Most owners with a tax debt can quote the balance. Almost none can quote what it costs, because the general interest charge hides its price three ways: it compounds daily rather than annually, its rate resets every quarter, and since 1 July 2025 it delivers no tax deduction to soften the blow. This guide does the arithmetic your statement of account never will. Take the debt, how long it has been outstanding and your tax rate, and the method below returns the interest accrued, the effective annual rate, and the pre-tax profit your business must earn just to stand still. The worked examples show the mechanics for typical files so you can run the same maths by hand or against the ATO’s published rates.
Published: July 2026
The default scenario is a representative file: a $150,000 debt, outstanding twelve months, base rate company at 25 per cent, current-quarter GIC rate.
Interest accrued over the year: roughly $18,200, taking the balance past $168,200 before any repayment. Effective annual rate: 12.1 per cent. Pre-tax equivalent at the 25 per cent company rate: about 16.1 per cent, meaning the business needed to generate roughly $24,200 of pre-tax profit during the year purely to fund the interest. Left another year untouched, compounding takes the balance past $188,600, with the second year’s interest larger than the first because interest is now earning interest.
Change the inputs and the shape holds. A $60,000 debt costs about $7,270 a year in interest and needs $9,690 of pre-tax profit to service at the company rate. A $400,000 debt costs around $48,400 a year, consuming nearly $64,600 of pre-tax earnings, roughly a full-time salary spent producing nothing.
A hypothetical professional services company starts with $95,000 due on 28 October. It pays nothing for three months, then pays $10,000 a month for six months. Approximate path at ~12.1 per cent effective:
The lesson is not the exact dollars; it is that late starts are expensive and early lump sums are disproportionately valuable. A single $25,000 payment in month one would have saved more interest than six polite $4,000 instalments starting in month four.
The GIC rate is not discretionary. It is set by a statutory formula, the 90-day bank bill rate plus a 7 percentage point uplift, recalculated each quarter (see the ATO general interest charge rates), which guarantees ATO debt prices well above ordinary short-term commercial rates in every interest rate environment. The uplift is the policy: tax debt is meant to be the most expensive money on your balance sheet, and since the deduction was removed, it reliably is. That design is also why the maths stays useful as rates move; the formula persists while the quarterly number changes.
SIC uses the same bank bill base with a 3 percentage point uplift. It is lower, still non-deductible from 1 July 2025, and often appears on amended assessments before GIC takes over on unpaid amounts. If your statement shows both, sum them; do not pick the friendlier headline.
For context on the wider collections environment, see the ATO debt and small business tax gap overview and what happens when you get a letter from the ATO.
You do not need software to approximate the cost.
At the 47 per cent top marginal rate, multiply the pre-tax column by roughly 1.42 relative to the 25 per cent company figures. That is why high-rate individuals feel ATO debt more acutely than base rate companies on the same balance.
Once you have the true cost, four moves cover most situations, in order.
Expensive path: know only the headline balance, ignore daily compounding, assume interest is “still deductible somehow”, and wait for a better quarter. On $150,000, that path can cost $18,000-plus a year with no principal progress.
Practical path: write down the pre-tax equivalent rate, clear or restructure the debt within 30 days if borrowing capacity exists, or install a sustainable plan with an upfront payment if it does not, and stand up a tax reserve so the balance cannot rebuild. The standing cost of that reserve discipline through outsourced finance services is commonly $1,500 to $4,000 a month depending on volume, which is often less than the GIC on a mid six-figure file.
If cash is the binding constraint, pair this maths with a 90-day cash survival plan and director penalty awareness where PAYG or super sits inside the debt.
For transparency and so any figure can be reproduced: interest is calculated as balance multiplied by (1 + r/365) per day, where r is the applicable quarterly GIC rate, compounding on the running balance from the day after the due date. The effective annual rate is (1 + r/365)^365 − 1. At the July to September 2026 published rate of 11.43 per cent, that effective annual rate is about 12.1 per cent, and the worked examples in this guide use that current-quarter figure. The grossed-up pre-tax equivalent divides the effective rate by (1 − tax rate), reflecting the non-deductibility of GIC and SIC amounts incurred on or after 1 July 2025. Deductible-facility comparisons multiply the facility rate by (1 − tax rate) for the after-tax cost. Quarterly rates are as published by the ATO and should be updated when the rate resets.
These examples are general illustrations, not a personalised calculation of your account. Always check your ATO statement of account for actual accrued amounts.
What is the current GIC rate?
Use the ATO rate for the quarter you are modelling. April to June 2026 was 10.96 per cent nominal (about 11.6 per cent effective with daily compounding); July to September 2026 is 11.43 per cent nominal (about 12.1 per cent effective). The rate resets each quarter under a statutory formula of the 90-day bank bill rate plus 7 percentage points, so check the ATO’s published rate for the current quarter.
How is GIC calculated day to day?
Daily, on the full outstanding balance including previously accrued interest, from the day after the due date until the debt is cleared. Daily compounding is why balances grow faster than the headline rate implies and why early part-payments save more than they appear to.
Is GIC tax deductible?
Not for amounts incurred on or after 1 July 2025, regardless of when the underlying debt arose. That is why the grossed-up figure matters: a 12.1 per cent non-deductible charge costs a 25 per cent company the same as a 16.1 per cent deductible one.
What does the pre-tax equivalent mean?
It is the return your business must earn before tax to fund the interest, calculated as the effective GIC rate divided by one minus your tax rate. It converts the charge into the same units as every other financing decision so genuine comparisons are possible.
Does a payment plan stop GIC accruing?
No. A plan holds off enforcement while its conditions are met, but interest continues on the unpaid balance at full rate for the plan’s entire life. Model the total interest across your proposed plan length before agreeing terms.
Can GIC be reduced or removed?
Only by remission, which the ATO can grant where fair and reasonable, typically for circumstances beyond your control, serious hardship or ATO-caused delay. Requests carry most weight with lodgements current, a payment proposal attached and specific evidence.
Is it cheaper to borrow to pay out the ATO?
Often, because interest on genuine business-purpose borrowing is generally deductible while GIC is not, so even a facility priced above the GIC headline can cost less after tax. Run the comparison for your rate, and confirm the deductibility of your specific structure before committing.
How much interest does $100,000 of ATO debt cost a year?
Around $12,100 at a 12.1 per cent effective rate if the balance is static, requiring about $16,100 of pre-tax profit for a 25 per cent company to fund. Partial repayments reduce both figures as the principal falls.
Is this guide financial advice?
No. It models the published interest mechanics using standard assumptions and is general information only. Decisions about refinancing, structuring or negotiating with the ATO should be made with your own adviser on your full circumstances.
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We review and check this guide periodically. At the time of writing (July 2026), all information was current. Scale Suite is a registered BAS Agent, not a licensed tax advisor or financial advisor. This content is general information only and does not constitute professional tax, financial, or legal advice. Some details may change over time.
Scale Suite is a Sydney-based provider of outsourced finance and HR services for Australian SMEs. We deliver bookkeeping, financial reporting, payroll processing, fractional CFO support, recruitment, employee onboarding, people and culture support, and fractional HR oversight, all as a fully embedded team that works inside your business.
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