Failing to lodge tax returns, Business Activity Statements (BAS), or other required documents on time can result in Failure to Lodge (FTL) penalties from the Australian Taxation Office (ATO). These penalties are designed to encourage compliance but can significantly add to existing tax debt. For businesses and individuals already struggling financially, non-compliance can trigger an avalanche of fines and interest charges that quickly become overwhelming.
How Failure to Lodge Penalties Work
The ATO imposes Failure to Lodge (FTL) penalties when businesses or individuals do not submit tax returns, BAS, or other obligations by the required deadline. These penalties increase the longer the delay, making it essential to lodge outstanding documents as soon as possible. The ATO issues these penalties regardless of whether you owe tax – simply failing to lodge on time can trigger significant fines.
Penalty Amounts for Late Lodgment
The Australian Taxation Office (ATO) imposes penalties for late lodgement of tax returns or statements, with the penalty amount determined by the size of the entity and the length of the overdue period. Penalties are calculated in “penalty units,” each valued at $330 as of 7 November 2024. The penalty increases for every 28-day period the return or statement remains overdue, up to a maximum of five penalty units.
Small Entities: A small entity incurs a penalty of one penalty unit for each 28-day period (or part thereof) the return or statement is overdue, up to a maximum of five penalty units.
Medium Entities: For medium entities, the penalty is two penalty units per overdue 28-day period. A medium entity is defined as one with assessable income or GST turnover between $1 million and $20 million or classified as a medium withholder for PAYG purposes.
Large Entities: Large entities face a penalty of five penalty units per overdue 28-day period. A large entity is one with assessable income or GST turnover of $20 million or more or classified as a large withholder for PAYG purposes.
Significant Global Entities: For significant global entities, the base penalty is multiplied by 500. A significant global entity is defined as one required to lodge an approved form after 1 July 2017, with this penalty applying to entities that fail to meet the lodgement requirements.
These measures are designed to encourage timely lodgement of tax obligations and prevent unnecessary delays.
The Impact of FTL Penalties on Businesses
FTL penalties can quickly escalate into serious financial issues, particularly for small businesses. Many businesses fall into non-compliance due to cash flow challenges, administrative errors, or a misunderstanding of their reporting obligations. However, once penalties begin to accumulate, businesses can struggle to catch up, leading to a snowball effect.
Cash Flow Strain
For small businesses, the combination of ATO penalties and interest charges can severely impact cash flow. Even a seemingly small fine of $330 can grow into thousands of dollars, adding to already overdue tax liabilities.
Increased Risk of Enforcement Actions
The longer a business remains non-compliant, the greater the risk of ATO enforcement actions, including:
- Garnishee orders, where the ATO seizes funds from bank accounts.
- Director Penalty Notices (DPNs), which hold directors personally liable for unpaid taxes.
- Legal action leading to liquidation or bankruptcy.
Penalty Relief for Early Lodgement
The ATO offers penalty relief in some cases, particularly for businesses or individuals that engage proactively to resolve overdue lodgements. If you submit returns or BAS before the ATO begins enforcement action, you may qualify for reduced or waived penalties.
Some circumstances where the ATO may grant penalty relief include:
- Unforeseen hardships, such as illness, natural disasters, or economic disruptions (like COVID-19).
- First-time offenders, particularly individuals or businesses with a good compliance history.
- Voluntary disclosure, where taxpayers identify errors and correct them before the ATO contacts them.
However, relief is not guaranteed, and the process can be complex. Engaging with the ATO promptly and seeking professional assistance improves your chances of penalty reduction.
Why Prompt Action Is Critical
The longer tax obligations remain outstanding, the more difficult it becomes to resolve the debt. Interest charges accumulate, and the ATO becomes less likely to offer leniency if non-compliance continues over an extended period. Additionally, businesses that fail to lodge tax returns or BAS risk losing access to ATO payment plans, leaving them vulnerable to more severe enforcement actions. Early action is critical to avoid irreversible financial damage.
How Tax Negotiators Can Help
At Tax Negotiators, we offer valuable assistance for businesses and individuals struggling with outstanding tax lodgements and penalties. We have extensive experience navigating ATO processes and can provide expert guidance to help our clients achieve the best possible outcome.
1. Lodging Overdue Returns and BAS
We can identify all outstanding obligations and ensure that returns and BAS are submitted as soon as possible. We understand ATO requirements and streamline the lodgement process, minimising delays and errors.
2. Negotiating Penalty Reductions
At Tax Negotiators, we know how to engage with the ATO to request penalty relief. We can present detailed evidence of hardship or extenuating circumstances, improving the chances of a penalty waiver or reduction.
3. Setting Up Payment Plans
For businesses and individuals facing significant tax debt, we can negotiate payment plans with the ATO that align with cash flow. This allows our clients to repay their debt over time while staying compliant with future obligations.
4. Ensuring Ongoing Compliance
Beyond resolving immediate issues, our friendly team can help clients develop compliance strategies to avoid future penalties. This includes setting up reminders for lodgement deadlines and providing ongoing support to ensure financial stability.
A Case for Early Engagement
Businesses and individuals who act early to resolve overdue lodgements have a much higher chance of avoiding severe penalties and enforcement actions. The ATO is more likely to offer leniency when taxpayers engage proactively. However, ignoring the problem will only make matters worse. The longer non-compliance continues, the greater the financial impact – and the harder it becomes to negotiate relief.
Failure to lodge tax returns or BAS on time can result in costly penalties that quickly add to existing tax debt. The ATO applies these penalties regardless of whether tax is owed, making it crucial to stay on top of reporting obligations. Businesses and individuals struggling with overdue lodgements should act quickly to resolve the issue before penalties accumulate further.
Contacting the professional team at Tax Negotiators can make a significant difference. We can streamline the lodgement process, negotiate penalty relief and set up payment plans to ensure that our clients remain compliant and avoid future fines. If you’re facing overdue tax obligations, don’t wait until enforcement actions begin – reach out to our friendly team today to explore your options and protect your financial future.
