Stay Ahead of ATO Penalties

Key Steps for Businesses and Individuals

Current ATO practices in response to late lodgements and / or late payments are dramatically different to past practices which were markedly more lenient. Taxpayers should expect to incur penalties and / or interest where they do not meet their lodgement and payment obligations in a timely manner. The circumstances in which the ATO is now willing to remit penalties and / or interest are far more limited than was previously the case.

Tax deadlines can creep up fast and missing them can bring costly consequences. At PVW Partners, we understand the importance of staying on top of your obligations to avoid Australian Taxation Office (ATO) penalties and interest. We really don’t want to see anyone paying interest to the ATO, especially at rates over 11%. With the ATO taking a tougher stance on unpaid tax and super, particularly with businesses that overlook reminders, it's more essential than ever to stay proactive.

Here’s a rundown on common ATO penalties and what you can do to keep your tax obligations in check.

Understanding ATO Penalties

1. Late Lodgement Penalty (LLP):
   Late lodgements with the ATO (whether this be for an income tax return, activity statement or other filings) can lead to a Late Lodgement Penalty (LLP).. Penalties accumulate for every 28 days a filing is overdue, starting at $313 and rising as time goes by. For large businesses, penalties can be as high as five times the standard rate. LLP’s are not tax deductible and are currently calculated as follows:

• 1–28 days late: 1 penalty unit = $313
• 29–56 days late: 2 penalty units = $626
• 57–84 days late: 3 penalty units = $939
• 85+ days late: 4 penalty units = $1,252

If you’re an individual lodging late for the first time, the ATO may cut you some slack. However, frequent non-compliance increases the likelihood of a penalty, and businesses with a turnover above $1 million may face penalties multiplied by 2 to 5 times the base rate.

2. General Interest Charge (GIC):
   Missing a tax payment deadline (including, but not limited to those for income tax, PAYG, GST) results in penalty interest accruing immediately with a General Interest Charge (GIC) that compounds daily. For the October–December 2024 quarter, the GIC rate stands at 11.38% annually. From 1 July 2025 the GIC will no longer be tax deductible.
3. Director Penalty Notices (DPNs):
   The ATO has the ability to recover the following outstanding debts of a company from the company’s directors, making them personally liable for the company's unpaid amounts of:
   pay as you go withholding (PAYGW);
       • goods and services tax (GST); and
       • super guarantee charge (SGC).
   These amounts a director may be made personally liable for are called director penalties. The ATO can recover the penalty amounts from a Director personally once the ATO issue them with a director penalty notice.

How to Dodge Penalties and Interest

1. Stay Organised
   Mark key dates on your calendar and set reminders in your accounting software to avoid last-minute scrambles, agree timeframes with your tax or BAS agent to ensure they have sufficient time to support you, make sure your contact details are kept up to date on the ATO portal and that you are checking any ATO notifications you receive.
2. Enlist Expert Help
   A registered tax agent can help you manage deadlines, handle filings, and set up payment plans if needed.
3. Reach Out to the ATO
   If you’re unable to meet a deadline or need extra time, contact the ATO to discuss possible extensions or payment arrangements.
4. Consider Payment Plans
   If a debt can't be paid in full, setting up a payment plan can prevent additional interest, showing goodwill to the ATO and helping avoid firmer enforcement actions.

What to do if you have an ATO Debt

If you don’t pay your ATO tax debts on time, the ATO may charge daily interest, offset future credits against the debt, or use external debt collection agencies. Firmer actions like garnishee notices, director penalty notices, and reporting to credit bureaus may apply for unresolved debts. In extreme cases, legal action, bankruptcy, or liquidation may occur. To avoid these actions, taxpayers should contact the ATO early to arrange payment plans or seek support.

1. If you are unable to pay your ATO debt, do not stop meeting your lodgement requirements as the ATO look favourably on taxpayers who meet all their lodgement requirements on time when considering setting up a payment plan.
2. Varying PAYG Instalments - When considering varying PAYG Instalments need to consider the following:
      • Variation needs to be lodged before the due date of payment of PAYG Instalment notice.
      • Be aware if the varied instalments are less than 85% of your total tax payable for the year, you may have to pay a general interest charge on the difference, in addition to paying the shortfall. Depending on the circumstances there may also be penalties. We recommend speaking to your Accountant before varying any PAYG Instalments.

Don’t Let Penalties Pile Up – We’re Here to Help

It’s easy to avoid penalties with the right approach. Our team at PVW Partners is here to guide you, whether it’s catching up on a missed deadline or setting up an effective tax strategy. Remember, acting early on tax obligations saves money and stress in the long run.

Let’s work together to keep your tax affairs in check!