Can ATO debt be reduced? Interest, penalties and formal compromises
An ATO debt can sometimes be reduced, but not usually by an informal deal. The main routes are: asking the ATO to remit interest or penalties; correcting an assessment or estimate that is wrong; or using a formal insolvency process, such as small business restructuring or a deed of company arrangement, where creditors including the ATO vote on a proposal to pay less than the full amount. A payment plan does not reduce the debt.
The ways an ATO debt can be reduced
| Route | What it can reduce | Key point |
|---|---|---|
| Remission of interest | The general interest charge | The ATO considers whether the delay was outside your control, or whether remission is fair and reasonable |
| Remission of penalties | Penalties, such as failure-to-lodge penalties | Request it from the ATO, explaining the circumstances |
| Objection or review | An assessment you believe is wrong | Strict time limits apply, so act early |
| Reducing an estimate | An ATO estimate of PAYG withholding, GST or super | See ATO estimates |
| Small business restructuring | Unsecured debts covered by the plan, including ATO debt | Creditors vote. If accepted, the plan binds unsecured creditors |
| Deed of company arrangement | Debts covered by the deed | Proposed through voluntary administration. Creditors vote |
Asking the ATO to remit interest
The ATO considers whether you were responsible for the delay in payment, or whether it was outside your control. If you were responsible, it considers whether it is fair and reasonable to remit. Explain:
- the specific event or circumstances that caused the delay;
- how they stopped you paying on time; and
- what you did to reduce their effects.
Your compliance and payment history matters. Interest continues to accrue while a debt is overdue. See general interest charge on ATO debt.
Behind with the ATO?
The earlier you act, the more options you have. Book a free 30-minute call with Luke D’Costa, Senior Manager – Debt Strategist. If you have received a director penalty notice, check your deadline with our 21-day DPN calculator.
Book a free 30-minute call Sydney 02 9660 3532 · Brisbane 07 3868 1888
Formal options that can compromise ATO debt
Small business restructuring
For companies with liabilities of $1 million or less. Directors stay in control while a practitioner helps them put a plan to creditors. If creditors holding a majority of the debt of those who vote accept it, the plan binds unsecured creditors, including the ATO. See small business restructuring and what creditors actually receive.
Deed of company arrangement
Proposed during voluntary administration. Creditors vote on whether to accept it. See deed of company arrangement and DOCA vs liquidation.
What does not reduce the debt
- A payment plan. It spreads payments over time, but the full amount, plus interest, is still paid.
- Release from tax debts. This is available to individuals in serious hardship, not to companies.
- Waiting. Interest keeps accruing, and the ATO’s recovery options grow.
Directors should also remember that reducing the company’s debt does not automatically remove their own exposure under a director penalty notice. See SBR and DPNs.
Common questions
Can a company negotiate its ATO debt down?
Not through an informal deal in most cases. The main ways to reduce what is owed are asking the ATO to remit interest or penalties, correcting an assessment or estimate that is wrong, or using a formal process such as small business restructuring or a deed of company arrangement, where creditors including the ATO vote on a proposal.
Will the ATO remit the general interest charge?
It may. The ATO considers whether the delay in payment was outside your control, and if you were responsible, whether it is fair and reasonable to remit. You need to explain what caused the delay, how it stopped you paying and what you did to reduce its effects. Your compliance history matters.
Can a company apply for release from a tax debt?
Release from tax debts on serious hardship grounds is available to individuals, not companies. A company needs one of the other routes.
Does a payment plan reduce the debt?
No. A payment plan spreads payments over time, and interest continues to accrue. It does not reduce the amount owed.
Is the ATO bound by a small business restructuring plan?
If creditors accept the plan, it binds the company’s unsecured creditors, which usually includes the ATO, for the debts the plan covers.
Sources: Australian Taxation Office, Remission of interest charges; Corporations Act 2001 (Cth) Parts 5.3A and 5.3B. This page is general information, not advice about your circumstances. Last reviewed: 9 October 2026.
Written by Luke D’Costa, Senior Manager – Debt Strategist. Luke has more than 16 years’ experience in insolvency and holds ARITA’s Advanced Certificate in Insolvency.
Reviewed by John Chand, Principal and Registered Liquidator. John has more than 17 years’ insolvency experience. Meet the team.
