Overdue Tax Return & Penalties
IS YOUR TAX RETURN BEYOND A DUE DATE? Reasons that clients usually quote vary, including loss of documents, being generally pre-occupied with more important matters, or simply procrastinating. While it would be interesting to conduct a study into why we act so, I wish to help you to understand what the likely implications are, and if there is any way to avoid associated fines, interest, penalties, etc.
There are generally two dates that are important to you as an individual taxpayer. Firstly, if you prepare and lodge yourself without the use of a tax agent, the due date is the 31st of October following the end of a relevant financial year. The second, 15th of May of the year following the end of the financial year, provides more space to breathe, both to the tax professional preparing the tax return on your behalf, and likewise to you collecting all the necessary documents. Therefore, it can be said that you gain more time when using a tax agent to lodge.
Where you fail to meet your obligation to lodge by the due date there are several implications. Starting point is the Penalty for Failure to Lodge on time (TAA Sch1 Div 286). The maximum penalty is five penalty units. The penalty units accrue depending on how long the document has been overdue, with 1 penalty point for each 28-day period following the return becoming overdue. Each unit is worth $170. The maximum penalty therefore being $850 (Crimes Act 1914, s 4AA)
In addition, lodging late also place you at risk of having to pay the General Interest Charge (GIC). This is only in cases your subsequent lodgement results in tax liability, as opposed to a refund. The interest charge begins to accrue from the date the owed tax became overdue. The GIC generally varies between 10-12% across the financial years.
There are two possible scenarios that can apply to you. First, the case may be that the ATO issues a fine before you lodge the overdue document, i.e. tax return. Don’t give up, however. My recommendation is to bring your tax affairs up to date, and comply with the lodgement of the documents the ATO deems to be overdue. You have the right, once you have lodged all the documents required by the ATO, to apply for a remission (and GIC where applicable). The ATO is fairly flexible, in comparison to other tax jurisdictions, and once you have lodged it is always willing to consider the circumstances that led to the late lodgement in the first place.
Whether the ATO will eventually remit the fine which has already been imposed depends on your individual circumstances. The Practice Statement (PS) LA 2011/19 stipulates that the ATO will grant the remission of the fine in full where the circumstances leading to the late lodgement occurred beyond the taxpayer’s control. Your tax agent, adviser, should be able to provide the count of such circumstances, and determine if any apply to your case. Further, why I always try to argue the case in defence of my client is, that the ATO will also consider the remission of the penalty where circumstances were not necessarily beyond the taxpayer’s control, but the client has a “good’ compliance history. In the case of Kizquart, the remission was granted where the taxpayer argued “failure to understand the new tax system, pressure of work and personal circumstances” as grounds explaining the lateness. It appears that the chances are reasonably high where you are a “first-time offender”, and your lodgement history is not flawed with late lodgements of similar nature as those in regards with which you are asking for remission.
The second scenario is that the ATO may issue a fine following the lodgement of a tax return. That will normally be the case where the lodgement results in tax liability, as opposed to a refund. Hence, it would seem unreasonable to further delay the lodgement of your tax return which has become overdue, but the result of which is a refund rather than an amount of tax payable. It follows that in such cases, as the result is a refund, there will be no interest charge by the ATO.
Further, where you engage a tax agent to prepare the tax return, supply the agent with all the documents necessary the agent needs to prepare and lodge the tax return, such a taxpayer will be exempt from the obligation to pay the penalty. In other words, the agent may be liable to the ATO as for his or her failure of maintaining professional conduct, but not the taxpayer. This would cover cases where the agent may have taken up excessive amount of work, or simply neglected the meeting of the due dates for the lodgement of the client’s return (TAA Sch 1 s 286-75(1A)).
As you can see, there is a number of potentially mitigating circumstances that may help to either exempt you, or reduce the amount of penalty and interest arising out of the late lodgement of your tax return. Talk to your tax agent or tax adviser, and avoid the obligation to pay the penalty where you can.
for further references and examples please see https://www.ato.gov.au/Tax-professionals/Payment,-interest-and-penalties/Interest-and-penalties/Failure-to-lodge-on-time-penalty/
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