ATO debt now costs 11.51% and is not deductible: what freelancers should do

Abby's take

What this means for the industry — and for independents

Industry impact. The October quarter rate turns a delayed BAS or income-tax payment into a fast-moving business cost. Because the charge is no longer deductible, the after-tax burden is harder than the headline rate may suggest.

For freelancers. A sole trader can mistake money in the booking account for spendable cash, then finance the tax gap with future appointments. Daily interest reduces the contribution from those appointments before workspace, product and personal drawings are paid.

What I'd do next

• Download the current ATO account balance and identify the principal, general interest charge, penalties, due dates and any amounts already under a payment plan.
• Calculate the first-day cost at the current daily rate and model 30, 60 and 90 days without assuming the quarterly rate will remain unchanged.
• Separate new GST, PAYG and income-tax reserves from operating cash so repaying old debt does not create the next overdue liability.
• Contact the ATO or a registered tax professional before a missed payment, compare all fees and rates, and document an affordable plan based on conservative bookings.

Watch-out. Rates change quarterly and the ATO may remit interest only in qualifying circumstances. This article is general information, not tax, credit or financial advice. Confirm the current account, rate, deductibility and payment options with the ATO or a registered adviser.

What changed on 1 October 2026

The ATO’s published general interest charge rate for October to December 2026 is 11.51% a year, or 0.03153425% a day. The previous July to September annual rate was 11.43%. GIC can apply when tax or another liability remains unpaid after its due date.

The charge is calculated daily on a compounding basis. The rate is reset quarterly, so a long payment plan can cost more or less than an estimate made today. Check the live ATO rate rather than copying one number into a permanent budget.

A $10,000 balance costs money every day

At the published daily rate, a constant $10,000 balance produces about $3.15 of GIC on the first day. If the balance and rate stayed unchanged for 90 days, daily compounding would add roughly $288. That illustration excludes payments, new liabilities, penalties and future rate changes.

The useful comparison is not merely 11.51% versus a card or loan rate. Include establishment fees, card fees, default terms, security and whether taking new credit solves the tax gap or only moves it somewhere less visible.

• Illustrative opening debt: $10,000.
• First-day GIC at 0.03153425%: about $3.15.
• Illustrative 90-day GIC with daily compounding and no payments: about $288.
• Actual cost changes with payments, new debts, remission and quarterly rates.

The interest no longer creates a tax deduction

The ATO states that GIC and shortfall interest charge incurred on or after 1 July 2025 cannot be claimed as an income-tax deduction. That matters when comparing the cost with another genuinely deductible business borrowing expense, although deductibility depends on the purpose and facts.

Do not reduce the 11.51% in a spreadsheet by an assumed tax rate. Use the full cash charge for the ATO debt, then ask a registered tax adviser how any alternative finance would be treated.

A payment plan does not make the debt free

The ATO says people owing $200,000 or less may be able to set up a plan through online services or the self-help phone line. Eligibility and terms depend on the account. A plan generally manages payment timing; do not assume it stops GIC.

If income-tax and activity-statement debts are both present, the ATO says separate payment plans may be needed. Confirm the arrangement, direct-debit timing and what happens if a payment fails rather than relying on an instalment amount shown once.

Prepare for the end of ATO credit-card payments

Stop the old debt creating a new debt

Paying every spare dollar to the old balance while spending current GST or PAYG reserves creates a loop. Open a separate tax holding account, move a percentage or calculated amount from each settlement and keep new due dates visible.

Then set the old-debt payment from conservative contribution after direct product, workspace, software, insurance and current tax reserves. A plan that works only in a fully booked month is likely to fail when cancellations arrive.

Build a tax set-aside method from each payment · Separate business and tax cash clearly

Use a three-number decision before refinancing

Write down the ATO debt’s current daily cost, the affordable weekly repayment from a quiet month and the total cost of any alternative facility. A lower advertised rate can still lose after fees, longer duration or a personal guarantee.

If the business cannot pay current obligations and reduce the old balance, the answer is not automatically another loan. Contact the ATO early, involve a registered tax agent where appropriate and review pricing, drawings, capacity and costs before the debt decides the plan for you.

Model repayments against conservative bookings · Rebuild a buffer after the plan is stable

Common questions