How to avoid late lodgement penalties at tax time

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If there’s one organisation you don’t want to unnecessarily antagonise it’s the Australian Taxation Office.

With that in mind, a deadline to lodge your tax return is fast approaching and fines apply if you don’t have a valid reason for not getting your return in before that date.

If you’ve earned more than the $18,200 tax-free threshold in the 2020-21 financial year, then you are legally required to lodge a tax return.

The deadline for individuals submitting their own return is usually 31 October, but because that’s a Sunday, it’s 1 November this year. A different deadline applies if a tax agent is doing your taxes.

If you do happen to be late, there are a few options available besides paying even more to the tax office, but it’s best not to cop a ‘failure to lodge’ penalty.

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The penalty is calculated at the rate of one penalty unit for each period of 28 days that the return is overdue, up to a maximum of five penalty units. Penalty units are currently $220 each and the maximum fine comes to $1110.

“In some cases, you may be required to lodge even if you earn less than that amount; for example, if you worked and had tax deducted from your pay,” says Mark Chapman, director of tax communications at H&R Block.

But even if you do miss the deadline, Mr Chapman says you may still be in luck as the ATO does not normally apply fines to returns that have either a nil result or generate a refund.

“In addition, where a penalty is applied, the ATO will sometimes remit it where it is fair and reasonable to do so; for example, in the event of natural disaster or serious illness,” Mr Chapman told Nest Egg.

Read: ATO reveals common tax traps that could lead to an audit

Or perhaps an unprecedented global pandemic? There is one other way that late lodgers can get avoid being fined by the ATO.

Despite the looming deadline, there is a way to get an extension on lodgement until next year.

“You simply need to be registered as a tax agent client by 31 October 2021 and you can lodge your tax return through that agent as late as 15 May 2022,” Mr Chapman says.

You do need to make sure you are registered as a client of a tax agency by the 31 October deadline but once you do, you’ll have an extension on lodgement almost until the end of the current financial year.

The ATO says it understands there are many reasons people may miss the lodgement deadline.

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“We recognise that sometimes people don’t meet their lodgement obligations on time, even with the best intentions. Generally, we don’t apply penalties in isolated cases of late lodgement,” the ATO says.

“We’ll warn you by phone or in writing if you’ve failed to lodge. If we apply FTL [Failure To Lodge] penalty, we’ll send you a penalty notice stating the amount and due date of the penalty.”

If you’re expecting a tax bill, don’t delay lodging your return as that’s when the ATO is most likely to take action against you.

“Even if you the miss the due date, it is important to lodge as soon as you can,” the ATO says.

“If you expect a tax bill, don’t delay lodging. The due date for payment when you lodge your own tax return is 21 November even if you lodge late. Interest will apply to any amount you owe after 21 November.”

Do you lodge your own tax returns? Have you ever upset the ATO? Let us know in the comments section below.

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