A South East community-support agency has welcomed a call for the Australian Taxation Office to relieve the steep interest charged on tax debts.
South East Community Links has supported clients with a staggering total of $3.7 million in ATO-related debt since July 2024.
This includes more than $1.3 million of ATO debt so far in the 2025-’26 financial year.
Currently, tax law requires interest to be applied and to compound daily, even while taxpayers make repayments under approved plans.
“We’re seeing people working two or three jobs who are still falling behind because interest charges grow faster than they can repay,” SECL financial wellbeing head Rachna Madaan Bowman said.
Ms Bowman says the Tax Ombudsman’s call for interest-free payment plans and fairer processes would “make a real difference for people who are genuinely trying to stay on track”.
In a review this month, the Tax Ombudsman Ruth Owen urged the ATO to offer better relief for indebted taxpayers “trying to do the right thing”.
“The ATO’s decision-making isn’t meeting community expectations.
“In particular, it is impacting too harshly on some taxpayers trying to do the right thing in repaying their tax debts.
“Interest can make small debts grow to unaffordable levels very quickly and, for some taxpayers, the interest can become greater than the original debt, making full repayment near impossible.
“We have seen many cases where the interest compounds to levels grossly disproportionate to the principal debt and the taxpayer’s ability to pay,”
Ms Owen recommended that the ATO agreed to up-front, interest-free payment plans for eligible taxpayers.
“The interest does not then accumulate further while taxpayers take reasonable steps to repay their debts; it helps taxpayers get back on track and discharges the tax debt more quickly for the ATO.”
General interest charges (GIC) of 10.65 per cent are imposed when taxes are not paid on time.
Taxpayers with a debt can request a reduction or refund of interest, formally called a ‘remission,’ by asking the ATO and providing supporting information.
Of the $55 billion in uncontested tax owed to the Commonwealth Government, 18 per cent is made up of interest applied to the debt.
Between 2019 and 2025, the balance of GIC owed increased 185 per cent, outpacing the 94 per cent increase in uncontested tax debt.
The Tax Ombudsman also highlighted the ATO’s inconsistent decision-making on interest charges, vague guidance on rights to review and poor communications.
The ATO has agreed to all the Tax Ombudsman’s recommendations.
Ms Owen welcomed recent changes made by the ATO to address inconsistency in general interest charge (GIC) remission decisions and to improve its guidance to taxpayers and tax practitioners.
