Jarrod Rogers CPA, 3 July 2020 No... you definitely can't. ...claim your coffee machine, that…
Over the last few years, Beyond Accountancy has helped a lot of people get their tax affairs in order.
This experience has taught us a lot, not only about how the ATO deals with late tax lodgments but how it makes people feel.
Generally, the feeling is one of stress or anxiety and it can be debilitating at times.
People whose lives are otherwise in good shape can suffer a mental block when it comes to their taxes. Just the “tax time” ads on TV in June or receiving their annual PAYG summary from work can lead to a sinking feeling of guilt.
A lot of the stress is based on how people think the ATO might work rather than how things actually work. Often a basic explanation of how the system actually works gives people a lot of comfort.
New clients will leave my office saying “Phew, I feel so much better now” even though there might be a lot of work still to be done. The relief comes from having some certainty around what the situation actually is, rather than stressing over what could happen.
We love helping people eliminate tax stress and sleep better at night. It’s one of the most rewarding parts of our work.
I hope this article helps lift some of the burdens of tax stress off your shoulders.
1. The ATO won’t send you to jail for late tax lodgements & returns
Being late to lodge some tax returns is completely different from tax evasion or tax fraud or any of the crimes the ATO chase people for. You’re not going to get a knock on the door from the police about late tax.
The ATO has an escalating scale of action:
- reminder letter
- failure to lodge penalty (not always, see below)
- demand for lodgments
- default assessment warnings (if you have received one of these read our related article ASAP)
- statement of account (tax bill)
- payment reminder
- referral to a debt collector
- legal action.
There are different approaches for different situations. The point is this: if you are an individual or small business then you are probably nowhere near the court action stage. They are probably not even looking for you and even when if it gets to legal action (which I’ve seen 3 times in 1,500 clients during my career) then it’s not a police/jail matter anyway.
2. The ATO will not fine you if are due a refund
If you lodge late and get a refund, the ATO won’t fine you.
Don’t believe me? Check out this link to the ATO website.
Warning: if you are fined for not lodging a tax return and then you later get a refund, it doesn’t mean you automatically have the fine reversed, so it’s always better to be on the front foot with the ATO. Go to them before they chase you.
Don’t forget, most employees get refunds because employers are supposed to deduct enough tax from your pay.
3. The ATO negotiate on fines and interest
Ever tried to contest a speeding fine or parking fine? Good luck.
They are pretty rigid. They don’t tend to listen to commonsense and they are unlikely to waive the fine.
But can you negotiate on ATO fines?
The ATO might have a tough reputation but overall they are reasonable people and they have official channels through which a taxpayer can request remission of fines and interest.
They factor in your personal situation such as physical or mental illness, family breakdown, being a victim of crime, natural disaster or other factors outside your control. I’ve dealt with many such cases with the ATO and we apply for remission of penalties where there are legitimate reasons why the returns were lodged late.
FYI: the interest rate is around 10% backdated to when you should have lodged and paid your tax debt (if you have one).
Wondering how much the penalty is for late taxes?
The standard late lodgment penalty is $170 per “penalty unit” for small taxpayers and the maximum fine is $850 (5 months @ $170 per month).
4. The ATO allows you to pay your debt over time
Here is a common phrase we hear from ATO representatives: “The ATO expects that all tax liabilities are paid on time and in full”.
However, if full payment is not possible, they do accept payment arrangements.
Payment arrangements are generally acceptable where the debt will be paid off in 2 years and even then there is some limited scope for a longer payment plan. The onus is on the taxpayer to make the offer of a payment arrangement and the ATO either approves or denies it.
The ATO doesn’t suggest a plan or prescribe the amount to pay each month.
You must stay up to date on all future BAS and tax lodgments. If you pay off the old debt in instalments but miss a BAS payment, for example, you default the payment arrangement and have to re-negotiate, so you must be able to juggle past and future tax payments at the same time.
If you can pay in full, you should do so. Not only is it preferred by the ATO but you don’t want to carry debt at 10% interest if you can pay it upfront instead.
Treating the ATO like a bank is not a good idea!
But if you’re worried you can’t pay in a lump sum, you might not need one. And remember, try to lodge even if you can’t pay. You’d rather have just a debt than have a debt plus lodgments.
5. You are not bad or stupid for late tax lodgements & returns
That heading may seem silly but I am constantly surprised by the way people are so hard on themselves about late tax lodgements.
People will sit down with me, smile shyly and say “You’re going to think I’m really bad…” or “I’ve been an idiot…”
Being late on tax means you’re late. That’s it.
It is not an issue of bad character. It’s not a big crime. It’s just a few forms you need to lodge.
The other reason for optimism is that there are hundreds of accountants in Australia and you’ve found us. We have a lot of experience with ATO lodgments – we’ve dealt with 19 years of tax returns and $600,000 of debt, so you’re not going to shock us.
You’re actually in the right place.
We offer in-person consultations in Melbourne as well as online appointments anywhere in the world via the internet.
If you are honest with us, we will be on your side the whole way and do our very best to get a fair and workable outcome with the ATO… not to mention lift some of the stress.