For many of Australia’s approximately 13 million individual taxpayers, preparing their tax returns each year can be a task worth completing promptly—especially if there’s a potential refund. However, the October 31 deadline for lodging tax returns can easily slip by, and once one year is missed, it can snowball into several years of missed returns.
Why Do People Avoid Lodging Tax Returns?
People miss tax returns for various reasons, such as financial difficulties, personal issues, and health problems. Fear of interacting with the tax system due to an inability to pay unpaid taxes or potential penalties for late lodgement often leads to further missed returns.
While there are significant downsides to not filing one or more tax returns, the good news is that it’s never too late to correct the situation. Here’s how you can get back on track and why it’s important to do so as soon as possible.
Who Needs to File a Tax Return in Australia?
According to the Australian Taxation Office (ATO), individuals need to lodge a tax return for various reasons. For most residents, this is because they had a taxable income over the $18,200 tax-free threshold. Other reasons include having tax withheld from payments made during the financial year, wanting to claim tax deductions, earning income in Australia as a foreign resident (with some exceptions), or receiving a study or training support loan during the year.
While submitting a tax return may be a chore or a source of anxiety, it’s essential for several reasons. Many non-lodgers may not realize that they don’t owe any tax and are actually due for a refund. This means they miss out on receiving their money and aren’t liable for a late lodgement fine, as the ATO only penalizes late lodgers when there is tax owing.
What Are the Penalties for Lodging a Late Tax Return?
While avoiding the taxman might be possible for a few years, the ATO will eventually take action if money is owed. The ATO has adopted a firmer approach with taxpayers who don’t engage with them and have outstanding obligations. It’s the taxpayer’s responsibility to declare all income and claim appropriate expenses. Failure to do so increases the risk of an ATO audit.
The penalties for non-lodgement are based on a sliding scale and vary depending on the size of the entity in question. Typically, penalties are $330 for each 28 days that the return is late, up to a maximum of $1,650. If the return remains unlodged, the ATO can issue a default assessment, an estimate of what the ATO believes is owed based on third-party data, which is likely to be excessive as it won’t include any deductions the taxpayer is entitled to. Ultimately, the ATO may resort to prosecution as a last resort.
What If You’re Afraid to Contact the ATO?
Whether it’s been a few weeks or several years, it’s always better to be proactive about rectifying overdue lodgements rather than ignoring the issue. Contacting the ATO to explain your situation typically results in a more favorable outcome in terms of penalties than hoping the problem will disappear, which only leads to greater consequences down the line.
When Should You Get Professional Tax Advice?
If you have outstanding lodgements from previous years, a tax agent can help bring you up to date. The sooner you get in touch, the better. The more complex an individual’s financial activities, the more important it is to seek expert advice. For instance, if you’re receiving rental income, holding shares in multiple companies, or trading cryptocurrency, consulting a tax agent is advisable.
People experiencing financial difficulty and owing money to the ATO may also be eligible for a payment plan to break down the balance into smaller, manageable instalments.
Conclusion
If you haven’t lodged your tax returns in years, it’s crucial to address the issue promptly. By understanding your obligations, being proactive, and seeking professional advice when necessary, you can navigate the process and potentially minimize penalties. Remember, it’s never too late to make amends and ensure compliance with tax requirements.
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How can we help?
If you have any questions or would like further information, please feel free to give our office on 08 9221 5522 or via email – info@camdenprofessionals.com.au or arrange a time for a meeting so we can discuss your requirements in more detail.
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