Falling behind on your tax return isn’t unusual, but it can quickly lead to penalties and interest charges from the ATO. If you’ve got overdue tax returns, the sooner you act, the better.
This guide explains how ATO penalties and interest work, what happens if you fail to lodge on time, and the steps you can take to reduce or even remove these costs.
- What Happens If You Fail to Lodge a Tax Return on Time?
- Failure to Lodge Penalty (FTL): How It’s Calculated
- General Interest Charge (GIC) on Overdue Tax Debts
- ATO Penalty Timelines and Late Lodgement Escalation
- How to Get Penalty and Interest Remission from the ATO
- Setting Up an ATO Payment Plan for Overdue Tax
- Checklist: Documents to Lodge a Tax Return or Remission Request
- When to Contact the ATO Directly vs Using a Tax Agent
- Step-by-Step Plan to Get Up to Date with Overdue Tax Returns
- Conclusion: Avoid Penalties by Lodging Tax Returns on Time
What Happens If You Fail to Lodge a Tax Return on Time?
When you miss the ATO’s tax deadline, you may be hit with a Failure to Lodge (FTL) penalty. This applies whether your return is just a few weeks overdue or you’ve ignored multiple reminders.
The FTL is calculated in penalty units. A penalty unit is a fixed dollar amount set by the government under tax law, currently $313 (from 1 July 2023). Each unit increases the penalty, and the longer your return is overdue, the more units you accumulate.
On top of this, the ATO can also add General Interest Charge (GIC) on any unpaid tax debt, meaning the longer you delay, the more you’ll owe. Ignoring overdue returns can even result in default assessments or stronger recovery action.
Read more about Failure to Lodge penalties on the ATO website.
Failure to Lodge Penalty (FTL): How It’s Calculated
The FTL penalty is based on:
- 1 penalty unit for every 28 days (or part thereof) your return is late.
The penalty increases depending on your entity size:
- Individuals and small businesses: 1 unit per 28 days.
- Medium entities: 2 units per 28 days.
- Large entities: 5 units per 28 days.
The maximum is capped at 5 penalty units for individuals.
For Example: If you’re an individual and your tax return is 3 months late, you could face a penalty of 3 units. (Equating to over $900)
General Interest Charge (GIC) on Overdue Tax Debts
If you owe tax and don’t pay by the due date, the ATO applies GIC. This is interest charged daily and compounded.
- Rates are set quarterly and are generally higher than standard loan rates.
- Even small debts can grow quickly if left unpaid.
Example: A $5,000 overdue tax debt at current GIC rates could add hundreds of dollars in interest within a year.
Check the latest ATO General Interest Charge rates here.
ATO Penalty Timelines and Late Lodgement Escalation
- 28 days late: FTL penalty begins.
- Multiple overdue returns: Penalties stack up, with each late lodgement adding further cost.
- Serious cases: The ATO may issue default assessments, garnishee notices, or take legal action to recover tax debts.
The longer you wait, the harder it becomes to fix.
How to Get Penalty and Interest Remission from the ATO
The ATO may reduce or remove penalties and interest if you have a valid reason for failing to lodge on time.
Common grounds for remission include:
- Serious illness or natural disaster.
- Financial hardship.
- Voluntary disclosure before the ATO chases you.
Tip: If you’ve made an honest mistake, contact the ATO or your tax agent quickly. The earlier you act, the more likely you’ll get remission.
Setting Up an ATO Payment Plan for Overdue Tax
If you can’t pay your overdue tax in full, you can set up a payment plan.
- Choose weekly, fortnightly, or monthly direct debit instalments.
- Stick to the schedule, defaulting could cancel your plan and add further penalties.
- Agents can often negotiate more flexible terms on your behalf.
Get more info: ATO payment plans.
Checklist: Documents to Lodge a Tax Return or Remission Request
Before you lodge overdue returns or apply for remission, have these ready:
- Tax File Number (TFN) and MyGov/ATO Online access.
- PAYG payment summaries or income statements.
- Bank statements and receipts for deductions.
- Past ATO correspondence.
- Supporting documents (medical certificates, hardship evidence).
Getting everything in order upfront speeds up the process.
Tax, Accounting & Business Services That Work for You
When to Contact the ATO Directly vs Using a Tax Agent
Contact the ATO directly if:
- You only have one overdue tax return.
- The case is simple and you just need a payment plan.
Use a registered tax agent if:
- You have multiple overdue years.
- There are complex deductions or unclaimed super.
- Penalties or interest are already significant.
A tax agent can negotiate remission, lodge multiple returns quickly, and reduce your stress.
Check out this related article: Do you have unclaimed super?
Step-by-Step Plan to Get Up to Date with Overdue Tax Returns
- Collect your overdue documents.
- Lodge all outstanding tax returns (even if you can’t pay yet).
- Apply for penalty and GIC remission if eligible.
- Request an ATO payment plan.
- Keep track of future tax deadlines.
- Engage a tax agent for ongoing support
Late Tax Return? We Can Fix It
Conclusion: Avoid Penalties by Lodging Tax Returns on Time
The ATO is serious about late lodgement, but it’s never too late to get back on track. Whether you’re dealing with a single overdue tax return or several years’ worth, acting now will reduce penalties, stop interest from piling up, and give you peace of mind.