Tax season has rolled around once more! For startups and businesses yet to submit their tax returns for previous financial years, now is an opportune moment to catch up. Otherwise, you’ll risk exposure to potential Australian Tax Office penalties.
The reality is that many fail to lodge their tax returns or business activity statements (BAS) because they cannot afford to pay their tax debt. Regrettably, this oversight can escalate since the Australian Tax Office (ATO), although infrequent, does have the authority to prosecute those who miss their filing deadlines. Moreover, accrued interest on overdue returns can lead to substantial tax debts.
For those in the process of preparing their tax returns, we’ve compiled answers to frequently asked questions, including the legal ramifications of failing to submit a tax return.
1. Am I required to lodge a tax return?
If you’ve earned income in Australia during the last financial year that exceeds the tax-free threshold of $18,200, you must file a tax return. In case you haven’t generated income during that financial year, it’s essential to inform the ATO by submitting a “Non-lodgement Advice.” This document proves to the ATO that you don’t need to file a tax return this year and prevents you from being labelled as having an outstanding return.”
Failing to provide a non-lodgement advice will lead the ATO to assume you must file a tax return. Consequently, they may take action to ensure your compliance with the filing requirement.
2. What are the penalties for failing to lodge a tax return?
You may face a fine of up to $1,100 if you fail to lodge a tax return. The ATO will first issue a Failure to Lodge (FTL) penalty if your tax return was not lodged by the due date. The ATO will contact you by phone or in writing and send a penalty notice with the reason for the penalty, penalty amount and due date. The fine is calculated at the rate of 1 penalty unit for each period of 28 days or part thereof that the document is overdue. This can go up to a maximum of 5 penalty units. As an example, if the value of a penalty unit from 1 January to 30 June 2023 stands at $275 currently, then the maximum penalty that can be applied for an individual for this financial year is $1,375.
The ATO reiterates that they consider the individual’s circumstances when deciding what action to take. They may remit the penalty where it is fair and reasonable to do so, such as the occurrence of a natural disaster or serious illness. However, continued failure to lodge a tax return, especially for several years, can lead to default assessments. This is an estimated assessment of a taxpayer’s income based on ATO data and may show a higher tax liability than what the taxpayer actually owes. The taxpayer may appeal this, provided that they are able to show what their actual tax liability was.
3. Will I get prosecuted if I don’t lodge a tax return?
Individuals who refuse to work with the ATO to address their overdue lodgment may be prosecuted through the relevant court of the taxpayer’s state or territory. This action includes a summons to attend court. Failure to lodge a tax return is a criminal offence. If convicted by the court, you could face additional fines of up to $9,000 and/or imprisonment for up to 12 months.
4. What other fines can I get even after lodging a tax return?
Despite lodging a tax return, you may still be penalised for the following actions:
Making false or misleading statements (for example, in a tax return, activity statement or amendment request) that result in having a shortfall amount. A shortfall amount is the difference between the correct tax liability or credit entitlement and the liability or entitlement worked out using the information that you or your tax agent have provided. If you employ a tax agent, you’ll also be liable for any misleading statements they have made on your behalf. However, you may not be penalised if the agent made the incorrect statement despite you providing accurate and relevant information.
Making false or misleading statements (for example, in an objection, private ruling request, or during an audit) with no shortfall amount. The penalty will not be applied if you or your tax agent took reasonable steps in making the statement or if your statement is in line with ATO advice, published statements, or general administrative practices in relation to tax law.
5. What if I can’t afford to pay overdue tax?
Even if you can’t afford to pay your overdue tax at the moment, it is still advisable to get your tax returns up to date now instead of continuing to put it off. The ATO has reiterated that they can be reasonable about payments if you accurately and honestly lodge your tax returns. The ATO has also introduced the Lodgment Penalty Amnesty for wayward small businesses with an annual turnover of less than $10 million. If your startup or business has outstanding tax statements that were due between 1 December 2019 and 29 February 2022, you will not be given a penalty if you lodge your tax return from 1 June 2023 to 31 December 2023.
Remember, the ATO also has the discretion to remit penalties and interests according to individual circumstances. These amounts can be significant and may merit a discussion with a lawyer to see if you can get a reduction.
You might even be able to negotiate a complete release of the debt or get a payment plan that will allow you to pay the debt in increments. Taxpayers who continue to lodge their tax returns past the due date are at an increased risk of being reviewed or audited by the ATO.
As we wrap up this article on taxation law, remember that when it comes to addressing legal concerns, consulting a lawyer is your wisest move. Lazarus Legal is ready to assist you with your legal needs. Contact us today for expert support. Plus, stay in the loop with the latest legal updates and business trends by subscribing to our newsletter.
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