentage points (s 8AAD). Our guide to the general interest charge has the current rate.
• Until everything is paid. GIC runs until none of the original amount, or the GIC on it, remains unpaid (for example, TAA Sch 1 s 16-80 for PAYG withholding and s 298-25 for administrative penalties).

Each instalment reduces the balance, so the daily interest generally falls as the plan goes on, unless new debts are added to the account.

Payment plan, deferral or interest-free plan?

	Payment plan	Deferral	ATO interest-free plan
Legal basis	TAA Sch 1 s 255-15	TAA Sch 1 s 255-10	ATO administrative policy, through remission
Changes the due date?	No	Yes, by written notice	No
GIC	Accrues from the original due date	Accrues only from the deferred date (PS LA 2011/14 para 28)	Still accrues, but the ATO remits it automatically while you keep to the plan
Usually suits	Paying a debt off over months	Paying in full at a known later date	Small businesses with smaller, recent activity statement debts

Our guide to ATO payment plans and payment arrangements covers how to set each one up.

How much interest does an ATO payment plan add?

For example, suppose a business owes $50,000 and pays it by equal monthly instalments, with GIC at 11.5% a year compounding daily (close to the 11.51% rate for October to December 2026 on the ATO's General interest charge (GIC) rates page, last updated 4 September 2026). The figures are illustrative only: the real rate can change each quarter.

Plan	Monthly instalment (approx.)	Total GIC (approx.)
12 months, starting on the due date	$4,430	$3,200
12 months, after a $10,000 upfront payment	$3,550	$2,550
24 months, starting on the due date	$2,340	$6,200
12 months, starting 3 months after the due date	$4,560	$4,700
24 months, starting 3 months after the due date	$2,410	$7,900

Doubling the length of the plan roughly doubles the interest. Interest that built up before the plan started stays on the balance and keeps compounding, so acting at or before the due date costs less than waiting.

GIC can't be deducted for income years starting on or after 1 July 2025 (Income Tax Assessment Act 1997 (ITAA 1997) s 26-5(1A); Treasury Laws Amendment (Tax Incentives and Integrity) Act 2025, Sch 2 item 4), so it is now a real after-tax cost. See ATO interest is no longer tax deductible.

Is there an interest-free ATO payment plan?

Yes, for some small businesses, but it works by remitting the interest rather than switching it off. The ATO's guidance (Alternative payment plans, last updated 3 September 2026) says a business may be eligible if it:

• has an annual turnover of less than $2 million,
• has recent activity statement amounts of $50,000 or less that have been overdue for up to 12 months,
• has a good payment and lodgement history, including no more than one payment plan default in the last 12 months and no outstanding activity statement lodgements,
• can't obtain finance, such as a loan, through normal business channels, and
• can show it remains viable.

The debt must be paid by direct debit within 12 months. GIC is still charged, but the ATO says that as long as you keep to the plan, it is remitted automatically once it appears on your account. You must also meet your other payment and lodgement obligations.

An existing activity statement plan can be converted if you meet the criteria, but the interest-free period starts from the date of the new plan. Earlier GIC needs a remission request on the usual grounds.

These are ATO administrative criteria, not legislation, and can change. The ATO's remission practice statement gives debt assistance initiatives that remit GIC over a payment arrangement as an example of remitting where it is "otherwise appropriate" (TAA s 8AAG(5)(b); PS LA 2011/12 paras 29–32), but says not everyone in a category will get remission, or the same amount (para 33).

Can the ATO remit interest as part of a payment plan?

Yes, but outside the interest-free plan it isn't automatic. The plan and the remission are separate decisions, and taxpayers seeking remission "will have to demonstrate that remission is warranted" (PS LA 2011/14 para 64).

Where GIC arose because a debt was paid late, the Commissioner can remit all or part of it only if satisfied of one of three grounds (TAA s 8AAG(2)–(5)): either the circumstances behind the delay weren't caused by you, or they were but remission is fair and reasonable, and in both cases you took reasonable action to mitigate them; or there are special circumstances, or remission is otherwise appropriate. Our GIC remission page explains each ground.

The ATO looks at what reasonable steps you took, or could have taken, such as realising assets or seeking finance (PS LA 2011/12 para 18). Engaging early, paying what you can and keeping to an arrangement help show mitigation, but a plan on its own isn't a ground for remission. The two can go together: one example in the practice statement involves a taxpayer in financial difficulty given both a payment arrangement and partial remission of GIC (PS LA 2011/12 para 85).

How to ask while you negotiate the plan

1. Propose a plan you can keep, with instalments you can meet alongside your ongoing tax.
2. Make the remission request in writing. Address the s 8AAG ground you rely on: what caused the delay, how it affected your ability to pay and what you did about it, with evidence.
3. Ask about the interest-free plan if the debt is a smaller, recent activity statement debt.
4. Get the decision in writing. In Pintarich v Deputy Commissioner of Taxation [2018] FCAFC 79, the taxpayer paid a lump sum after an ATO template letter appeared to accept it in full discharge of his tax and GIC. The Full Federal Court majority held that no decision to remit GIC had been made, because no officer had reached a conclusion on the remission request, which was a separate matter from the payment arrangement the officer had agreed to ([145], [151]–[153]). Don't treat a payout figure or plan confirmation as a remission: ask for a written decision stating the GIC remitted.

See how to ask the ATO to remit interest.

Is GIC charged on director penalty notice debts?

The company's debt attracts GIC. Unpaid PAYG withholding, GST and super guarantee charge all carry GIC (TAA Sch 1 s 16-80; TAA s 8AAZF for running balance accounts; s 8AAB(4) item 28 for super guarantee charge), and it keeps running while a plan is in place.

The director penalty itself generally does not. A director penalty equals the unpaid amount of the company's liability under its obligation (TAA Sch 1 s 269-20(5)): the PAYG withholding, GST or super guarantee charge (or an ATO estimate of it), not the GIC on it. GIC applies only where a provision says so (s 8AAB(2)). None of the provisions indexed in s 8AAB(4) is in Division 269, and GIC on unpaid administrative penalties (Sch 1 s 298-25) doesn't extend to director penalties (Sch 1 s 298-5). The NSW Court of Appeal took the same view of the GIC provisions under the earlier director penalty regime (Canty v Deputy Commissioner of Taxation [2005] NSWCA 84 at [61]–[67]), and in recent recovery cases the ATO has claimed director penalties without GIC. If your ATO statement shows GIC charged on the penalty itself, get advice.

If the ATO sues you for the penalty, though, the court can add interest under its own rules. In Deputy Commissioner of Taxation v Gillespie [2026] NSWDC 205, for example, the Deputy Commissioner obtained judgment for a director penalty with interest under s 100 of the Civil Procedure Act 2005 (NSW), claimed from the date its statement of claim was filed. In Deputy Commissioner of Taxation v Kafer [2026] NSWDC 370, a director penalty for a 2016 quarter was claimed at the unpaid withholding amount alone, with court interest only from July 2025, while the director's own income tax debts carried GIC ([8], [12], [14], [74]).

Super guarantee charge works differently in two ways. First, the charge itself includes components beyond the unpaid super, and those form part of the company's liability, so they are included in the director penalty (Sch 1 ss 269-10 item 5 and 269-20(5)). For quarters ending on or before 30 June 2026, the charge is the unpaid super plus a nominal interest component and an administration component (former Superannuation Guarantee (Administration) Act 1992 (SGAA) s 17, which still applies to those quarters under Sch 1 item 183 of the Treasury Laws Amendment (Payday Superannuation) Act 2025). For earnings paid from 1 July 2026, under the Payday Super rules, it is the unpaid super plus a notional earnings component, an administrative uplift and any choice loading (SGAA ss 16A and 16B(2)).

Second, GIC on unpaid super guarantee charge is itself treated as super guarantee charge "payable under this section" (SGAA s 49(4)). The better view is that it still isn't part of the charge for the quarter, or the day the earnings were paid, that the director penalty is based on (Sch 1 s 269-10 item 5), because s 49(4) deems it payable under s 49 and it arises only after that charge falls due. That point hasn't been tested, so get advice on an SGC director penalty.

For directors on a plan, three things follow:

• Your personal exposure generally doesn't grow with GIC, but the company's debt does. An amount paid or applied towards the company's liability, or towards one director's penalty, reduces the company's liability and each director's penalty by the same amount (Sch 1 s 269-40(2)).
• How payments are applied matters. The ATO applies payments into a running balance account against the tax debts and the GIC on them as it decides, and isn't bound by your instructions (TAA ss 8AAZLA and 8AAZLE). A payment applied to GIC or to other tax debts doesn't reduce the director penalty. If you want plan payments to reduce the DPN amounts first, raise it when the plan is set up, though the ATO doesn't have to agree.
• A plan protects you from court action, not from interest. While an arrangement covering the company's obligation is in force, the ATO can't start, or take a procedural step in, proceedings to recover the penalty (Sch 1 s 269-15(3)). The protection ends if the arrangement stops being in force, for example after a default. The ATO can still give you a DPN (note 2 to s 269-15), and GIC keeps running on the company's debt.

If you have received a DPN, its 21-day period comes before any interest question. The 21 days run from when the ATO posts or leaves the notice, not from when you receive it (Sch 1 s 269-25(4)).

A payment plan doesn't by itself remit the penalty: within that time the company generally needs to pay, or go into voluntary administration, small business restructuring or liquidation (Sch 1 ss 269-15(2), 269-30(1)), and for lockdown penalties the last three don't remit it (s 269-30(2)). See payment plans for director penalty notices and what to do after a DPN.

How can you reduce the interest on an ATO debt?

• Talk to the ATO early. If you can pay in full at a known later date, ask for a deferral, ideally before the due date. The ATO generally defers only where non-payment is due to circumstances beyond your control and you can show you will pay in full later (PS LA 2011/14 para 30). A plan can't move the date GIC started.
• Pay as much upfront as you can, keep the plan as short as you can manage, and make extra payments when cash allows.
• Compare the cost of finance. GIC is 7 percentage points above the base rate, compounds daily and is no longer deductible. A loan may cost less, and its interest may be deductible depending on how the money is used. Your accountant can confirm the tax treatment.
• Avoid a default. If a plan fails and no new arrangement is agreed, the ATO says it will take action to recover the debt and the GIC, calculated from the original due date (PS LA 2011/14 para 72), and on the interest-free plan the automatic remission depends on keeping to it.

Next step

Send us the ATO statement of account showing the debt and the interest, any payment plan the ATO has confirmed, and a short note on why the debt fell behind and what you did about it. If a director penalty notice has been issued, send every page of it first, with the date it arrived. In a short first call we'll tell you whether a remission request or the interest-free plan is worth pursuing alongside your plan.