The ATO can apply penalties when tax returns are lodged late, but missing a deadline does not automatically mean you will be fined. The ATO considers the circumstances surrounding a late lodgment when deciding what action to take. See the ATO failure-to-lodge guidance.
Why ADF Members Fall Behind on Tax
For Australian Defence Force members dealing with postings, deployments, field exercises and demanding schedules, it can be surprisingly easy for tax time to fall down the priority list.
Continuing to leave an overdue tax return unresolved can make the situation more complicated. If you are already behind, the important thing is to start working out exactly what needs to be lodged.
How Do Late Tax Return Penalties Work?
If you were required to lodge a tax return and did not lodge it by the due date, the ATO may apply a Failure to Lodge on Time (FTL) penalty.
For smaller taxpayers and entities, the base penalty is generally calculated using penalty units for each 28-day period, or part of a 28-day period, that the document remains overdue. The standard calculation is capped after five 28-day periods for the relevant document.
However, the way your case is treated can depend on your individual circumstances, including:
- how late the return is
- whether it is an isolated late lodgment
- whether you have several outstanding returns
- your previous tax compliance history
- whether the ATO has contacted you about the overdue return
- the circumstances that contributed to the delay.
Being late does not automatically mean you will receive the maximum possible penalty.
What If My Tax Return Is Several Years Late?
If you have fallen behind by several years, the penalty for one return does not simply continue growing forever. The standard base Failure to Lodge penalty for an individual document is capped.
However, if several separate tax returns are outstanding, each financial year may represent a separate lodgment obligation. If you have not lodged returns for three or four financial years, those years generally need to be considered individually.
There may also be separate consequences if lodging those returns results in additional tax being payable, so the outcome can vary significantly from one year to another.
Late Lodgment and Late Payment Are Different
A late-lodgment penalty relates to failing to lodge a required tax return or document by its due date. A tax debt relates to money you owe the ATO.
If an overdue return is eventually lodged and results in tax payable, interest may also apply to the unpaid amount. The ATO refers to this as the General Interest Charge (GIC).
Depending on your circumstances, you could have:
- an overdue return that results in a refund
- an overdue return with no tax payable
- an overdue return that creates a tax debt
- several outstanding years with different outcomes.
You will not know your actual position until the returns are prepared.
What If My Overdue Tax Return Gives Me a Refund?
Being behind on your tax returns does not automatically mean you owe the ATO money. Depending on your income, tax withheld and eligible deductions, an overdue return may actually result in a refund.
This can be particularly relevant for ADF members who may have legitimate work-related expenses that need to be considered. Depending on your circumstances, these might include expenses relating to:
- compulsory uniforms and protective items
- laundry of eligible uniforms
- union or association fees
- courses and training connected to your current duties
- work-related travel that was not reimbursed
- equipment and tools used for work
- other employment-related expenses.
Whether an expense is deductible depends on your individual circumstances, reimbursement arrangements and the normal tax deduction rules. The key point is that you should not assume an overdue return automatically means a large tax bill.
What If I Cannot Afford the Tax Bill?
Worrying about a potential tax debt is one reason people continue postponing overdue returns. But lodging your tax return and paying an ATO debt are related but separate issues.
If your overdue return results in tax payable and you cannot afford to pay the entire amount immediately, you may be able to arrange a payment plan with the ATO so eligible taxpayers can repay the debt through instalments.
Interest may continue to apply to an outstanding balance, so a payment arrangement should still be taken seriously. Delaying your tax return generally gives you less certainty about how much you actually owe.
Can an ATO Late-Lodgment Penalty Be Reduced?
Depending on the circumstances, you may be able to request that the ATO remit, or reduce, a penalty. The ATO can consider requests to remit certain penalties, including Failure to Lodge penalties, in full or in part.
Factors that may be considered include:
- why the return was lodged late
- circumstances outside your control
- your previous compliance history
- steps you have taken to correct the problem
- your individual circumstances.
For ADF members, there may be periods where deployments, extended field time, postings or significant personal circumstances contribute to falling behind. That does not automatically mean a penalty will be removed, but the circumstances may be relevant when a remission request is considered.
Penalty remission is not guaranteed and each case is assessed individually.
What If You Are Five or Ten Years Behind?
Finding out that you have five, ten or even more years of outstanding tax returns can feel overwhelming. The first step is not to attempt to prepare every return at once.
Instead, start by determining which financial years the ATO actually records as outstanding. Each year can then be reviewed to determine whether you need:
- a tax return, or
- a non-lodgment advice because you were not required to lodge for that particular year.
Just because a financial year is old does not necessarily mean it can be ignored. Previous-year tax obligations can still need to be resolved even when several years have passed.
What Information Might an ADF Member Need for an Overdue Return?
If several years have passed, finding old tax records can be one of the biggest barriers to getting started. Depending on the financial year and your circumstances, useful information may include:
- Defence income and PAYG income statements or payment summaries
- allowance and deployment payment information
- bank interest
- private health insurance information
- work-related expense records and receipts
- uniform and laundry expenses
- course and training expenses
- work-related travel records and reimbursement details
- union or association fees
- investment or rental property information
- other income earned during the year.
You may not need to have every document organised before seeking assistance. The first step can simply be working out which years are outstanding and what information will be required for each one.
Postings and Deployments Can Make Tax Easy to Put Off
ADF members often deal with relocations, time away from home, long hours and changing routines. When you are focused on service and managing everything outside it, tax administration can easily be pushed to the bottom of the list.
One missed year can become two. Two can become four. Eventually, the thought of sorting everything out can become more stressful than the actual process of getting started.
Leaving the returns outstanding does not tell you whether you owe money, are entitled to a refund or have penalties to address. Preparing the returns does.
Do Not Let Fear of a Penalty Create Another Overdue Year
The longer an outstanding tax return remains unresolved, the easier it is for another financial year to be added to the backlog.
Getting started gives you something more useful than worrying about what might happen: a clear understanding of your actual tax position. Once the outstanding years have been reviewed, you can determine what needs to be lodged, whether refunds are available, whether any tax is payable and whether penalties or interest need to be dealt with.
ADF Member With Overdue Tax Returns?
DefenceTax specialises in tax services for Australian Defence Force members across the Army, Navy and Air Force.
Whether you have missed one return or have several years of tax returns outstanding, we can help you work through what needs to be lodged and get your tax affairs back on track.
Common questions
Will the ATO automatically fine me when I lodge a late tax return?
Not necessarily. The ATO can apply a Failure to Lodge on Time penalty, but it considers the circumstances surrounding a late lodgment, including whether it is an isolated case and your compliance history.
How is a Failure to Lodge on Time penalty calculated?
For smaller taxpayers, the base penalty is generally one penalty unit for each 28-day period, or part of a 28-day period, that the document is overdue, capped at five penalty units for that document.
Does each overdue tax return attract a separate penalty?
Each financial year is generally a separate lodgment obligation, so if several returns are outstanding the ATO can consider each year individually.
Can an overdue tax return result in a refund?
Yes. Depending on your income, tax withheld and eligible deductions, an overdue return may result in a refund rather than a tax debt.
What if I cannot pay the tax bill from an overdue return?
Lodging and paying are separate steps. If you cannot pay in full, you may be able to set up a payment plan with the ATO. General Interest Charge may continue to apply to the unpaid balance.
Can I ask the ATO to reduce a late-lodgment penalty?
You can ask the ATO to remit Failure to Lodge penalties in full or in part. Factors such as deployments or circumstances outside your control may be considered, but remission is not guaranteed.
Behind on your tax returns?
Whether you are catching up on last year or have not lodged for several years, book an appointment with DefenceTax and we will help you work out what needs to be lodged. Do not let another financial year get added to the backlog.
Catch up on late tax returns