ATO penalties for unpaid tax debts: General Interest Charge and Failure to Pay

For working holiday makers, tax debts most often arise from ABN income with tax not withheld during the year, from amended assessments after a return is lodged, or from BAS obligations for rideshare drivers who did not remit GST.

When does a tax debt arise?

A tax debt to the ATO can arise from:

• A tax return showing a balance owing (rather than a refund)
• An amended assessment after the original return was lodged, increasing the tax payable
• An unpaid Business Activity Statement (BAS) for GST-registered ABN holders
• An unpaid pay-as-you-go (PAYG) instalment for ABN holders with substantial income
• A penalty assessment for late lodgement or understated income (see our article on understating income penalties)
• A failed Departing Australia Superannuation Payment (DASP) that resulted in tax being clawed back

The debt is shown on the Notice of Assessment issued by the ATO after the return or statement is processed, with a due date for payment.

What is the General Interest Charge?

The General Interest Charge (GIC) is the daily compounding interest the ATO applies to unpaid tax. The rate is set quarterly and is substantially higher than the cash rate. As of 2025-26, the GIC rate is around 11% per year, compounded daily.

The GIC applies from the original due date of the debt until the debt is paid in full. Even a small initial debt grows quickly:

• $1,000 tax debt unpaid for 1 year: approximately $115 of GIC added
• $1,000 tax debt unpaid for 3 years: approximately $370 of GIC added
• $3,000 tax debt unpaid for 2 years: approximately $700 of GIC added

The GIC continues to accrue regardless of where you are in the world. Leaving Australia does not pause it.

What is the Failure to Pay penalty?

Separately from the GIC, the ATO can apply a Failure to Pay penalty. The penalty is one penalty unit ($313 in 2025-26) for every 28 days the debt remains unpaid, capped at five units ($1,565 per year per debt).

The Failure to Pay penalty is applied less consistently than the GIC. The ATO may apply it where:

• The debt is substantial
• There is a pattern of non-payment
• The taxpayer has not engaged with the ATO about the debt
• The debt is the result of deliberate under-reporting (in which case higher penalties also apply)

For working holiday makers, the GIC is the more reliable concern. The Failure to Pay penalty is sometimes waived if the underlying issue is resolved.

How does this differ from the late lodgement penalty?

The two penalty systems are independent:

• Failure to Lodge (FTL): applied when a tax return is filed late. $222 per 28 days, max $1,110. See our article on late tax return penalties.
• Failure to Pay (FTP) + GIC: applied when a tax debt is not paid by the due date. $313 per 28 days plus daily interest at around 11% per year.

A working holiday maker who lodges late AND pays late can be hit with both penalty systems on the same debt. The total cost can substantially exceed the original tax owing.

When is a tax debt due?

For an individual lodging through a registered tax agent, the standard payment deadline is 21 days after the Notice of Assessment is issued (which is usually within a few weeks of lodgement). For self-lodgers, the payment deadline is typically by the 21st of November following the end of the financial year.

For BAS debts, the payment is due on the same date the BAS is due, which is 28 days after the end of the quarter for most lodgers.

What if you cannot pay the full amount?

The ATO offers payment plans for taxpayers who cannot pay the full debt immediately:

• Short-term plans (under 12 months): generally available on request, with the GIC continuing to accrue
• Long-term plans (over 12 months): require more documentation and may require interest to be paid separately
• Hardship arrangements: for taxpayers in genuine financial difficulty

Engaging with the ATO early generally results in better outcomes than ignoring the debt and waiting for collection action.

See our article on payment plans for tax debt for the detail.

What happens if you leave Australia with an unpaid tax debt?

A working holiday maker who leaves Australia with an unpaid tax debt is still liable for the debt. The ATO can:

• Continue charging GIC daily on the unpaid amount
• Apply Failure to Pay penalties for ongoing non-payment
• Offset the debt against any future Australian refunds or DASP payments
• Refer the debt to international debt collection in some cases
• Place a marker on your record that affects future Australian visa applications

Australia has tax treaties with many countries that allow mutual collection of tax debts, though the practical application varies. The most direct consequence is that any subsequent return to Australia (on a working holiday extension, student visa, or skilled visa) will encounter the unresolved debt.

What about a DASP refund netted against the debt?

When you lodge a DASP application, the ATO has the right to offset any outstanding tax debt against the super payment. This means:

• A working holiday maker leaving Australia with a $2,000 unpaid tax debt and a $4,000 gross DASP entitlement
• DASP tax of 65% applies, reducing the gross to approximately $1,400 net
• The $1,400 net is then offset against the $2,000 debt
• The worker receives no DASP payment, and a debt of $600 remains

For workers with substantial tax debts, the DASP can effectively be lost to the debt offset. Resolving the debt before leaving usually gives a better outcome.

Can the GIC or Failure to Pay penalty be remitted?

The ATO has discretion to remit (reduce or cancel) the GIC and Failure to Pay penalty in some circumstances:

• Genuine hardship that prevented payment
• ATO administrative error that caused or contributed to the debt
• Circumstances beyond the taxpayer's control (illness, natural disaster, family emergency)
• First-time non-payment with otherwise clean compliance history

Remission requests must be made specifically and supported by evidence. The remission rate is generally higher for requests lodged through a registered tax agent than for direct requests.

How does our service support tax debt situations?

For working holiday makers with tax debts, our team:

• Calculates the exact debt position including GIC and any penalties accrued
• Negotiates payment plans with the ATO where the full amount cannot be paid immediately
• Requests remission of GIC and Failure to Pay penalties where there are grounds
• Coordinates DASP timing to manage the offset risk
• Lodges any outstanding returns or BAS to make sure the debt position is complete
• Resolves the debt position before departure to avoid the cascading effect on future Australian visas

Tax debts grow quickly under the GIC. Resolving them early is significantly cheaper than waiting. Get in touch with our team if you have an outstanding ATO debt or are concerned about how an upcoming return might create one.