Does Interest Keep Accruing During an ATO Objection? The Hard Truth About GIC and Tax Disputes

You lodge an objection. The ATO agrees to extend your payment deadline. The dispute grinds forward. Months pass, maybe years.

And every single day, the general interest charge keeps compounding.

Most business owners discover this reality far too late. They assume that disputing an assessment means the interest clock pauses. It doesn’t. An objection gives you the right to challenge the underlying tax debt. It doesn’t stop the debt from growing.

This article explains what actually happens to GIC during an objection, how it compounds across multi-year disputes, and what strategic options you have to manage it. If you’re in a tax dispute right now or thinking about one, understanding this dynamic could save you hundreds of thousands of dollars.

What Happens to GIC When You Object to an ATO Assessment

The short answer: nothing changes. GIC keeps accruing exactly as it did before you objected.

When you lodge an objection to an ATO assessment, you’re exercising a legal right to challenge the tax liability. What you’re not doing is suspending the tax debt. The debt exists. It’s legally payable. And from the moment it became due and payable, the general interest charge starts compounding daily.

The confusion arises because lodging an objection often triggers an extension of time to pay. The ATO will typically defer enforcement action while your objection is being considered. That feels like relief. It is relief, from a cashflow and compliance perspective. But it’s not relief from interest.

Think of it this way: the ATO has agreed not to chase you for the money right now. They haven’t agreed to stop the clock on what you owe them.

This creates a scenario most business owners never anticipated. You’re doing the right thing by challenging an assessment you believe is wrong. But every day that dispute takes, your total exposure grows. If your objection takes eighteen months to resolve and is ultimately unsuccessful, you’ll owe the original tax plus eighteen months of compounding interest.

Can you see the strategic problem? The longer a dispute runs, the more expensive losing becomes. And the more pressure builds to settle, even when you have strong grounds to continue.

How GIC Is Calculated and Why Objections Don’t Stop It

GIC compounds daily. Not monthly. Not annually. Every single day.

The rate is set quarterly by the ATO and is roughly equivalent to the 90-day bank bill rate plus an uplift. As at early 2025, it sits around 10-11% per annum. That might not sound catastrophic until you see it applied over multiple years of a dispute.

Here’s what compounding daily actually means. If you owe $1 million in disputed tax and the objection takes three years to resolve, you’re looking at roughly $350,000 in GIC at current rates. If the dispute stretches to five years (not uncommon for matters that go through the AAT and Federal Court), the GIC could exceed $600,000.

Now imagine your objection is partially successful. The underlying tax gets reduced to $600,000. The GIC doesn’t automatically adjust to reflect that. It’s been calculated on the full $1 million from day one. You’ll need to apply for remission of the excess, and there’s no guarantee you’ll get it.

Why doesn’t an objection stop GIC accruing? Because the objection process doesn’t eliminate the debt. It’s a review mechanism, not a payment suspension mechanism. The tax remains assessed and legally owing. The fact you’re challenging it is irrelevant to the interest calculation.

This is intentional policy. The ATO’s position is that GIC compensates them for the time value of money. If taxpayers could pause interest simply by objecting, there would be an incentive to dispute everything and defer payment indefinitely. The current system forces you to weigh the cost of disputing against the commercial reality of growing interest.

Is that fair? Depends on your perspective. But fair or not, it’s the system. And the question isn’t whether it’s fair. The question is what you do about it.

Extension of Time to Pay, Part-Payments and Their Impact on GIC

Let’s separate two things that business owners constantly conflate: deferring enforcement and stopping interest.

When you lodge an objection, the ATO will often grant an extension of time to pay. That means they won’t take recovery action, garnishee, director penalty notices, winding up, while the objection is being considered. It’s a practical concession, and it’s important. It gives you breathing room to run the dispute without the business collapsing under immediate enforcement pressure.

But here’s what the extension doesn’t do: it doesn’t pause GIC.

From the ATO’s perspective, the debt is still owing. They’ve just agreed to wait for payment. The interest clock keeps running because the money is still unpaid.

Now, what if you pay some or all of the disputed amount during the objection? Does that help?

Yes. Materially.

If you pay the full disputed amount, GIC stops accruing from the date of payment. If your objection later succeeds, you get the money back with interest (though not at the same rate you’ve been paying). If your objection fails, at least you haven’t been accumulating GIC while the dispute dragged on.

If you pay part of the disputed amount, GIC stops accruing on the portion you’ve paid. If you owe $2 million and pay $1 million on account, GIC only continues to accrue on the remaining $1 million. This can be a pragmatic compromise: you preserve some cash, reduce your risk, and cap your interest exposure.

Many sophisticated taxpayers take this approach. They assess the likelihood of success, model the GIC exposure, and decide to pay a portion that represents their realistic downside. It’s not an admission of liability. It’s a risk management decision.

Some examples:

Scenario 1: Pay in full during objection. You owe $500,000 in disputed tax. Your accountant tells you there’s a 40% chance the objection succeeds. Paying in full stops $50,000+ in annual GIC. If you win, you get the money back with modest interest. If you lose, you’ve saved the compounding cost of a multi-year dispute.

Scenario 2: Pay half on account. You owe $2 million. You assess that even if you lose entirely, there’s a strong remission case for at least half the GIC due to ATO delay. You pay $1 million on account. GIC now accrues only on the unpaid $1 million, cutting your daily exposure in half. You’ve preserved $1 million in working capital and materially reduced your risk.

Scenario 3: Hold off entirely. You’re in financial distress. Paying anything would jeopardise operations. You keep the cash, accept that GIC will grow, and plan to argue financial hardship for remission if the objection fails. It’s a calculated gamble.

There’s no one right answer. The decision depends on cashflow, the strength of your objection, the size of the debt, and your tolerance for interest risk.

Winning, Losing or Settling: What Becomes of the GIC

Objections end in one of three ways: allowed, disallowed, or partially allowed. What happens to GIC in each case?

Objection allowed. The ATO accepts your objection in full. The amended assessment is wiped. The underlying tax liability is reduced to zero or to the amount you originally declared. GIC is recalculated based on the corrected liability. If you paid nothing during the dispute, no GIC is owing. If you overpaid, you receive a refund with interest (though not at the same rate GIC accrues).

Objection disallowed. The ATO upholds the assessment. The full tax debt stands. GIC has been accruing on that debt since the original due date, regardless of how long the objection took. You now owe the primary tax plus all the accumulated GIC. At this point, your only option to reduce the GIC is to seek remission (more on that below). If you don’t pay immediately, GIC continues to compound on the combined debt.

Objection partially allowed. The ATO concedes part of the dispute. The amended assessment is reduced but not eliminated. GIC is recalculated on the revised liability from the original due date. You’ll owe less GIC than if the objection had failed entirely, but you’ll still owe GIC on the portion that remains. If GIC has already been paid or accrued on a higher amount, you may be entitled to an adjustment or refund of the excess.

Settlements add another layer. If you settle during the objection, before a formal decision, the settlement terms will usually address both the primary tax and GIC. The ATO may agree to remit some or all of the GIC as part of the deal, especially if there’s genuine dispute about the underlying facts or law. Settlements are commercial. Everything is negotiable, including interest.

Here’s the part most people miss: GIC doesn’t automatically adjust just because the underlying liability changes. If your objection reduces the tax from $2 million to $1 million, GIC has still been calculated on $2 million from day one. You need to apply for remission of the GIC that accrued on the $1 million that’s now been written off. The ATO may or may not grant it.

This asymmetry creates real unfairness in long-running disputes. You might ultimately be proven right, but you’ve still carried the cost and risk of GIC accruing on an inflated debt for years. Remission can address this, but it’s discretionary and not guaranteed.

Remission of GIC: What’s Possible, and When to Ask

You cannot object to GIC. Let’s start there.

GIC is not an “appealable” decision under the objection framework. You can object to the underlying assessment, the tax debt itself, but not to the interest charged on it. That’s a deliberate limitation in the law. The thinking is that GIC is a mechanical consequence of an unpaid debt, not a discretionary decision that warrants its own merits review.

So what’s your option? Remission.

Remission is a discretionary power the ATO has to forgive some or all of the GIC. It’s not a legal right. It’s not subject to the same objection and appeal pathways. It’s an administrative concession, governed by ATO guidelines. You ask, they consider, they decide. If they say no, your recourse is limited: internal escalation, complaint to the Inspector-General of Taxation and Taxation Ombudsman, or judicial review (which is expensive, rare, and difficult).

When will the ATO remit GIC? Their published guidelines set out several categories:

ATO delay. If the ATO caused unreasonable delay in processing your objection, finalising an audit, or issuing an assessment, that can be grounds for remission of GIC that accrued during the delay. You’ll need evidence: dates, correspondence, timelines that show the ATO sat on something for months or years without good reason.

Circumstances beyond your control. If external events (natural disaster, serious illness, unexpected business disruption) meant you couldn’t pay on time or respond to the ATO, remission may be available. The key is demonstrating a clear causal link: the event prevented you from meeting your obligations, and you acted reasonably once the circumstances resolved.

ATO error. If the ATO gave you incorrect advice, failed to process a payment correctly, or made an administrative mistake that caused GIC to accrue when it shouldn’t have, remission is appropriate. Again, you’ll need documentation.

Financial hardship. If paying the GIC would cause serious financial hardship, risking insolvency or preventing you from meeting other critical obligations, the ATO may remit some or all of it. You’ll need to prove hardship with financials, not just assert it.

What’s changed recently? The ATO has tightened its approach to remission. There’s less tolerance for general requests. You need strong, specific evidence tied to one of the recognised categories. And even then, there’s no guarantee.

When do you ask for remission? Usually after the underlying dispute is resolved. Here’s why: if you ask for remission while the objection is still running, the ATO will often say, “We’ll consider that once we’ve decided the objection.” They’re not going to remit interest on a debt they’re still defending. Wait until the liability is settled, whether by objection decision, AAT determination, court judgment, or settlement, then make your remission case.

That said, if there’s a glaring instance of ATO delay or error during the objection, it can be worth flagging early. But expect the formal remission decision to come later.

How do you apply? In writing, with evidence. Set out the facts, the category of remission you’re relying on, the timeline, and the specific GIC periods you’re seeking remission for. Attach supporting documents. Make it easy for the ATO to say yes.

And be realistic. If the dispute took three years because it was legally complex and both sides were diligently progressing it, there’s no ATO delay and no remission. If you chose not to pay because you wanted to preserve cashflow, that’s not grounds for remission, it’s a commercial decision you made. Remission is for circumstances where it would be genuinely unfair to charge full GIC, not for buyers’ remorse about dispute strategy.

Using GIC Strategically in Settlement and Dispute Management

GIC isn’t just a cost. It’s leverage.

When you’re negotiating a settlement with the ATO, GIC is often the most flexible component. The ATO has limited room to concede on the primary tax if the law is clear. But they have broad discretion to remit or reduce GIC, especially if there’s any element of delay, uncertainty, or procedural complexity in the dispute.

Smart settlement discussions separate the primary liability from the interest. You might agree on a tax outcome that’s somewhere between your position and the ATO’s, and then negotiate separately on what portion of the GIC gets remitted. In many cases, the ATO will agree to wipe or substantially reduce GIC as the price of settlement, particularly if it avoids the cost and risk of taking the matter to the AAT or Federal Court.

Here’s how GIC shapes settlement strategy:

It increases the cost of fighting. The longer a dispute runs, the more GIC accrues, and the higher your total exposure becomes. That creates natural pressure to settle earlier rather than later, especially if your prospects of success are uncertain. The ATO knows this. They also know that many taxpayers reach a point where the accumulated GIC makes even a partial loss unpalatable. Use this dynamic consciously: model what GIC will look like at each stage (post-objection, post-AAT, post-Federal Court) and decide where the risk-reward stops making sense.

It creates a negotiation point. If you’re willing to settle the primary tax, make GIC remission part of the package. Position it as reasonable: “We’ll pay X on the primary liability without further dispute, and you remit the GIC that’s accrued because of the delay in resolving this.” That’s often more attractive to the ATO than continuing the fight.

It shifts the economics of appeals. If you lose at objection and are considering an AAT appeal, factor in that GIC will continue to accrue throughout the AAT process (easily another 12-24 months) and any subsequent Federal Court appeal (add another 12-18 months). If your GIC is already substantial, the cost of pursuing the dispute may exceed any realistic upside. That doesn’t mean don’t appeal, it means make the decision with eyes open.

It makes partial payments strategic. As discussed earlier, paying some of the disputed amount on account caps your GIC exposure and demonstrates good faith. That strengthens your hand in settlement discussions and in any later remission application. It shows you weren’t just holding out for tactical reasons.

Let me give you a scenario:

You owe $3 million in disputed tax. You’ve lodged an objection. Eighteen months in, you’ve paid $1.5 million on account. GIC is now accruing only on the remaining $1.5 million. The ATO offers to settle at $2.5 million primary tax. You’ve already paid $1.5 million. If you accept the settlement, you owe another $1 million in primary tax. But what about the GIC? You negotiate remission of 75% of the accrued GIC, arguing that the dispute was complex, both sides took time, and your part-payment showed good faith. The ATO agrees. You pay $1 million primary tax plus $50,000 GIC. Total: $2.55 million, instead of $2.5 million primary plus $400,000 GIC. The settlement makes commercial sense because you’ve managed the GIC as part of the deal.

That’s strategic dispute management. You’re not just litigating. You’re managing risk, cashflow, and leverage across multiple dimensions.

How GIC Accrues Across Objection, AAT and Federal Court Stages

Most disputes don’t end at the objection stage. They escalate. And at each stage, GIC continues to compound.

Here’s what the lifecycle looks like:

Stage 1: Objection. You lodge an objection. The ATO grants an extension of time to pay. GIC starts accruing from the original due date of the tax. The objection takes 12-18 months (sometimes longer). During this time, GIC compounds daily. If the objection is disallowed and you decide to appeal, you move to the next stage. GIC doesn’t pause between stages.

Stage 2: AAT. You apply to the Administrative Appeals Tribunal. The matter gets listed, evidence is filed, there are case management hearings, maybe mediation. The AAT process typically takes another 12-24 months, sometimes more. GIC continues to accrue on the full debt throughout. The AAT might eventually find in your favour, partially in your favour, or uphold the ATO’s position. Regardless, GIC has been compounding for 2-4 years by this point.

Stage 3: Federal Court. If there’s a question of law, you might appeal the AAT decision to the Federal Court. Add another 12-18 months. GIC is still running. By the time a Federal Court decision is handed down, you could be 4-6 years from the original due date. At current GIC rates, that’s doubled your debt.

Here’s a worked example:

• Original amended assessment: $2 million, due in April 2020.
• Objection lodged: May 2020.
• Objection disallowed: October 2021.
• AAT application: November 2021.
• AAT decision: June 2023.
• Federal Court appeal: August 2023.
• Federal Court judgment: March 2025.

By March 2025, GIC has been compounding on $2 million for almost five years. At an average rate of 10% per annum, you’re looking at roughly $1.2 million in GIC, on top of the $2 million primary tax. Your total exposure is now $3.2 million.

Now suppose the Federal Court finds in your favour and reduces the primary liability to $1 million. Congratulations, you’ve won. But GIC was calculated on $2 million from April 2020 to March 2025. You’ll need to apply for remission of the GIC that accrued on the $1 million that’s been written off. The ATO might grant it. They might not. And in the meantime, GIC on the remaining $1 million is still accruing because you haven’t paid it yet.

Can you see why so many disputes settle before reaching the Federal Court? It’s not necessarily because taxpayers lack strong legal grounds. It’s because the cost of continuing, both financial and psychological, becomes unsustainable.

This is also why part-payment strategies become more important as disputes escalate. If you’d paid $1 million on account at the objection stage, you’d have capped GIC on half the debt for the entire 5-year period. That could have saved you $600,000 in interest.

Governance and Practical Steps for Businesses and Advisers

If you’re a director, CFO, or business owner dealing with a tax dispute, GIC should be on your board’s radar. Not as a footnote. As a material financial risk.

Here’s what good governance looks like during a tax dispute:

Model the exposure. Before you decide to object or appeal, model the GIC. What will it be if the dispute takes 12 months? 24 months? 36 months? What’s your total exposure if you lose? What’s the cost of settling now? Run the numbers in a spreadsheet and make decisions based on data, not emotion.

Document your strategy. Board minutes should record the decision to dispute, the rationale, the assessed prospects of success, and the approach to managing GIC (pay in full, pay on account, hold off). This isn’t just good governance. It’s protection. If the dispute goes badly, you’ll need to show you made a considered decision, not a reckless gamble.

Provision appropriately. If the dispute is material, you’ll need to disclose it in financial statements and potentially create a provision. That provision should include GIC, not just the primary tax. Understating the exposure misleads stakeholders and creates nasty surprises later.

Monitor and review. Don’t set and forget. As the dispute progresses, track how much GIC has accrued. Review your strategy every 6-12 months. Are your prospects still strong? Is the cost of continuing still justified? Has anything changed that makes settlement more attractive?

Engage experienced advisers. Tax disputes and GIC management require specialist expertise. Your regular accountant may not have litigation experience. Your litigation lawyer may not focus on tax. You need advisers who understand both the legal merits and the financial dynamics of GIC. Make sure they’re talking to each other and giving you integrated advice.

Prepare for remission early. As the dispute progresses, keep a running record of any ATO delays, procedural issues, or unreasonable conduct. That evidence is gold when you apply for remission later. Don’t wait until the dispute is over to start gathering it.

Consider cashflow impact. Even if you’re confident you’ll win, can you afford to carry the GIC exposure while the dispute runs? If paying on account would strain cashflow, model the trade-off: financial stress now vs interest cost later. Sometimes preserving liquidity is the right call, even if it means higher GIC. Just make that decision consciously.

Communicate with stakeholders. If the business has lenders, investors, or partners, they’ll want to know about material tax disputes and the associated GIC liability. Keeping them informed builds trust and avoids nasty surprises if the dispute goes badly.

What Actually Stops GIC From Accruing (and What Doesn’t)

Let’s clear up some persistent myths:

Lodging an objection does not stop GIC. It stops enforcement. It doesn’t stop interest.

Getting an extension of time to pay does not stop GIC. It defers when you have to pay. Interest still compounds daily.

Requesting remission does not stop GIC. The request is separate. GIC continues to accrue until the debt is paid or formally remitted.

Disputing the debt “in good faith” does not stop GIC. Your intentions are irrelevant. The debt is owing, so interest accrues.

Winning your objection does not automatically stop GIC accruing on the portion you’ve won. GIC is recalculated once the objection is decided, but until that point, it accrues on the full assessed amount.

So what does stop GIC?

Paying the debt. In full or in part. GIC stops accruing on whatever portion you pay, from the date of payment.

Formal remission by the ATO. Once the ATO decides to remit GIC and processes that remission, it’s wiped from the record. But that doesn’t happen automatically. You have to ask, and they have to agree.

A court or tribunal order. If the AAT or Federal Court reduces the underlying liability, GIC is recalculated on the reduced debt. If the tribunal or court makes findings about ATO delay or error, that can support remission. But again, remission requires a separate application.

Settlement. If you settle with the ATO and remission of GIC is part of the deal, it stops accruing from the settlement date.

The pattern is clear: GIC is sticky. It doesn’t stop just because you think it should, or because you’re disputing in good faith. It stops when money changes hands, or when the ATO exercises discretion to remit it.

Making the Right Decision for Your Business

Litigation is complex. But the pathway shouldn’t be.

If you’re facing an ATO assessment and considering an objection, you need to understand that disputing the tax and managing the interest are two separate challenges. Winning the dispute doesn’t automatically solve the GIC problem. And losing the dispute after a multi-year battle can leave you with an interest bill that dwarfs the original tax.

The right approach depends on your specific circumstances: the strength of your case, your cashflow, your appetite for risk, and your ability to absorb GIC over the likely duration of the dispute. There’s no one-size-fits-all answer.

But there are principles that apply to every dispute:

• Model the GIC exposure before you commit to a path.
• Make conscious decisions about payment strategy: pay in full, pay on account, or hold off, but know why you’re choosing each option and what it costs.
• Understand that remission is discretionary, not automatic, and requires evidence.
• Treat GIC as a variable in every settlement and appeal decision.
• Don’t let the dispute run on autopilot. Review regularly and adjust as circumstances change.

The right adviser won’t just handle your dispute. They’ll help you make strategic decisions that account for both the legal merits and the financial realities of GIC. That’s the difference between managing a dispute and sleepwalking into a six-figure interest bill.

If you’re dealing with an ATO objection and the GIC exposure is starting to look material, it’s time to model the risk, evaluate your options, and make sure you’re managing both the dispute and the interest strategically.

Disclaimer: This article is general in nature and does not constitute legal advice. Every tax dispute is different, and the right strategy depends on your specific circumstances. If you’re facing a dispute with the ATO, seek tailored legal and financial advice.