Does an ATO payment plan charge interest?

How interest works inside a payment plan

The ATO treats a payment plan as an agreement about timing. The debt itself stays overdue in the ATO's system, so GIC is calculated every day on whatever is still unpaid and added to your account. Each instalment reduces the balance, so the daily interest shrinks as you go, but it never reaches zero until the last dollar is paid.

Because the rate compounds daily, a longer plan costs noticeably more than a shorter one. As a rough guide at the current rate:

These figures assume even instalments and the rate staying where it is. The GIC rate is reset each quarter, so the exact amount will move. What does not change is the direction: more months means more interest. We cover why the deductibility change matters in ATO interest is no longer deductible.

When interest is remitted or not charged

There are two real exceptions, and both are narrower than people hope.

• GIC remission. You can ask the ATO to remit (cancel) some or all of the interest, usually because something outside your control caused the delay, or because it would be fair in the circumstances. Small requests are often handled on the phone; larger ones go in writing. Keeping to your plan helps the case. See GIC remission.
• Interest free plans for activity statement debt. A small business with turnover under $2 million, an activity statement debt of $50,000 or less that is no more than 12 months overdue, no outstanding lodgements and no more than one plan default in the last 12 months may qualify for a 12 month direct debit plan where GIC is charged and then automatically remitted while the plan is kept. Details in can I get an interest free ATO payment plan?

Outside those situations, assume interest is part of the cost of the plan and budget for it.

How to keep the interest bill down

• Pick the shortest term you can genuinely keep. The ATO prefers this too, and it is where most of the saving is.
• Pay something upfront. Interest is calculated on the balance, so a lump sum on day one cuts the cost of every day that follows.
• Make extra payments when you can. There is no penalty for paying early. See can I pay a plan out early?
• Ask for remission at the end, not the start. A plan that has been kept faithfully is stronger evidence than a promise.
• Compare the cost of finance. At 11.43% non deductible, a plan is not automatically cheaper than borrowing. Run both numbers before deciding.

What to do next

1. Check your ATO account balance so you know how much GIC has already been added.
2. Use the ATO's payment plan estimator to compare the total interest on a 12 month and a 24 month term.
3. Set the plan up on the shortest term your cash flow can hold, and make extra payments whenever you can.
4. Once you have kept the plan for a few months, ask about GIC remission if there was a genuine reason for the delay.

More questions: 26 ATO payment plans questions answered · Full guide: ATO payment plans