Failing To Lodge

In recent articles, we have been discussing ways that Hills Accounting, Tasmania, can help if your tax return (or some other legal requirement) is overdue. We have also discussed ways that you can be better prepared so as to not have overdue lodgements at all.

What we have not tackled is the downside of this situation. So in this article, we will give a brief overview of what the downside looks like.

What can happen to you if you fail to lodge my tax return on time?

In the first instance, the ATO will contact you either by letter, SMS, a message in your MyGov account or phone to notify you of the situation and warn you of the potential outcomes if you ignore their contact. Failing to lodge your annual tax return on time in Australia can potentially lead to various penalties. It is important that you understand that failing to lodge is considered a criminal offence

If you end up in court and are convicted, you could face significant fines or even imprisonment for up to 12 months. So if things do go sideways, it is important to try to work with the ATO to resolve the issues, and at Hills Accounting we have experience dealing with these issues so we can certainly advise on the best approach.

The first step will probably be a Failure To Lodge Penalty (FTL).

What is an FTL Penalty?

An FTL penalty is a fine that the Australian Taxation Office (ATO) imposes on individuals who do not lodge their tax returns or report by the stipulated deadline. The penalty is meant to enforce compliance with the taxation reporting obligations.

How are these penalties calculated and how much would they cost you?

For small entities, the fines are calculated at the rate of one penalty unit for each period of 28 days (or part thereof) that the lodgement is overdue up to a maximum of 5 penalty units. The exact monetary value of a penalty unit can change, but at the time of writing this article (September 2023) one penalty unit equates to $313.00.

However, if you are considered a Medium or Larger Entity that penalty can increase from double to up to 500 times the minimum penalty.

What further penalties could there be?

The ATO may apply a General Interest Charge (GIC) to unpaid tax liabilities. This can be applied if an amount of tax, charge, levy or penalty is either paid late or remains unpaid. It can also be applied if there is an excessive shortfall in an incorrectly varied or estimated income tax.

The amount of interest charged is reviewed quarterly and, for the current quarter (July - September 2023) it sits at an annual rate of 10.90%.

What Happens If You Still Fail To Lodge The Return

The ATO can issue a final notice if you have ignored previous requests to lodge. This notice is a legal document and, as previously noted, could end up with additional fines and/or up to 12 months imprisonment.

Also, the ATO do not actually need your lodgement to complete your return and they can assess your income without your assistance. Once they have assessed your income they will add a 75% penalty to the tax-related liability. This means for every $100.00 owed to the tax department following their assessment there will be an additional payment of $75.00 required.

Can I avoid these penalties?

The simple answer to this question is no. However, there are a couple of things to mention.

The ATO states very clearly that it is always willing to work with people who show a desire to be cooperative rather than ignoring them or actually being obstructionist in their dealings. So if you are not a serial offender and show a willingness to help the process it has been known for them to waive the first penalty, but this is not guaranteed and should not be relied upon.

There is also a ruling called a Safe Harbour Provision but this only applies to dealings with an accountant or qualified tax agent and there are a number of further qualifications that could apply in the process. However, this does again show the benefit of working with a professional, like Hills Accounting.

Basically, when all is said, the easiest step is to make sure you get your tax returns in on time. But if something goes wrong, it is essential that you get help from a professional who understands how the ATO operates and knows the best way to help you.

This article outlines the situation in fairly simple terms but the reality is, this can be a very complicated area requiring knowledge and experience to resolve.

At Hills Accounting, we have over 25 years of experience helping people with Overdue Tax Return issues. For more information email us today at admin@hillsaccounting.com.au or call us on 03 62737800.