In Australia, tax compliance is not just a legal requirement but a crucial part of the nation’s financial stability. The Australian Taxation Office (ATO) ensures that taxpayers meet their obligations by imposing the Failure to Lodge (FTL) on time Penalty.
Imagine a small business owner, busy running their business, forgetting to lodge their tax return on time. The penalties they face highlight the importance of keeping good records and staying on top of tax deadlines.
This scenario shows why all taxpayers should be aware of their lodgment obligations and take timely action to meet them.
In this blog, we aim to help you understand how FTL penalties work and share practical steps to avoid penalties and ensure compliance.
What is the failure to lodge (FTL) on time penalty?
The FTL penalty is a measure enforced by the Australian Taxation Office (ATO) when individuals or businesses fail to meet their obligations to submit tax-related documents promptly.
FTL penalties are applied automatically to late-lodged returns, reports and statements, including:
- activity statements
- tax returns
- FBT returns
- PAYG withholding annual reports
- Single Touch Payroll reports
- annual GST returns and information reports
- taxable payment annual reports
In cases of persistent non-compliance, FTL penalties may be applied manually, typically when a taxpayer fails to lodge after being requested to do so.
The ATO will inform the taxpayer of their FTL penalty in writing. This notification will detail the reasons for the penalty, the amount to be paid, and the due date for payment, typically allowing a grace period of at least 14 days after notification.
Note that penalties are generally waived if the late lodgment results in a refund or no tax owed, except in specific circumstances.
How much is the FTL penalty?
The ATO implements a tiered penalty system, which varies depending on the severity and frequency of non-compliance. The calculation of FTL penalties considers factors such as the number of days a lodgment is overdue, the type of entity (individual, company, trust, etc.), and the taxpayer’s compliance history.
The ATO calculates the penalty using either:
- a statutory formula, based on your behaviour and the amount of tax avoided
- multiples of a penalty unit.
There are also certain rules for:
- missed and late super guarantee payments
- individual and corporate trustees of an SMSF
- GST at settlement compliance and penalties
Note that penalties imposed by the ATO are not tax-deductible. This means that taxpayers cannot claim these penalties as deductions on their tax returns.
How to request remission of penalty?
If you’ve received an FTL penalty, you have the opportunity to seek remission if there are extraordinary circumstances surrounding your situation.
The Australian Taxation Office (ATO) has the authority to remit, meaning to reduce or cancel, the penalty based on the unique circumstances you’re facing.
Exceptional circumstances can take various forms, such as being impacted by natural disasters like floods or bushfires.
For example, if a small business owner’s office is destroyed by a bushfire just before the tax return deadline, preventing access to necessary documents, this could qualify as an exceptional circumstance.
Additionally, serious illness or unexpected health emergencies are also considered valid reasons for a remission.
You have the choice to request either a full or partial remission of the penalty. However, it’s crucial to note that you can only make this request after you’ve lodged the outstanding returns or statements.
You have several options to submit your request:
- Online Services: If you’re a registered business or tax agent, you can conveniently use ATO’s online platform to submit your request.
- Phone: For minor penalties and straightforward cases, you can choose to make your request over the phone, ensuring a swift and hassle-free process.
- Mail: For major penalties or complex cases, it is recommended to send your request by mail to ATO’s designated address.
Once you submit a request for remission of the FTL penalty, it undergoes an independent review process. An officer separate from the one who imposed the penalty will assess your request, ensuring fairness and impartiality in the decision-making process.
By providing valid and compelling reasons for your inability to lodge on time, you enhance the likelihood of the ATO granting your request for remission, thereby alleviating the financial burden of the penalty.
Am I eligible for ATO penalty relief?
ATO penalty relief only applies for errors that are not deliberate and are due to:
- failing to take reasonable care
- taking a position on income tax that is not reasonably arguable.
When the ATO identifies an error in your tax lodgement(s), they will identify the issue and explain how to lodge correctly next time. They may provide penalty relief (i.e. not apply the penalty particularly for first time errors).
ATO Penalty relief applies to eligible taxpayers with a turnover of less than $10m. The entities can be:
- small businesses
- self-managed super funds (SMSFs)
- strata title bodies
- not-for-profit organisations
- co-operatives.
Not eligible for ATO penalty relief
You won’t be eligible for ATO penalty relief if the following circumstances apply to you within the past three years:
- You have been associated with the control or management of another entity involved in tax evasion.
- You have been penalised for intentionally or recklessly disregarding the law.
- You have engaged in tax evasion or fraudulent activities.
- Youhave incurred debts without the intent to repay, including involvement in phoenix activity.
Furthermore, ATO penalty relief does not extend to specific taxes such as fringe benefits tax (FBT) or the super guarantee charge (SGC).
Safe harbour from FTL penalty
When you engage a registered tax agent or BAS agent like Blackwattle Tax to handle your tax affairs, you can benefit from the safe harbour provision, shielding you from FTL penalties under certain conditions.
To qualify for safe harbour:
Provide Comprehensive Information: Demonstrate that you have provided your agent with all necessary tax information to facilitate the timely submission of your return or statement.
Ensure Agent’s Compliance and Diligence: Verify that your agent’s failure to lodge is not due to recklessness or intentional disregard for tax laws.
Need help mitigating the risk of FTL penalty? Connect with our team at Blackwattle Tax.
At Blackwattle Tax, we specialise in assisting businesses navigate complex tax regulations, reducing the likelihood of errors or oversights that could lead to penalties.
With our guidance and expertise, we can help optimise your tax situation and ensure compliance with all legal requirements.
As your trusted outsourced accounting partner, we offer a wealth of expertise through our team of seasoned professionals, including chartered accountants and registered tax agents.
Our goal is not only to mitigate the risk of FTL penalties but also to give you peace of mind knowing that your tax affairs are in capable hands. At Blackwattle Tax, we have a proven track record of supporting businesses across diverse sectors.
Why Choose Blackwattle Tax?
- Expert Guidance: Our professionals are here to help you successfully modernise your payroll reporting.
- Tailored Solutions: We provide customised tax strategies to meet your specific business needs.
- Proven Success: Our clients benefit from our comprehensive support, leading to better financial management and compliance.
Schedule a FREE 30-minute consultation today to discover how we can help you make strategic decisions and streamline your business operations.
Stay informed and empowered by subscribing to our monthly newsletter, where you’ll receive valuable insights on business advice, investment tips, and strategic tax planning.
Disclaimer: We endeavour to make sure the information provided in this guidance is up to date and accurate. Please note, that the information is only intended to be a guide, with a general overview of information. This guidance is not a comprehensive document and should not be interpreted as legal advice or tax advice. The information is general in nature. You should seek the assistance of a professional opinion for any legal and tax issues related to your personal circumstances.
