If you have an overdue tax debt, the Australian Taxation Office may apply interest to the amount you owe. These charges can increase quickly and make a tax debt harder to manage.
However, in some situations the ATO may agree to reduce or remove part of these interest charges. This process is known as remission of interest charges. Understanding how remission works can help you know when it may be possible to request relief.
Why the ATO Charges Interest on Tax Debts
The ATO applies interest to unpaid tax for several reasons.
Interest charges are designed to:
- Encourage taxpayers to pay tax on time
- Ensure people who pay late do not gain a financial advantage
- Compensate the community for the cost of late tax payments
Two types of interest charges may apply.
General Interest Charge (GIC)
The General Interest Charge is applied when tax remains unpaid after the due date. This may occur if:
- A tax debt is not paid on time
- A BAS or tax return is lodged late
- A PAYG instalment is underestimated
- An amended tax assessment increases the amount owed
GIC accrues daily until the debt is paid. (Australian Taxation Office)
Shortfall Interest Charge (SIC)
The Shortfall Interest Charge applies when the ATO later determines that you underpaid tax due to an error in your original return.
This interest is charged on the difference between:
- The tax originally assessed
- The corrected amount of tax owed
SIC generally has a lower interest rate than GIC, because taxpayers often do not know about the shortfall until the ATO reviews their return. (Australian Taxation Office)
What Is Remission of Interest Charges?
Remission means the ATO agrees to reduce or cancel part of the interest charged on your tax debt.
The tax itself still needs to be paid. Remission only applies to the interest component, not the underlying tax liability.
The ATO reviews remission requests on a case-by-case basis and will consider whether it is fair and reasonable to reduce the interest. The decision depends largely on why the tax was paid late and what actions were taken to resolve the situation.
When the ATO May Reduce Interest Charges
The ATO may consider reducing interest if the delay in payment occurred due to circumstances beyond your control.
Examples may include:
- Natural disasters affecting your business or home
- Serious illness of key staff or business owners
- Industrial action or unexpected external disruptions
- The sudden collapse of a major customer or debtor
In these situations, the ATO will also look at whether you took reasonable steps to address the issue and pay the tax as soon as possible.
When the ATO Is Less Likely to Grant Remission
Not all situations qualify for interest remission.For example, a general economic downturn affecting the broader business community is usually not considered sufficient reason to reduce interest charges.)
If the delay was largely within your control, the ATO will consider whether it is still fair and reasonable to reduce the interest.
Factors they may consider include:
- Whether you made efforts to pay the debt earlier
- Whether you contacted the ATO quickly
- Whether you tried to reduce the delay
Situations Where the ATO May Automatically Consider Remission
In some cases the ATO may reduce interest charges without you needing to request it.
This may occur if:
- The ATO delays starting an audit or review
- The ATO causes unreasonable delays during an investigation
- The ATO takes longer than expected to process amendments
- Information from third parties causes unavoidable delays
In these cases the ATO may decide that charging interest would not be appropriate.
How to Request Remission of Interest Charges
If you believe the interest applied to your tax debt is unfair, you can request a remission from the ATO. Typically you need to submit a written request explaining your circumstances.
Your request should include:
- Your name and contact details
- Your tax file number (TFN) or ABN
- The interest charge you want reviewed
- The dates and circumstances that caused the delay
- Evidence supporting your explanation
- Details of steps you took to resolve the issue
Businesses and tax agents can also submit requests through online ATO services.
Providing clear documentation helps the ATO assess your request more efficiently.
What Happens After You Submit a Request
Once the ATO reviews your application, they may decide to:
- Remit the interest in full
- Reduce part of the interest
- Decline the request
If the request is declined or only partially approved, the ATO will explain the reason for their decision. The options for disputing the decision depend on the type of interest involved.
For example:
- Decisions about GIC generally cannot be challenged through a standard objection process
- Decisions about SIC may be reviewable in certain situations
Key Points to Remember
If you are dealing with ATO interest charges, it is important to understand a few key principles.
- Interest charges apply when tax is paid late or underpaid
- The ATO may reduce interest if the delay was outside your control
- Remission only applies to the interest, not the tax debt itself
- Requests must explain the circumstances clearly and include supporting evidence
- The ATO reviews each case individually
Final Thoughts
Interest charges can quickly increase the cost of a tax debt, especially if the balance remains unpaid for an extended period. If circumstances outside your control caused the delay, it may be worth discussing your situation with the Australian Taxation Office or a registered tax professional.
In the right circumstances, the ATO has the discretion to reduce or remove interest charges, helping taxpayers manage their obligations more fairly.
Source: ATO – Remission of interest charges – January 2026
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