Sometimes life throws things in our path that get in the way of important deadlines like our tax returns and we find ourselves on the other side of the due date. Sometimes we deliberately don’t want to submit our tax returns for fear of the tax debt. Whatever the reason for getting behind, penalties can be swift and severe and bring a host of other issues to deal with as well.
For some people, just knowing they are late in lodging their tax return can create stress and anxiety. It can even perpetuate a ‘sticking your head in the sand’ type of response. The stress is not always isolated and can filter down to disruptions for family members and loved ones. Unfortunately, taxes will not go away if ignored so the sooner they are managed, the better.
Here are some potential scenarios, things to consider and steps you can take:
- The Australian Taxation Office (ATO) may or may not initially detect you. Whether they do or don’t, we strongly suggest you take immediate action to get your taxes back up to date. It is in your best interest to reduce the escalating risk of increased penalty taxes, possible audits and the growing value of the tax debt plus interest.
- If they do detect your return is late, they will typically send you a ‘scary’ letter, threatening penalties and even jail. They may give you the details of outstanding tax returns, for example, the year and type of outstanding return such as a BAS or Income Tax return.
- You may be given penalties such as general interest charges, and ‘failure to lodge on time’ fines. Additionally, the ATO may increase the severity of fines based on what they believe is your lack of due care and/or if they think you have deliberately ignored the due date.
- If requested to lodge tax returns and you don’t, the ATO may issue what they call a default notice of assessments which is their guess of your income. They are generally overestimated and with no deductions. Obviously, they are significantly less favourable than tax returns prepared by your tax agent with your interests in mind. Our tip is not to let it get to that stage.
- For business operators, the risk to your livelihood is even greater. Getting behind in lodgements and not paying your tax instalments is a fast way to risk the ongoing trading of your business. The longer you leave it, the greater the tax debt will exponentiate with additional interest charges and fines. Leaving Bas returns and tax returns not lodged for even just a short period may mean your tax debts climb to enormous amounts that you may not be able to repay within a reasonable period and this will add huge cashflow pressure to your business.
- You are also unlikely to be operating with current financial information which can easily lead to a failing business. Leaving tax out of your cash flow is a disaster waiting to happen and a potential step closer to insolvency.
If it’s any consolation, you are most certainly not alone. There are many people behind in their tax obligations, however the longer you wait the harder it is to reduce the tax due and their associated fines. Crippling repayment arrangements can give you unnecessary financial hardship and put even more pressure on your cashflow.
Like most necessary things in life, your tax and tax returns are best-met head-on. If you find yourself in this situation, take action now! Contact your tax agent who can quickly get your taxes back up to date and help position you for minimal penalties and repayment arrangements if needed. Whatever your fear is, an understanding tax agent is on your side. They can help you gather all the information to get up to date again and work to get the best outcome for you, as well as offer relief from the stress of this situation.