Mistakes, Penalties and Official Sources
ATO late lodgement penalties and interest: how the cost is calculated for small businesses
How the ATO's failure to lodge on time penalty, the general interest charge and shortfall penalties work for small businesses, with worked examples and how to reduce them.
If a small business lodges a BAS or tax return late, the ATO can apply a failure to lodge on time (FTL) penalty: for a small entity, one penalty unit for each period of 28 days (or part) the document is overdue, up to a maximum of five penalty units. If tax is also paid late, the general interest charge (GIC) accrues daily on the unpaid amount, compounding, and since 1 July 2025 GIC is not tax deductible. Errors that understate tax can attract separate shortfall penalties. The cheapest response is almost always to lodge on time, even if you cannot pay, and then arrange payment.
This guide is part of the accounting mistakes overview. Penalty amounts are illustrative; check the value of a penalty unit and the current GIC rate with the ATO.
The failure to lodge on time penalty
The FTL penalty is set out in Schedule 1 to the Taxation Administration Act 1953. In outline:
| Entity size (for FTL purposes) | Penalty per 28 days or part | Maximum |
|---|---|---|
| Small (generally assessable income or turnover under $1 million) | 1 penalty unit | 5 units |
| Medium (generally $1 million to under $20 million) | 2 penalty units | 10 units |
| Large ($20 million or more) | 5 penalty units | 25 units |
Significant global entities face far higher amounts and are outside the scope of this site.
The value of a Commonwealth penalty unit is set by section 4AA of the Crimes Act 1914. It was $330 from 7 November 2024 and was indexed to $364 from 1 July 2026 (Crimes (Amount of a Penalty Unit) Instrument 2026). The new value applies to failures occurring on or after 1 July 2026; a document that fell due before then is generally assessed at $330. The next indexation is due on 1 July 2029, so check the ATO or the Federal Register of Legislation for the value that applied when your document became overdue.
Worked example (illustrative, using $364 per unit): a small business lodges its quarterly BAS 65 days late. That is three periods of 28 days or part (28 + 28 + 9). The penalty is 3 × $364 = $1,092. Had it been 150 days late, the penalty would be capped at 5 × $364 = $1,820. A medium entity would face double these amounts.
The ATO does not always apply an FTL penalty for a first or isolated late lodgement, and it can remit penalties on request where there are good reasons. Ask your agent to request remission in writing, explaining the circumstances.
The general interest charge
GIC applies to unpaid tax debts from the due date until payment. The annual rate is the 90-day bank accepted bill yield plus 7 percentage points, it is updated each quarter and it compounds daily. The shortfall interest charge (SIC), which applies to tax underpaid because of an amended assessment, is calculated similarly but with 3 percentage points instead of 7.
Worked example (illustrative, using an assumed 11% annual GIC rate): a $12,000 BAS debt left unpaid for 90 days accrues roughly $12,000 × 11% × 90 ÷ 365 ≈ $325 of interest, slightly more with daily compounding. Because GIC is not deductible for interest charged from 1 July 2025, a company paying 25% tax bears the full $325. Under the previous rules, the after-tax cost would have been about $244. That difference is why borrowing to pay the ATO may now be cheaper than leaving the debt, depending on the loan rate; check with your adviser.
Shortfall penalties for errors
If a return or statement understates tax, a separate administrative penalty can apply, based on the shortfall and the behaviour:
| Behaviour | Base penalty (of the shortfall) |
|---|---|
| Failure to take reasonable care | 25% |
| Recklessness | 50% |
| Intentional disregard | 75% |
The base penalty can be increased for obstruction or repeat behaviour, and reduced for voluntary disclosure, with a larger reduction if you disclose before the ATO notifies you of an audit. There is also generally no shortfall penalty where you took reasonable care or had a reasonably arguable position on a large item.
Safe harbour when your agent is at fault
If you gave a registered tax or BAS agent all relevant information on time and the late lodgement or error was caused by the agent, safe harbour provisions may protect you from some penalties, provided the agent was not reckless or intentionally careless. You still owe the tax and interest. Keep emails showing when you sent information; see engagement letter scope.
How to reduce what you pay
- Lodge on time, even if you cannot pay. The FTL penalty is based on lodgement, not payment.
- Set up a payment plan with the ATO once lodgements are current.
- Ask for remission of penalties and, where justified, of GIC.
- Disclose errors voluntarily before the ATO contacts you.
- Keep reserves for GST and PAYG in a separate account; see common mistakes.
- For companies, remember that unpaid and unreported PAYG withholding, GST and super guarantee charge can lead to director penalty notices.
How penalties compare with accountant fees
| Item (illustrative) | Cost |
|---|---|
| BAS agent fee for one quarterly BAS | $165 |
| FTL penalty for that BAS 65 days late | $1,092 |
| GIC on $12,000 unpaid for 90 days at 11% | about $325, not deductible |
One late quarter can cost more than a year of BAS preparation. See the BAS cost guide.
Frequently asked questions
Is the FTL penalty tax deductible?
No. Penalties are not deductible, and since 1 July 2025 neither is GIC or SIC.
Can the ATO waive interest?
It can remit GIC in some circumstances, for example where the delay was not caused by you. Ask, with reasons.
Do penalties apply if I have nothing to pay?
An FTL penalty can apply to a late document even if no tax is owing, although the ATO may be less likely to apply it. Nil BAS still need lodging on time.
What if I am overdue for several years?
Talk to a registered tax agent. The ATO generally prefers businesses to catch up and may take a more lenient approach to penalties for those who come forward.
Sources and where to check
- Australian Taxation Office — FTL penalty, current GIC and SIC rates, penalty remission, payment plans
- Federal Register of Legislation — Taxation Administration Act 1953 Schedule 1 and the Crimes Act 1914 (penalty unit value)
- Tax Practitioners Board — registered agents' obligations
- Inspector-General of Taxation and Taxation Ombudsman — complaints about ATO administration
