Failure to lodge penalties: what happens if you don’t pay tax on time?

Most of us will have already filed our tax returns. Some of us might even have received our tax refund already.

There’s nothing wrong if you haven’t. Sometimes, life gets in the way.

Thankfully, you still have until the end of October to submit your tax return. That doesn’t mean you should procrastinate, though – we recommend getting it done ASAP.

Note that if you lodge with a registered tax agent like Bruce Edmunds & Associates, you can be eligible for delayed lodgement concessions, up until the 5th of June. Follow this link for more info or speak to your Edmunds tax accountant today.

Not only can this take a burden off your shoulders, but it also means you’ll avoid some of the hefty late tax return penalties.

What type of penalties can you be hit by? Our Melbourne tax accountants are here to walk you through the various punishments – and importantly, how you can avoid them.

Exemptions

As most of us know, the tax-free threshold is currently $18,200. However, that doesn’t mean you shouldn’t submit a tax return – if you earned income, it’s the only way you’ll get your tax back.

And if you have no taxable income whatsoever, we advise submitting a non-lodgement advice (NLA). This is a piece of paperwork that explains to the ATO in no uncertain terms that you are not required to lodge a tax return.

This ensures that you are not chased-up by the ATO, protecting you from being mistakenly penalised.

Failure-to-lodge penalties

Let’s say that for whatever reason, you don’t manage to send your tax return in before the 31st of October.

The first thing the ATO will hit you with is a failure to lodge (FTL) penalty, calculated like this:

FTL penalty = $210 x each 28-day period you’re overdue

This penalty caps at $1050 for individuals – a considerable fee and a good reason to get your tax return in on time.

Luckily, the ATO will waive these penalties if you can provide a “fair and reasonable” reason.

“Can I go to prison?”

Theoretically, yes. Fortunately, these cases are extremely rare!

In a handful of circumstances, the ATO can prosecute for failing to lodge. The maximum penalty is $8,500 or even a prison sentence of one year.

This is the nuclear option – very rarely are people with overdue tax returns taken to court.

Instead, this option is usually pursued when dealing with cases of tax evasion and fraud. Unless you’re indulging in a bit of “creative” accounting, chances are you won’t be taken to court.

What if my tax return isn’t accurate?

When you submit your tax return, there’s a tick box right at the very end where you swear that all the information you’ve entered is true and correct.

Most of us tick automatically, confident in the knowledge that our tax returns tell the whole story.

But what happens if yours doesn’t?

The ATO is fairly forgiving in cases of honest mistakes or errors. If the mistake comes from your tax accountant, then there are good odds you won’t be affected at all.

In other cases of false or misleading statements however, you may have to pay a fee.

Depending on the nature of the error, the amount you pay will vary:

• Carelessness – in these cases, the base penalty is 25% of the shortfall
• Recklessness – the base penalty in cases of recklessness is 50% of the shortfall
• Intentional disregard – the base penalty for reckless disregard is 75% of the shortfall

These are only base rates – a pattern of behaviour can increase the percentage, and in some cases even lead to you being taken to court.

The ATO might audit your accounts

While this one isn’t a punishment in itself, it’s not uncommon for chronic cases of late or inaccurate tax returns to result in an audit of your accounts.

After all, if you’re chronically late or constantly submitting inaccurate tax returns, there’s got to be a reason.

An ATO audit involve the ATO performing an in-depth examination of your personal or business finances. It often involves an inspector going over your accounts with a fine-tooth comb and is sometimes accompanied by questioning.

Unless you have something to hide, you don’t need to worry too much about the audit uncovering anything you could go to prison for.

However, the time and pressure that comes with an audit means that it’s a better idea to not make yourself the target of an audit to begin with.

A Melbourne tax accountant can help you avoid late tax return penalties

Get in touch with Bruce Edmunds & Associates today!

Operating since 1966, Bruce Edmunds & Associates have helped countless individuals and businesses get their tax returns in on time.

While the tax code has changed dramatically since then, we haven’t. Our mission remains the same: to offer friendly and knowledgeable accounting services that make your life easier.

Make tax time easy by getting in touch with our experienced and knowledgeable team today on (03) 9589 5488, or click here to request an appointment.