For most taxpayers earning more than the tax-free threshold – currently $18,200 – it is mandatory to lodge a tax return. In some cases, a taxpayer may be required to lodge a tax return even if they earn less than tax-free threshold, for example, if the taxpayer had tax deducted from your pay (check with our office whether your circumstances require you to lodge).
If you don’t lodge a tax return, the ATO can either force you to lodge overdue tax returns or penalize you for not having lodged on time.
Non-lodgement advice
If you don’t need to lodge a tax return, you should submit a non-lodgement advice to the ATO instead of a proper tax return. This document informs ATO that you don’t need to lodge this year and ensures they don’t list you as having an overdue return which still needs to be lodged. If you don’t file a non-lodgement advice, the ATO will assume you need to lodge and may take compliance action to force you to lodge.
Penalties for not lodging
In the first instance, the ATO will impose a Failure to Lodge (FTL) penalty on you where your tax return is not lodged by the due date. FTL penalty is calculated at the rate of one penalty unit for each period of 28 days or part thereof that the document is overdue, up to a maximum of five penalty units. The value of a penalty unit is currently (since 31 July 2015) $180 so the maximum penalty which can be applied for an individual is $900.
The penalty is applied automatically but is not normally applied to returns that either have a nil result or generate a refund. Where a penalty is applied, the ATO will sometimes remit it where it is “fair and reasonable to do so”, for example in the event of natural disaster or serious illness.
Default assessment
Where a taxpayer continues to fail to lodge a return, particularly where the failure to lodge is for number of years, the ATO can issue the taxpayer with one or more default assessments.
This is basically an estimated assessment of the taxpayer’s income, based on data already held by the ATO about the taxpayer or taxpayers in similar situation. These assessments are estimated, and they are rarely correct and often show an inflated tax liability than what taxpayer believes.
Taxpayers can appeal against a default assessment but they must be able to substantiate what their actual tax liability was. Challenging ATO’s decision without evidence will not be accepted by ATO.
Although unusual, ATO can and does prosecute taxpayers for failing to lodge tax returns. The maximum penalty which can be applied on prosecution is a fine of $8,500 or imprisonment for up to 12 months.
Audit
It is also believed that taxpayers who lodge late are at increased risk of being reviewed or audited by the ATO.