The ATO says it generally does not apply penalties in isolated cases of late lodgment and considers the taxpayer’s circumstances when deciding what action to take. That does not mean an overdue return should be left outstanding. Check the ATO failure-to-lodge guidance or ask a registered tax agent before lodging.
How Late-Lodgment Penalties Work
A Failure to Lodge on Time penalty, commonly called an FTL penalty, can apply when you were required to lodge a tax return or another tax document and did not lodge it by the required date.
For a small entity, the base penalty is calculated at one penalty unit for every 28 days, or part of 28 days, that the document is overdue, up to five penalty units.
That is the statutory calculation. Whether the ATO applies a penalty, and how it treats your case, depends on the circumstances.
Does Being Several Years Late Mean the Penalty Keeps Growing Forever?
No. The standard base FTL calculation for a small entity is capped at five penalty units for the relevant document.
However, if you have several separate tax returns outstanding, each return is a separate lodgment obligation. There can also be a separate issue if lodging those returns establishes that you should have paid additional tax.
Late Lodgment and Late Payment Are Different Problems
A late-lodgment penalty relates to not lodging a required return on time. A tax debt relates to money you owe.
If an overdue return results in tax payable, the ATO may apply General Interest Charge, or GIC, to an amount that remains unpaid.
An overdue return can therefore produce different outcomes:
- an overdue return but no tax debt
- a tax debt resulting from an overdue return
- a refund from an overdue return
- several overdue years with a different outcome for each year.
You will not know the actual position until the outstanding years are reviewed and the required returns or non-lodgment advices are prepared.
What If I Cannot Afford the Tax Bill?
Fear of a large bill is one reason people continue postponing overdue returns. Lodging the return and paying the debt are related, but they are not the same step.
If you cannot pay an ATO debt in full, you may be eligible to establish a payment plan. GIC can continue to apply to the outstanding balance, so any arrangement still needs to be taken seriously.
Ignoring the return normally gives you less certainty, not more.
Can an ATO Penalty Be Reduced?
Depending on the circumstances, you can ask the ATO to remit certain penalties in full or in part, including many failure-to-lodge penalties.
The ATO considers the facts of the case. Relevant factors can include what caused the problem, your compliance history and what you did to bring your obligations up to date.
Remission is discretionary. A request does not guarantee that the penalty will be reduced or cancelled.
What If You Are Five or Ten Years Behind?
Start by determining exactly which financial years the ATO records as outstanding. You do not need to guess, and you do not need to solve every year in one evening.
Each year can then be reviewed to determine whether you need:
- a tax return for that financial year
- a non-lodgment advice because a return was not required.
Prior-year returns and non-lodgment advices can still be dealt with after the original deadline has passed. Working through the years in order also makes it easier to identify missing records and understand the combined result.
Do Not Let Fear Create Another Overdue Year
The longer an outstanding return stays untouched, the easier it is for another financial year to be added to the pile.
Getting started replaces worry about what might happen with something more useful: an actual understanding of your tax position.
Police Officer With Overdue Tax Returns?
PoliceTax works with police officers and their families and can assist with current and prior-year tax returns.
Whether you have missed one return or have several years outstanding, we can help identify what needs to be lodged and work through the years with you.