The General Interest Charge (GIC) was introduced with good intentions: to encourage timely tax payments, prevent unfair advantages for late payers, and compensate the community for the cost of delayed revenue. But over time, this system has evolved into something far more punitive than practical.
With a compounding interest rate that includes a hefty penalty component, the GIC often turns manageable tax debts into quicksand, particularly for small businesses and individuals already under stress.
Recent shifts in the Australian Taxation Office’s (ATO) approach to GIC remission have amplified these problems. By tightening its administrative practices without overt policy changes, taxpayers and advisers feedback is that the discretion feels inconsistent, opaque, and, at times, unfair.
As someone who has worked both inside the ATO and now as a legal adviser to taxpayers, I see daily how the current approach to GIC remission is discouraging engagement, and creating systemic inefficiencies.
That said, I come at this issue with a practical lens. When the Ombudsman recently called for public submissions on the operation and management of the GIC, I contributed a detailed response as to how I believe it could be improved. The full submission is too lengthy to share here, so I’ve distilled its key insights into this article for your convenience.
Why the GIC system is broken
Intended purpose of the GIC
The rationale behind the GIC approach was that there needed to be an incentive for taxpayers to pay on time.
When businesses delay paying their taxes, they effectively gain access to extra cash that would otherwise go to the ATO. This creates a short-term liquidity advantage, particularly when the unpaid amounts include indirect taxes like GST. That advantage can be significant, allowing these businesses to fund operations or growth without incurring the cost of external borrowing.
Meanwhile, businesses that meet their tax obligations on time bear the full cost of compliance, leaving them at a competitive disadvantage. Over time, this dynamic distorts the market by rewarding non-compliance and penalising those who play by the rules.
The GIC was introduced in 1999 to simplify and standardise interest on overdue tax, replacing multiple penalty interest systems.
Its stated objectives are to:
- encourage timely payment of tax;
- prevent late payers from gaining an unfair financial advantage; and
- compensate the community for the cost of delayed revenue.
The GIC seeks to achieve these objectives through a base interest rate plus 7 percentage points applied on a compounding basis. The penalty component creates a strong deterrent against treating tax debt as a cheap source of credit. Additionally, taxpayers on a payment plan are incentivised to pay off their debt as soon as possible if full GIC continues to accrue.
The law also provides the Commissioner with discretion to remit GIC in full or part where circumstances warrant, such as events outside the taxpayer’s control, where it would be fair and reasonable to remit, where there are special circumstances, or where it is otherwise appropriate to remit. These conditions are intended to make remission available only in cases where support is genuinely needed.
How GIC remission is functioning in practice
The Commissioner’s discretion to remit GIC requires balancing the taxpayer’s circumstances against what is fair to the broader community. However, the weighting given to these considerations has sparked concerns about inconsistency, opaque decision-making, and questionable outcomes.
During COVID-19, the ATO paused debt recovery and applied generous GIC remissions to support taxpayers. This approach helped businesses survive but left the ATO with a $50 billion debt book by 2023, much of it likely uncollectable. When taxpayers were later asked to resume payments, many faced unmanageable debts compounded by GIC, making it impossible to clear arrears while meeting ongoing obligations.
To encourage people to re-prioritise paying their tax debt, the ATO tightened its stance on remission. , They did so not through formal policy changes, but by shifting the mindset and processes of its staff. This shift has led to decisions that can overlook individual circumstances – a problem made worse due to limited avenues to obtain reasons or seek review.
In circumstances where there is no recourse for review outside of judicial review (which is not a reasonable or proportionate next step for most taxpayers), it is very difficult to understand how decisions have been formed, which significantly undermines the trust and confidence in the system.
Unintended consequences of the ATO’s current posture on GIC remission
Given the policy rationale behind GIC, there are numerous practical issues arising from the ATO‘s current posture:
Disincentivising engagement with the ATO
- BroadIy, taxpayers are less likely to engage with the ATO if they expect that their circumstances will not be properly considered.
We have observed instances of taxpayers being advised that COVID-19 does not constitute a reason for GIC remission, which itself is broadly incorrect. The ATO is justified in ensuring that taxpayers do not rely solely on the impact of COVID-19 when seeking remission without supporting rationale. However, in circumstances where the taxpayer can demonstrate the specific effects COVID-19 had on their circumstances, as well as the actions they took to mitigate those impacts, remission should be appropriate.
- Taxpayers with viable businesses that are carrying historic debt have little incentive to engage on their ongoings if they cannot come to an arrangement for existing debt.
- Taxpayers that cannot enter a payment plan within the timeframe required by the ATO due to ongoing GIC are left with no incentive or option to continue engaging, likely leading to either disengagement or considering insolvency.
- Taxpayers who want to engage but cannot meet ATO parameters on remission or payment plans are treated the same as taxpayers who do not engage with the ATO at all. We have observed examples where the ATO has cited poor payment compliance as a reason not to remit GIC, in circumstances where there could not be GIC but for a failure to pay on time.
Impact on other creditors
- Businesses are looking to second and third-tier lenders to borrow money to pay tax debts (and claim a deduction for interest expenses) and avoid ATO debt recovery action. This often has longer-term financial impacts on businesses, which exposes their non-tax creditors to continued risk.
- Creditors of taxpayers forced to enter insolvency processes due to their inability to come to an arrangement with the ATO often receive very little dividend (if any), given the quantum of the ATO‘s claim and the associated costs.
- The collapse of businesses then impacts creditors who may themselves have outstanding tax payment obligations.
Cost to government
- While the ATO can partially remit GIC, including to remit the penalty component, there is little functional scope to obtain a partial remission of GIC, either at once or periodically. Whether this perception is real or imagined, an ‘all-or-nothing’ approach tends to exacerbate the effects outlined above.
Practical reforms to improve fairness, transparency, and trust
Considering the policy rationale for the GIC regime and the issues facing taxpayers and their advisers, I proposed the following recommendations to the ATO:
1. Establish a dedicated GIC remission workforce
While the ATO must manage its broad regulatory remit with limited resources, there is a strong case for creating a team specifically trained to handle GIC remission requests. Currently, these requests are processed across various areas, mostly by frontline staff who also perform routine processing and recovery tasks. Unlike those functions, GIC remission involves exercising discretion and assessing complex financial and personal circumstances.
A dedicated team would mirror the ATO’s approach to other discretionary decisions, such as hardship release and compromise requests. It would consolidate expertise, improve consistency, and ensure that decisions are informed by a deeper understanding of the issues involved.
2. Provide guidance on common situations
Publishing administrative guidance on common situations where GIC remission will either be granted or refused will assist both the ATO in providing reasons as to why remission is not granted, and advisers in managing client expectations. Currently both taxpayers and advisers do not know what to expect when they seek a remission of GIC. This may disincentivise taxpayers with valid claims from making a request and incentivise taxpayers without a reasonable argument to try their luck.
While the current Practice Statement provides guidance on when remission will and will not be available, there would be benefit in the ATO utilising their data to identify patterns in requests to provide guidance on common scenarios and how they are generally treated.
3. Provide guidance on the partial remission of GIC
Currently, there is no clear guidance on when partial GIC remission should apply. While PS LA 2011/12 acknowledges that partial remission is possible, it offers little direction for ATO staff or taxpayers. For example, remission might be appropriate where circumstances causing late payment only existed for part of the debt period.
Given that GIC includes a base rate plus a 7% penalty uplift, the ATO could consider remitting the uplift component in cases where compensation for late payment is justified but a penalty is not. The Victorian State Revenue Office provides a useful model: it distinguishes between market-rate interest (to reimburse government) and premium interest (to penalise and deter non-compliance), and publishes a matrix of circumstances where premium interest may be remitted.
Adopting a similar approach would clarify when partial remission is appropriate and encourage engagement. While system limitations may prevent large-scale implementation, ATO officers should still assess whether partial remission is warranted and how it can be applied.
4. Improve reasons for refusal and rights of review
Currently, GIC remission refusal letters provide little more than a restatement of the legal test, without explaining why the request failed. This lack of reasoning, combined with inconsistent decisions, frustrates taxpayers and erodes confidence in the system.
Whilst it may not be practical for the ATO to provide detailed reasons for the many thousands of interest remission requests it receives, there are examples of taxpayers resorting to requests for reasons pursuant to section 13 of the ADJR Act that are never responded to.
To address this, the ATO should publish clearer guidance on how common scenarios are treated and when partial remission (such as removing the penalty uplift) is appropriate. This would set expectations upfront and allow the ATO to reference guidance when providing reasons. Where tailored reasons are required, they should not be burdensome for the ATO as administrative law already requires officers to properly exercise discretion and document their reasoning. Capturing this information further supports a more effective review mechanism for GIC remission refusals.
Currently, taxpayers are told they can seek review under the ADJR Act, but this is costly and limited to requiring reconsideration. A better approach would be to allow internal review or bring GIC remission refusals under Part IVC of the Taxation Administration Act 1953 (Cth), aligning them with hardship release decisions. Concerns about administrative burden miss the point: accessible review pathways drive better decision-making and policy improvements, reducing disputes over time. The fact that decisions often change after complaints suggests there is room for improvement.
In the interim, the ATO could introduce an internal review process for remission refusals.
5. Require consideration of ongoing engagement with the tax system
Tax debtors often face a stark choice: pay their debt in full or face recovery action. If full payment isn’t possible, they can request an instalment plan, but the ATO rarely accepts arrangements longer than 1–3 years due to concerns over taxpayers being able to sustain the arrangement.
If the taxpayer cannot meet this timeframe, there is effectively no other way to engage with the ATO. The taxpayer may need to consider insolvency, or risk the ATO commencing legal and insolvency proceedings itself. However, the reality is that the ATO has limited capacity to commence such proceedings for all tax debtors. Many will remain in the system with debts sitting on their account, left with no practical reason to engage with the ATO even to address their ongoings.
While insolvency may seem preferable for some corporate taxpayers, re-engaging individuals or businesses can deliver better outcomes for the tax system. For example, restoring a taxpayer to compliance may be fairer than allowing liabilities to accumulate and be wiped out through bankruptcy.
Where accrued or ongoing GIC is the main barrier to re-engagement, ATO officers should consider whether remitting GIC, fully or partially, would be fair and reasonable to the community.
If you’re facing challenges with GIC remission or a broader tax dispute, informed advice can make all the difference. Aptum works with businesses and individuals to engage with complex ATO processes and achieve fair outcomes. If you’d like to discuss your options, contact us.
