Do you know what happens if you fail to meet your tax obligations? This is a question that individuals and businesses in Australia should know the answer to because the consequences can be severe. Whether due to negligence, misunderstanding, or financial hardship, failing to meet your tax obligations can lead to penalties, interest charges, and even legal action.
To give you a clearer idea of what might happen, we’ll go over some of the typical tax obligations required by the Australian Taxation Office (ATO), as well as the consequences you can expect if you fail to comply. We’ll also offer a few practical tips on how to avoid finding yourself in this predicament.
How Tax Penalties Work in Australia
All Australians who earn income or operate a business are required to meet certain tax obligations. These are enforced by the ATO, which is Australia’s official governing body responsible for administering the country’s tax system and ensuring compliance with tax laws. Failure to meet these laws and obligations can result in penalties and legal action.
Most commonly, a failure to meet your tax obligations results in penalties that you have to pay to the ATO. These penalties can be based on either
a) a statutory formula, based on your tax history, behaviour, and the amount of tax avoided
b) multiples of a penalty unit
Penalty units are based on the specific infraction(s) that occurred. Refer to the following table for a list of tax obligations and the corresponding penalty for non-compliance:
|Tax Obligation||Penalty for Failing to Meet Tax Obligation|
|Keeping or retaining records as required||20 penalty units|
|Retaining or producing declarations as required||20 penalty units|
|Providing access and reasonable facilities to an authorised tax officer||20 penalty units|
|Applying for or cancelling goods and services tax (GST) registration when required||20 penalty units|
|Issuing a tax invoice or adjustment note when required||20 penalty units|
|Both principal and agent must not issue tax invoices or adjustment notes for the same taxable supply or adjustment event||20 penalty units|
|Registering as a PAYG withholder when required||5 penalty units|
|Lodging an activity statement electronically when required||5 penalty units|
|Paying an amount electronically when required||5 penalty units|
Computing the Value of a Penalty Unit
Each penalty unit represents a monetary amount that you have to pay to the ATO. Multiply the total number of penalty units by the corresponding amount, depending on when the tax infraction took place:
|Time Period||Amount Per Penalty Unit in $AUD|
|On or after 1 January 2023||275|
|From 1 July 2020 to 31 December 2022||222|
|From 1 July 2017 to 30 June 2020||210|
|From 31 July 2015 to 30 June 2017||180|
|From 28 December 2012 to 30 July 2015||170|
|On or before 27 December 2012||110|
If you’re liable for a penalty, the ATO will notify you in writing and include the following details:
- The reason for the penalty
- The amount of the penalty
- The due date for payment (at least 14 days after the ATO has given notice).
What to Do After Receiving a Tax Penalty
Once you are given a tax penalty, you have to pay it before the deadline, or you might incur additional charges in the form of interest.
In some cases, the ATO provides Penalty Relief in situations where you may have simply made a mistake on your tax records or an audit reveals a potential error. This means that the penalty will not be applied, and the ATO will show you the error and how to get it right next time.
Important Note: You cannot apply for Penalty Relief. The ATO will provide it to you during an audit if it applies to your situation and you meet specific eligibility requirements.
What if I can’t or won’t pay the tax penalty?
If your inability to pay is because you cannot afford to do so, you can work with the ATO to access various support options designed to help you meet your tax and super obligations. These may include deferred payment plans and applying for a compromise of tax debt.
However, the ATO might be compelled to take stronger action against you if you are unwilling to cooperate or in certain cases such as when tax fraud is detected.
Stay on Top of Your Tax Obligations to Stay Tax Penalty-Free
To avoid tax penalties in Australia, it’s important to understand your tax obligations and comply with them. This includes keeping accurate records, lodging tax returns on time, and paying any taxes owed by their due dates.
If you want to uncomplicate all your tax obligations and avoid tax penalties for good, seek professional help from experts who can ensure that your taxes are done correctly and on time. Our team at Ruth Watson and Associates can handle this for you and your business. We have vast industry knowledge as well as years of experience to do the job efficiently on your behalf.