Tax season can be a stressful time, and for some, it may slip by without filing a tax return. But what are the consequences of not lodging your tax return on time? MaxMargin Accountants offers a comprehensive look at what awaits those who miss the deadline.
Tax Return Lodgement: Are You Required?
You need to file a tax return if your income exceeds the tax-free threshold of $18,200. But even if you earn less, you may still need to lodge a return under certain conditions. It’s wise to consult with a tax professional, such as MaxMargin Accountants, to understand your obligations.
The Price of Procrastination: Fines and Penalties
Delays in lodging your tax return can be costly. The Australian Tax Office may impose a Failure To Lodge (FTL) penalty. If you owe taxes, expect interest charges on your late payment as well. This penalty is determined by the number of penalty units accrued, which accumulate at one unit for every 28 days your tax return is overdue, subject to a cap of five units.
As a general rule of thumb, it is important to keep in mind that the ATO is more likely to apply penalties if you have more than one return outstanding, have a poor lodgement history, or are non-compliant with other tax matters.
Let’s say your tax return was due on October 31, and you filed it 70 days late. Here’s how the Failure To Lodge (FTL) penalty would be calculated:
- Penalty units accrued: Since the penalty accrues at one unit for every 28 days overdue, for 70 days late, you would accumulate 2 penalty units (because 70/28 is 2.5, which rounds down to 2 full periods of 28 days).
- Value of one penalty unit: Currently set at $180.
- Total FTL penalty: 2 penalty units x $180 per unit = $360.
In this scenario, your FTL penalty would be $360. This is separate from any interest charges that would apply if you also owed taxes. Interest would be calculated based on the amount of tax owed and the number of days the payment is late, starting from the due date of the tax return until the tax is paid.
Legal Repercussions: Prosecution and Imprisonment
Ignoring your tax filing duties can lead to severe legal consequences, including prosecution. You may face hefty fines or even jail time if found guilty of failing to lodge a tax return.
Other repercussions of failure to file your tax return include the following:
- Owe interest on any tax payable, calculated from the tax return’s due date until the payment is made.
- Face potential legal action for failure to lodge a return, leading to fines or imprisonment.
- Deal with external debt collection agencies employed by the ATO to recover overdue lodgements.
- Receive a default assessment from the ATO, which may not accurately reflect your income and could be higher than what you owe.
- Increase the risk of an ATO audit, which can be time-consuming and stressful.
- Miss out on any tax refunds you are entitled to, as refunds are typically processed only after a return is lodged.
- Experience a negative impact on your credit score if debts are reported to credit agencies.
- Lose the opportunity to negotiate payment plans or settlements if you fail to lodge.
- Affect your eligibility for government benefits, loans, or assistance programs, which require up-to-date tax lodgements.
Why You Might Need a Bookkeeper
Bookkeepers can be invaluable in keeping your finances in order and ensuring you meet your tax obligations on time. Consider getting one to avoid the stress and potential penalties associated with tax filing.
Financial Accuracy and Organization
A bookkeeper records your financial transactions meticulously, ensuring every dollar is accounted for. This detailed attention to your finances leads to better organisation and accuracy, crucial for monitoring business performance and preparing for tax season.
Compliance and Tax Preparedness
Tax regulations can be complex and ever-changing. A skilled bookkeeper stays abreast of these changes, ensuring your finances comply with current tax laws. This proactive approach helps avoid penalties for non-compliance and provides a smoother tax filing process.
Time and Stress Reduction
Time is a precious commodity, especially for business owners. You can reclaim time to focus on core business activities by delegating bookkeeping tasks to a specialist. Additionally, knowing your financial records are in expert hands reduces stress and provides peace of mind.
Cash Flow Management
Effective cash flow management is the lifeblood of any business. A bookkeeper tracks and analyses cash flow, providing critical insights into financial health. They can help identify trends, manage debts, and plan for future growth.
Expert Financial Advice and Analysis
Beyond recording transactions, bookkeepers can offer valuable financial advice and analysis. Their expertise enables them to identify cost-saving opportunities and offer strategic recommendations for financial optimisation.
MaxMargin Accountants, with our expert team of tax experts and bookkeepers in Williams Landing, Hoppers Crossing, Tarneit, and Wyndham Vale, are ready to assist you with comprehensive bookkeeping and tax services.
Default Assessments
If you don’t lodge your tax returns, the ATO might issue a default assessment, which is an estimate of your income that could be inaccurate. It’s crucial to lodge your return or appeal the assessment promptly.
ATO’s Debt Collection Method
To collect overdue lodgements, the ATO may involve external collection agencies. While this won’t initially affect your credit rating, non-response can escalate the ATO’s collection actions.
ATO’s Process for Non-Lodgement
The ATO follows a strict procedure for those who fail to lodge. They may extend the opportunity to rectify the situation but will resort to legal action if necessary.
What to Do When You’re Hit with an FTL Penalty
If you’ve received an FTL penalty, it’s important not to panic. Depending on your situation, you may be able to reduce the penalty or have it waived altogether. The most important thing you can do is ensure that all outstanding returns or statements are lodged as soon as possible and then promptly request a remission.
If you’re unsure about your lodgement status with the ATO, MaxMargin Accountants can assist you. With your permission, we can check which years are outstanding and what needs to be reported. Our team will work with you to determine your income for the year.
Final Thoughts
Failing to file a tax return on time can have severe financial and legal consequences. It’s always best to file on time or seek professional help if you anticipate a delay. MaxMargin Accountants can guide you through the process and help you avoid the pitfalls of late lodgement. Book your appointment or call us at 1300 886 518.
