[Updated April 19, 2023]
If you worry about lodging your tax return, you are not alone. According to the 2016-2017 statistics, 13.9 individuals lodged their tax returns for the mentioned income year. More than 970,000 companies, superfunds, trusts, and partnerships also submitted the needed documents.
The $158 billion personal income tax cut was just passed, which should give you more incentive to lodge. It means you can have more tax returns than before. The income tax cut package comes in three stages:
- Up to $1080 will be delivered to low to middle income earning individuals.
- A top-up will be granted to low-income individuals who will get a 19% rate. Before the approval of the package, only those who earn up to $41,000 would receive the tax rate. After the signing, more people will be included in the second stage where the limit is raised to $45,000.
- Finally, the tax rate now has a new flat rate of 30% instead of 32.5% for those earning from $45,000 to $200,000.
According to reports, about 4.5 million Australians will receive a $1080 payment. Meanwhile, more than 10 million people will have a tax offset. The Australian Tax Office confirmed that it will automatically apply these tax cuts to people who have lodged their tax returns.
With these changes and benefits, it may not make sense why you do not want to lodge a tax return. However, it happens, and you are not the only one in this predicament.
Who Needs to Lodge Their Tax Return?
Every income-earning Australian citizen is required by law to lodge their tax return. It means that if you have earned in the last financial year, you should take the time to arrange the needed documents and submit them to the proper authorities.
There are three main exceptions though:
- You did not work this year.
- You did not receive any compensation.
- Your earnings are lower than the tax-free threshold.
If your case is one of the three above, you will still need to talk to an officer from the Australian Taxation Office (ATO). You will be required to fill out the Non-Lodgement Advice form that tells ATO you do not need to lodge during this fiscal year.
It is important that you successfully send the document; otherwise, the ATO will still list you as one of the persons who failed to lodge, leading to an outstanding return you will have to fulfil later. Be sure to contact ATO, so the authorities will not take compliance action, which may compel you to lodge.
Why Do People Fail to Lodge a Tax Return?
Lodging is simple and easy; however, many people fail to do it, especially on time. The problem is that they do not understand the consequences of their actions. Often, the biggest reason why people avoid lodging their tax returns (or the business activity statement for business entities) lies in their inability to pay their taxes.
The 31st of October is an important time of the year as a law-abiding citizen. You should not just remember it because it is Halloween, but also because it is when you should lodge your tax return.
Tax returns can be for your income as an individual or from your business if you operate one. Companies have a different due date for their tax returns, which tends to be around January to May the following year.
What Happens When You Miss the Deadline?
As a taxpayer, you must stick to the deadlines, which the ATO is strict about enforcing. It is never advisable to leave the task to the last minute. What if you fail to lodge though? First, if your reason is you cannot pay your overdue tax, you should still lodge it.
You may not have enough money in your bank account, which is why you are avoiding the lodging process. Unfortunately, you will only end up getting in much bigger trouble. Instead of getting your tax returns updated later, you should do it now – even if you do not have sufficient money to pay for your tax.
Many Australians do not know that the ATO can be reasonable when it comes to repaying the overdue taxes. As long as you get the tax returns lodged correctly and honestly, they can give you a chance.
Of course, there are a few exceptions. The ATO will normally consider why you are lodging the returns late. If the reason is valid, the agency may deduct the penalties and interest fees it charges you with. Be aware that the amount you will pay can be significant. It can help if you have a professional to help you, such as a taxation lawyer. Your solicitor will determine whether you can get a reduction or not.
In some cases, you can even negotiate a release of debt. The ATO may also present you with a payment plan, which will help you recover from debt over time.
Plus, if you’re late lodging a return, this can impact other parts of your finances, such as acquiring a loan from a mortgage broker or bank.
Are There Penalties?
If the ATO decided to apply the penalty, you will also receive a penalty notice. The letter will state the amount that you need to pay, along with its due date.
The FTL penalty has a strict method of calculating the amount you owe. It will be at the rate of one penalty unit for every 28 days that your tax returns are overdue. Each individual can only have up to five penalty units.
Common Reasons Why Individuals Fail to Lodge Their Tax Returns
- Life events: Some life events such as hospitalization or the death of a family member may cause disruptions that can make you miss the deadline.
- Lack of knowledge and understanding on how to do tax returns: Sometimes an individual may fail to file their tax returns because they do not understand the tax system or the requirements.
- Pending tax disputes
- Disorganisation and poor record-keeping: poor record-keeping and disorganisation may lead to missing information. That can hinder you from filing returns.
- Procrastination: An individual may keep procrastinating filing their returns until the deadline passes.
- Financial Challenges: An individual may fail to file returns because they do not have money to pay a professional in cases where they cannot do it themselves.
How to Avoid the Penalties
The best way for you to avoid penalties is quite simple. You just need to lodge on time. You have several months to prepare, and it will typically take just a couple of hours to lodge it. At TaxReturnAU, you can start sorting your tax return. You can even stop and save your incomplete work then get back to it at a later time. It is the most convenient place for you to prepare your tax return online.
If the 31st of October has arrived and you are already late with your tax return, you can still lodge it. Be sure to lodge as soon as you can, which will help in minimizing the fees that you will need to pay. It is recommended that you lodge even if you are unsure that you can pay your whole tax liability.
As mentioned above, the main reason why people avoid lodging is due to their inability to pay their taxes. However, this will only result in huge fees, which will quickly multiply your debt. You should never keep yourself from lodging just because you are afraid you cannot pay. The ATO will increase the amounts you owe, which will be much bigger than you can afford now.
A good solution to your problem is to call the ATO right away. You should inform the agency that you have a problem with meeting your tax liability. In most cases, the ATO will establish a payment plan for you, so that you can pay the amount you owe at a more manageable proportion and schedule.
If you have a tax debt of $9,999 or less, you can call the ATO’s automated self-help system at 13 28 65. If you need help from a live support staff member, you can phone 13 11 42 instead.
Meanwhile, if your taxes are $10,000 or more, you can still request remission. However, you should write to the ATO and explain your situation in great detail. You should also provide the reason why the organization should remit your penalty.
There have been times in the past when the ATO granted a release from tax debts to those who were in an extreme case.
What About the Interest?
Aside from penalties, you should also be aware of the interest rates that you may be subject to. If you are an Australian citizen with an unpaid tax liability, the ATO will charge you interest based on the amount that you owe.
The current rate sits at 7.98% for October to December 2019 with a daily rate of 0.02186301%. It is much lower than the previous general interest rate in July through September, which was 8.54% or 0.02339726% daily.
Note though that these rates are not set. They can increase over time. Therefore, if you do not pay on schedule, the interest will quickly increase your tax debt.
Will the ATO Audit You After Failing to Lodge a Tax Return?
Lodging late has resulted in many horror stories that could happen to you if you follow these people’s footsteps. You are at an increased risk of being evaluated or audited by the Australian Taxation Office. You should always ensure that you file on time. This way, you avoid this problem and even getting prosecuted, especially if it is not your first offence.
What Options Do You Have if You Miss the Deadline?
If you know that you can’t make the deadline, there is good news for you. You are still not doomed to pay hefty fines. You also do not have to pay the interest on any tax liabilities you currently have. There are a few ways to be exempted from the late fees you could incur if you cannot lodge on time.
The following are three of the known options that will help you avoid getting charged with penalties and interest:
1. Apply for an Extension
Before anything else, you should first contact the Australian Taxation Office. Take the time and effort to explain your case. You can apply for an extension even when the deadline is fast approaching. If you truly cannot make it and you have a good reason for the delay, you should immediately contact the ATO. You can provide them with a specific date about when you will pay your taxes. However, you should now be sure that the schedule you give is one that you can follow. The ATO may give you the chance to get an extension from the deadline if you meet these requirements:
- You have no pre-existing debts with the government agency
- You have no child support to pay
- You do not owe any Centrelink payments to make
- You have a good history in complying with deadlines and other requirements set by the ATO
The agency may help you create a payment plan that suits your current financial situation.
If you register with a tax agent such as Tax Return AU, you can receive an extension of 6 months to lodge your tax return. You may only get this extension providing that you do so before the October 31st deadline.
2. Get Help Under the Safe Harbour Provision
If you have been imposed with the Failure to Lodge (FTL) penalty, you can still claim an exemption. The condition is that you have a tax agent or an accountant who should have lodged the tax return for you. The safe harbour provision applies only if you have hired the agent or accountant and provided all the necessary tax information. It is also required that these professionals did not intentionally disregard the rules relating to tax return lodging. If they mistakenly delayed the filing, you may be exempt from paying the penalty.
3. Get Non-Lodgement Advice
If your income was under the tax threshold from the first of July 2018 to the 30th of June this year, then you may not be legally required to pay any income tax. Even if you do not meet the income threshold set by the government, you will still have to fill out and submit the Non-Lodgement Advice form. Additionally, if you operate a business and work as a sole trader, it is required that you still lodge a tax return. Therefore, it means you are not exempt from the obligation even if your income is below the $18,200 threshold.
If you have a late tax return, you should not take comfort in the idea that the ATO will forget about it. The sooner you comply with the requirements, the better. The organisation has been very clear about this piece of information.
Can’t submit on time? You should not completely avoid it. As an Australian citizen who earns a stable income, you are required to file a tax return every year for the specific financial year you have received an income. The ATO will keep track of your missed payments, which will lead to costly fines and interest charges. If you continue to avoid lodging, the amount you owe will grow significantly over time.
Not quite ready to lodge your return?
Contact Tax Return AU and we can add you to our portal, by doing this, you will get a further 6 months to collate all your source docs together.
Our fees are 100% deductible regardless of when you decide to lodge your return. However, you will need to be added to our client list before the 31st of October. This just simply means you need to contact us soon to get our system.
Don’t wait any longer to claim your 2019 tax – let us get your maximum return today!