Key Highlights

  • The interest the ATO charges on unpaid tax rose to 11.51% a year on 1 October 2026 and compounds daily.
  • The ATO's published GIC annual rate for the October–December 2026 quarter is 11.51%.
  • The rate was 11.43% in July–September 2026 and 10.61% in October–December 2025, according to the ATO.
  • The shortfall interest charge, which applies when the ATO amends an assessment and finds that too little tax was paid, is 7.51% a year for the same quarter.

The interest the ATO charges on unpaid tax rose to 11.51% a year on 1 October 2026 and compounds daily. For the first time at tax time, people lodging their 2025–26 returns cannot deduct it. General interest charge (GIC) and shortfall interest charge (SIC) incurred from 1 July 2025 are no longer tax-deductible. With the 31 October lodgment deadline close and 2025–26 tax bills falling due soon after, carrying a tax debt now costs considerably more after tax.

The new ATO interest rates for October to December 2026

The ATO's published GIC annual rate for the October–December 2026 quarter is 11.51%. Its daily rate is 0.03153425%, and interest compounds every day the debt is unpaid.

The rate was 11.43% in July–September 2026 and 10.61% in October–December 2025, according to the ATO. That makes the current rate about 0.9 percentage points higher than a year ago. The 2025–26 quarters ran at 10.78%, 10.61%, 10.65% and 10.96%.

The shortfall interest charge, which applies when the ATO amends an assessment and finds that too little tax was paid, is 7.51% a year for the same quarter. Its daily rate is 0.02057534%, up from 7.43%. The ATO says SIC is based on the 90-day bank accepted bill rate plus a 3% uplift.

Why ATO interest is no longer tax-deductible

Until mid-2025, taxpayers could generally deduct GIC and SIC, which reduced the real cost of a tax debt. That changed from 1 July 2025.

The ATO's "What's new for individuals" page states that for GIC and SIC incurred on or after 1 July 2025, "you can't claim these amounts as an income tax deduction in your 2025–26 or later tax returns".

Interest incurred before 1 July 2025 remains deductible in the 2024–25 and earlier income years. The 2025–26 return is the first return on which the full non-deductible rule applies.

What a tax debt now really costs

Because GIC compounds daily, a debt grows more quickly than a simple annual rate suggests.

Hypothetical example: Sam owes $10,000 to the ATO and leaves it unpaid for the full 92-day October–December 2026 quarter. At the daily rate of 0.03153425%, compounding each day, the interest comes to about $294.32.

If the same rate applied for a full year, which is not guaranteed because the ATO resets it every quarter, a $10,000 debt would accrue about $1,220 in interest.

The ATO's message: we are not a lender

Tax Commissioner Rob Heferen has been blunt about the ATO's role. Speaking at the CPA Australia Tax Forum on 20 August 2026, he said: "The tax office should not be thought of as a source of finance."

He added: "The best debt is the debt that never arises."

Many small businesses have relied on payment plans to manage cash flow. The higher interest rate and the loss of the deduction both make that strategy more expensive.