Highlights

  • Penalties or interest were reduced or remitted in only 5% of Tax Ombudsman cases, down sharply from 17% previously.
  • Complaints about penalties and interest rose from 13% to 18% of the total, mostly over the general interest charge.
  • The general interest charge compounds daily and, since 1 July 2025, is no longer tax deductible for anyone.
  • Individuals without a tax agent lodged 82% of complaints, and the ATO urges people in hardship to make contact early.

A tax bill goes unpaid past its due date, the interest meter starts running, and the obvious next move is to ask the ATO to wipe some of it. That request is now a long shot. In the six months to September 2026, penalties or interest were reduced or remitted in just 5% of cases raised with the Tax Ombudsman, against 17% before. The charge has also grown costlier, with the general interest charge (GIC) last cited at 11.51% a year and no longer deductible.

From one in six to one in 20

The numbers come from the Tax Ombudsman's bi-annual complaints insights report. Complaints about penalties and interest made up 18% of all complaints to the office, compared with 13% earlier. Relief fell from about one in six cases to roughly one in 20, and the report links that drop to a tougher ATO approach to debt.

Tax Ombudsman Ruth Owen said the ATO "has really significantly ramped up its activity on debt collection". She said fewer payment arrangements are being offered and added: "I question how they go about it."

ATO Commissioner Rob Heferen said debt, last reported at $115 billion in June 2025, was expected to have grown: "Where debt is collectable, we will continue to take firmer actions."

How the interest charge builds

The GIC applies to tax paid late and to certain other shortfalls, such as a PAYG instalment that was varied too low. It is calculated daily on a compounding basis, so each extra day costs more than the last. The rate is reset each quarter from the 90-day bank accepted bill yield plus an uplift factor of 7 percentage points.

Both the GIC and the shortfall interest charge (SIC) have been non-deductible since 1 July 2025. Before that, a business or individual could claim the GIC, which softened the cost. That cushion has gone.

What six months of interest costs

Take a hypothetical small company that owes $50,000 in tax and leaves it unpaid for 182 days. At 11.51% a year, compounding daily, about $2,953 in interest accrues, taking the total owing to roughly $52,953.

Under the old rules, a company on the 25% base rate entity rate could have claimed that interest and trimmed its tax by about $738. Today the full $2,953 is a real after-tax cost. Stretch the delay to a full year and the interest on the same debt reaches about $6,098, because the charge compounds on earlier interest. The rate moves each quarter, and a real debt may carry penalties too.

How remission requests work

The Commissioner has a discretion under tax administration law to remit all or part of the GIC. Broadly, the ATO asks whether circumstances outside the taxpayer's control caused the delay, whether reasonable steps were taken to limit the consequences, and whether remission would be fair and reasonable. Some penalties can be remitted too.

A request is generally made in writing, through online services, a registered tax agent or by phone, setting out what happened and why. Evidence such as medical records, records of natural disasters or bank correspondence generally strengthens it.

Who is affected, and dates ahead

Individuals without a tax agent, including sole traders, lodged 82% of the complaints. Small business made up 20% of complaints but almost a third of investigations. Debt calculation, hardship release applications and director penalty notices together made up just over half of debt-related complaints.

The ATO is scheduled to appear before the Senate Economics Legislation Committee from 5pm AEDT on Wednesday 28 October, where debt and interest are expected to feature. The Ombudsman's review of director penalty notices is expected to report in April 2027.