ATO increasing penalty units from $110 to $170 meaning each overdue tax return could cost you an extra $300 plus interest
The ATO have announced that they will increase penalties from $110 per penalty unit to $170, starting 28 December 2012. The current rate $110 hasn't been increased since 1997.
What this means for individuals and small business
Penalties are currently charged $110 for up to 28 days late, up to a maximum of 5 penalty units for late lodgement of each return. This means the current $550 amount will increase to $850 (an increase of $300).
For individuals and entities not in business, this is for each late tax return. For businesses this means each business form which includes PAYG withholding annual reports, FBT returns and any activity statements including BAS, IAS, GST annual returns and GST information reports. Note that the form doesn’t need to actually be lodged for the ATO to issue a penalty.
What this means for medium business and large businesses
Entities with a turnover between $1 and $20 million are classed as medium entities and have a multiplier of 2 to the above penalties. Large entities above $20 million turnover have a multiplier of 5. So for large entities the minimum penalty is $850 if a form such as an IAS is up to 28 days late and up to $4,250 for the maximum 5 penalty units.
Promoter penalties - What this means if you deserve the book thrown at you
Promoters can be charged 5,000 penalty units for individuals or 25,000 for entities for promoting dodgy tax schemes. This means a previous $2.5 million penalty for an entity has now increased to $4.25 million.
I haven’t lodged a few tax returns but think I am due a refund
The good news is that the ATO generally won’t charge a failure to lodge penalty if you are due a refund or the return results in a nil position (note the word generally). Also, if it is the first time you have been late the ATO may issue a warning letter rather than a penalty. But for those with a number of outstanding returns – if you have tax payable in more than one year there is a high chance you will charged penalties.
Lodge before 28 December 2012
Given the extra penalties, this is another reason to get up to date with your tax affairs. Even if you lodge while the ATO is on their Christmas holidays (the tax office closes from 3pm on 21 December 2012 until 2 January 2013), may mean you have an argument to be charged at the lower penalty rate.
Make a payment arrangement if you don't have the cash
If you don't have the cash to pay your tax, you should lodge and then negotiate a payment arrangement with the ATO, which may give you up to an extra year to pay your old tax debt (while keeping up with your existing obligations). Most people are worse off by delaying lodgement of forms due to tax payable, as interest is calculated from the due date of the return.
Remission of penalties for good reasons
If you do find yourself with a penalty notice it might be useful to know that if there are genuine circumstances relating to late lodgement of returns, the ATO will occasionally remit penalties and interest charged. You or your tax agent can phone the ATO if the penalties are less than $10,000, otherwise a letter is required.
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Scott Kay is an accountant, tax agent and the founder of NoMoney. Scott's goal is to help people approach their finances from a new perspective and improve their financial situation. For tips about money, investing, tax and everything in between visit NoMoney, or like NoMoney on Facebook.