The way the ATO applies and remits interest on unpaid tax debts is attracting close scrutiny. With the Tax Ombudsman now conducting a review into how these charges are managed, it’s an issue that may affect many taxpayers and small businesses already under financial pressure. We’re sharing the following article from AccountantsDaily, which outlines the Ombudsman’s investigation and its potential implications.
The Tax Ombudsman, Ruth Owen, has begun a review into tax debt interest and is homing in on how the ATO manages the interest on unpaid tax debts.
Now under the Ombudsman’s microscope, it was noted that specific interest would be focused on where taxpayers sought to have their interest charged reduced or removed from their account when seeking to pay their tax debts.
Owen said the remission of debt interest charges was a “hot topic” as her office had received 134 complaints in the last financial year regarding the ATO’s approach.
“We’ve heard complaints about a general lack of consistency and transparency in the ATO’s approach to interest charges. Tax professionals and taxpayers have told us that it seems to be a matter of potluck as to who gets their interest reduced or remitted and who has to pay in full,” she said.
With the investigation now underway, Owen did note that the ATO had publicly stated its intention to take a stricter approach to debt collection and interest charge remission as the effects of the shift had been widely reported by the tax community.
Owen said with the current interest charge rate at around 11 per cent for unpaid debts, for some taxpayers, the interest itself could very quickly become larger than the original debt.
“Without a reduction or remission in the interest, many taxpayers face growing debts that are beyond their means to pay back, even when they want to meet their obligations,” she said.
“Taxpayers have an obligation to pay their tax bills, and we know most people are trying to do the right thing, but there are certain circumstances where we think the ATO could take a more compassionate approach to debt collection.”
A major factor also playing into the Ombudsman’s review was the varying range of factors that impacted a taxpayer’s ability to pay their debt on time, such as the tough economic environment, which largely played into the financial stress of households.
With the launch of the investigation, individuals, tax professionals, community organisations, industry groups and other interested parties have been strongly encouraged to submit submissions and case studies to further the Ombudsman’s review.
Owen’s office said submissions were open until Friday, 10 October and examples of where the ATO had done well, as well as examples of certain areas needing improvement, were welcome.
The review would aim to specifically examine whether ATO policy, communications and guidance to staff and the public about how the consideration of GIC remission requests was clear and the reason behind the ATO’s decision to tighten its remission of GIC and intended outcomes.
In addition to this, the review would also look into whether remission decisions were fair and reasonable and were made consistently for taxpayers in certain circumstances, whether taxpayers were given adequate reasons not to remit their GIC and whether there were opportunities to improve GIC remission systems and processes in light of the growing cost of impact on taxpayers.
The investigation was flagged as a crucial area for the Ombudsman to home in on as a decision to refuse, to remit, or reduce the GIC couldn’t be reviewed by the tribunal, only the Federal Court, which would likely be beyond the means and capacity of most taxpayers.
Owen said this matter had been further exacerbated by GIC no longer being tax-deductible from 1 July 2025.
“Although the GIC is an important element of the tax system, to ensure that those who deliberately avoid paying tax are not given an unfair advantage, it should punish those trying to do the right thing,” she said.
“This issue can affect the livelihood of small businesses and taxpayers already doing it tough – I encourage anyone that’s been impacted by an interest charge remission decision to contribute to our review and help us to thoroughly investigate the matter.”
This article was first published by AccountantsDaily on 15 September 2025.
