Many people fail to lodge their tax returns because they either forget that they’re overdue or are fearful of a potentially large tax debt. Unfortunately, this can lead to things getting worse, with heavy penalties and interest applicable. We are getting close to the deadline for individuals to lodge their tax return direct with the Australian Taxation Office (ATO), and so we’ve compiled a list of 5 things you need to be aware of when it comes to late tax returns.
1. Do I need to lodge a tax return?
If you are an Australian resident and/or you have earned Australian income during the financial year, you need to lodge a tax return. Even if you have only earned income that will place you in the tax free threshold, you still need to lodge an income tax return not required. Even if your income is below the tax free threshold ($18,200 in 2020), it can be beneficial to lodge a tax return where your employer has withheld tax from your pay or where you have dividend income with franking credits.
2. What if I cant afford to pay overdue tax?
Even if you don’t have the money to pay your tax, it’s better to get your tax returns up to date now, rather than later. The ATO will generally be accommodating with a payment plan on your overdue tax if you get your tax returns lodged accurately and honestly.
It is also important to note that depending on the reasons for lodging your returns late, you may be able to get a remission of the interest and penalties applied by the ATO. These amounts can be significant, so it is worthwhile speaking to a tax agent to see if you can get a reduction. In some situations, you may also be able to negotiate a complete release of the debt, or a payment plan to allow you to pay the debt over time.
3. What are the penalties for failing to lodge a tax return?
The ATO will enforce a Failure to Lodge (FTL) penalty on you where your tax return is not lodged by the due date (October 31, 2020 for individuals who are not a client of a tax agent).
Penalties will vary depending on the length of time past the due date, the amount of any outstanding tax bills and the circumstances around your late lodgement.
The ATO general interest charge is currently 7.10% and this is back dated to the date the debt should have arisen.
In addition to that a Failure to Lodge (FTL) penalty exists which is calculated at up to $1,050 per year.
4. Can I have a criminal conviction for failing to lodge a tax return?
Yes, you can receive a criminal conviction for failing to lodge an income tax return (or falsely declaring information in an income tax return).
5. What is a default assessment?
A default assessment is where a taxpayer has an overdue lodgement obligation and the ATO issues a taxpayer with a default assessment. This is an estimated assessment of the taxpayers income, based on actual data held by the ATO plus averages for those in similar roles and income levels. Due to the guesswork involved of these default assessments, they are rarely correct, usually resulting in a higher tax liability than the taxpayer actually owes.
You’ve got an outstanding tax return. Where to from here?
Have you lodged your tax return for the year ended 30 June 2020 or have you got one or more outstanding tax returns from a prior year?
Get in touch with Link Advisors for a chat on how we can get your 2020 tax return lodged in time and about bringing any outstanding years up to date ASAP.
A big positive of using a tax agent like Link Advisors is that you will generally be granted an extension to lodge through that agent up to mid May the following year. This extension is not available to those who DIY their tax direct with the ATO.