The Government legislated to increase the penalty unit from $222 to $275 from 1 January 2023. This increase also includes a requirement that the existing three-year indexation factor would still kick in on 1 July 2023, and not three years down the track. From 1 July 2023, the value of a penalty unit has risen again to $313 for any tax offences that occur from 1 July 2023.   This is an increase of 41% over a 6 month period.

How the ATO calculates a Failure to Lodge (FTL) penalty

This will depend on the size of the entity and the period of time since the due date for lodgement.

Small entities

For a small entity, the ATO calculates the FTL penalty at the rate of one penalty unit for each period of 28 days (or part thereof) that the return or statement is overdue, up to a maximum of 5 penalty units.

Medium entities

For a medium entity the penalty unit is multiplied by 2. A 'medium entity' is a medium withholder for PAYG withholding purposes or has assessable income or current GST turnover of more than $1 million and less than $20 million.

Large entities

For a large entity the penalty unit is multiplied by 5. A 'large entity' is a large withholder for PAYG withholding purposes or has assessable income or current GST turnover of $20 million or more.

Lodgments to which the ATO applies FTL penalties

An automated penalty system applies FTL penalty 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.

The ATO may apply FTL penalty manually. This is usually in situations of escalating non-compliance – for example, where a taxpayer has not lodged after a request to do so.

Generally, a penalty will not be applied to a late-lodged tax return, FBT return, annual GST return or activity statement if the lodgement results in either a refund or a nil result, unless:

• FTL penalty was applied before the return or statement was lodged (that is, the penalty will not be remitted even if the subsequent lodgement results in a refund or nil result)
• the unlodged item is a third-party data report, such as a taxable payments annual report
• you are classified as a large entity.

Requesting remission

If you receive a penalty notice for failing to lodge a return or statement on time, you can ask for a remission if there are extenuating circumstances. The ATO has the discretion to reduce (remit) the penalty according to your individual circumstances. Extenuating circumstances may include situations such as, being impacted by a natural disaster or serious illness. It can also include other circumstances outside of your control which could not be predicted, and you or your tax agent were not in a position to request further time to lodge.

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Please also note that many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances. Should you have any further questions, please get in touch with us. All rights reserved. Brought to you by RGA Business and Tax Accountants. Liability Limited by a scheme approved under Professional Standards Legislation.