Late lodgment penalties to spike by over 35%: Tax Institute cautions taxpayers and practitioners
Published on: 13 Nov 2022
SYDNEY, 14 November 2022: The Tax Institute is issuing a cautionary note to tax practitioners and their clients, as failure to lodge penalties are set to increase by over 35% within the next 8 months, amid high inflation and rising costs of living.
In the Federal Budget, delivered on 26 October 2022, the Government announced it would increase federal penalty units from $222 to $275 from 1 January 2023. This figure is then set to be indexed on 1 July 2023 based on the last three years, in line with inflation. The Bill to give effect to this was introduced this week.
Scott Treatt, CTA, General Manager, Tax Policy & Advocacy at The Tax Institute says, ‘The high inflation environment of the last three years means the legislated indexing could see penalties for late lodgement spike by over 35% from the current level, to over $300 per penalty unit. That’s a significant increase, which will come into effect from 1 July 2023, just 6 months after this latest increase.’
The penalty unit is applicable across a broad range of laws, most appropriately, crimes, where it is necessary to act as a deterrent. For tax purposes, it is applicable to a failure to lodge, amongst other things.
Automated failure to lodge penalties may be applied to late-lodged returns, reports and statements, including:
- activity statements
- tax returns
- Fringe Benefits Tax returns
- PAYG withholding annual reports
- Single Touch Payroll reports
- annual GST returns and information reports
- taxable payment annual reports.
Scott says that despite good faith and the best intentions, there are many reasons why taxpayers may be late in lodging their tax return, such as being impacted by a natural disaster or serious illness.
‘In some cases, such as criminal activity and the deliberate avoidance of tax obligations, steep penalties may be appropriate. For taxpayers who simply lodge a little late, it’s a significant cost. The Commissioner retains and exercises the power to waive penalties in certain cases. For taxpayers that means understanding their rights and the process to appeal a penalty. For those without a tax agent, this can be very tricky,’ he says.
‘At a time when so many taxpayers are already navigating steep inflation, high cost of living and the lingering effects of COVID-19, a 35% increase in these penalties will certainly sting for anyone caught out. We’re cautioning taxpayers and tax practitioners; they need to be more vigilant in keeping their tax obligations up to date to avoid the risk of these increased penalties.’
Penalties for an individual or a small enterprise
Days late | Penalty Units | Penalty from 1 July 2020 to 31 December 2022 | Penalty from 1 January 2023 | Current projected penalty from 1 July 2023 (after indexation)* | Projected increase from 31 December 2022 to 1 July 2023 |
28 or less | 1 | $222 | $275 | $303 | $81 |
29 to 56 | 2 | $444 | $550 | $605 | $161 |
57 to 84 | 3 | $666 | $825 | $908 | $242 |
85 to 112 | 4 | $888 | $1,100 | $1,210 | $322 |
More than 112 | 5 | $1,110 | $1,375 | $1,513 | $403 |
Penalties for a medium enterprise
(assessable income or current GST turnover of more than $1 million and less than $20 million)
Days late | Penalty Units | Penalty from 1 July 2020 to 31 December 2022 | Penalty from 1 January 2023 | Current projected penalty from 1 July 2023 (after indexation)* | Projected increase from 31 December 2022 to 1 July 2023 |
28 or less | 2 | $444 | $550 | $605 | $161 |
29 to 56 | 4 | $888 | $1,100 | $1,210 | $322 |
57 to 84 | 6 | $1,332 | $1,650 | $1,815 | $483 |
85 to 112 | 8 | $1,776 | $2,200 | $2,420 | $644 |
More than 112 | 10 | $2,220 | $2,750 | $3,025 | $805 |
Penalties for Significant Global Entities
Days late | Penalty Units | Penalty from 1 July 2020 to 31 December 2022 | Penalty from 1 January 2023 | Current projected penalty from 1 July 2023 (after indexation)* | Projected increase from 31 December 2022 to 1 July 2023 |
28 or less | 500 | $111,000 | $137,500 | $151,250 | $40,250 |
29 to 56 | 1,000 | $222,000 | $275,000 | $302,500 | $80,500 |
57 to 84 | 1,500 | $333,000 | $412,500 | $453,750 | $120,750 |
85 to 112 | 2,000 | $444,000 | $550,000 | $605,000 | $161,000 |
More than 112 | 2,500 | $555,000 | $687,500 | $756,250 | $201,250 |
* These figures are likely to be higher. Our estimate accounts for the most recent inflation data, however excludes the upcoming December 2022 and March 2023 inflation data.
Historical penalty costs
When infringement occurred | Penalty unit amount |
On or after 1 January 2023 | $275 |
1 July 2020 to 31 December 2022 | $222 |
1 July 2017 to 30 June 2020 | $210 |
31 July 2015 to 30 June 2017 | $180 |
28 December 2012 to 30 July 2015 | $170 |
Up to 27 December 2012 | $110 |
ENDS
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