Late lodgement and late payment are the two most common compliance failures Australian small businesses face — and they're two distinct problems with two distinct penalty regimes. As the adviser closest to your clients' financial records, bookkeepers and accountants are often the first to know when a deadline has been missed. Understanding what the ATO will do, and what can be done about it, is essential practical knowledge.
Failure-to-Lodge Penalties: The Penalty Unit Calculation
When a client fails to lodge a tax return, BAS, or other required document by the due date, the ATO can impose a failure-to-lodge (FTL) penalty under section 286-75 of Schedule 1 of the Taxation Administration Act 1953.
The penalty is calculated in penalty units. Under the rate set by the Crimes Act 1914 and applied by the ATO, as of 2026, one penalty unit is $313. This figure is indexed periodically by the Commonwealth — check the ATO website or the Crimes Act 1914 (which sets the rate) for the current figure before quoting clients.
The number of penalty units applied depends on the size of the entity and how long the lodgement is overdue:
| Entity size | Per 28-day period (up to 5 periods) |
|---|---|
| Small (SBE) | 1 penalty unit |
| Medium | 2 penalty units |
| Large | 5 penalty units |
So for a small business that's 28 days late, the FTL penalty is $313. At 56 days, $626. At the maximum (5 periods, or approximately 140 days), a small business faces $1,565. A large entity faces $7,825 for the same delay.
For BAS lodgements specifically, the FTL penalty applies per statement. A client who's behind on four quarterly BAS statements could be facing a significant penalty bill before the ATO has even calculated any tax shortfall.
General Interest Charge: Late Payment Costs More Than You Think
The General Interest Charge (GIC) applies when a tax debt is not paid by its due date. Unlike FTL penalties, GIC is not a fixed amount — it accrues daily on the outstanding balance at the current GIC rate, which is set quarterly and published by the ATO.
Historically the GIC rate has ranged from around 7% to 14% per annum. In recent years, as interest rates have risen, the GIC rate has trended higher. For the most current rate, always check the ATO's GIC rate page — the rate that applied two years ago is not the rate applying today.
GIC compounds daily, which means a debt sitting unpaid for 12 months accumulates significantly more than the headline annual rate suggests. For a client with a $50,000 tax debt at 11% GIC, the daily charge is approximately $15 — that's over $5,400 in a year just in interest.
The ATO does not always communicate GIC charges proactively. A client who pays the original tax debt but ignores the ATO correspondence may not realise GIC has continued to accrue. Regular checks of the client's ATO account through ATO Online Services (or through your tax agent portal) should be part of your ongoing service.
Shortfall Interest Charge: The Penalty for Underreporting
The Shortfall Interest Charge (SIC) is a separate, lower-rate charge that applies specifically when a tax shortfall arises from an amended assessment — that is, when the ATO (or the taxpayer by amendment) determines that not enough tax was reported in an original lodgement.
SIC applies to the period from the original due date to the day before the amended assessment is issued. After that point, if the shortfall amount is not paid, GIC takes over.
The SIC rate is set at the base interest rate plus 3 percentage points, which makes it materially lower than the GIC rate (which is base rate plus 7 percentage points). If a client can resolve a shortfall quickly by lodging an amendment before the ATO raises it, they may benefit from the lower SIC rate rather than GIC.
This is one reason why proactive voluntary disclosure — amending an incorrect return before the ATO contacts you — is generally recommended. The ATO's Voluntary Disclosure process can also reduce or eliminate administrative penalties (not GIC/SIC, but any culpability-based penalty).
Grounds for Remission and How to Request It
Both FTL penalties and GIC can be remitted (reduced or cancelled) by the ATO, and this happens more often than many practitioners realise. Under section 8AAG (GIC remission) and equivalent provisions for FTL penalties, the ATO has a general discretion to remit where it would be fair and reasonable to do so.
Common grounds the ATO accepts for remission include:
- Serious illness — the taxpayer or a close family member was seriously ill during the relevant period
- Natural disaster — the client's business was affected by a flood, fire, or other declared disaster
- First offence with a strong compliance history — a client with a decade of on-time lodgements missing one deadline due to genuine oversight
- ATO delay — where ATO processing errors or delays contributed to the non-compliance
- Financial hardship — although hardship generally supports a payment plan rather than outright remission
What the ATO does not accept: being busy, forgetting, or relying on an adviser who dropped the ball without informing the client. The threshold for remission is genuine, documented hardship or exceptional circumstances.
How to request remission: Submit a written request through the ATO's Online Services for Agents or by letter, clearly stating the ground for remission and attaching supporting evidence (medical certificates, disaster declarations, correspondence showing the first offence). For FTL penalties, the request should be lodged as soon as the overdue document has been filed — the ATO is more sympathetic once the client is back in compliance.
If the first remission request is refused, a formal objection under Part IVC of the Taxation Administration Act is available. This escalates to a full merits review and is worth pursuing where the penalty amount is significant and the facts genuinely support remission.
Practical Advice: Get Ahead of the Deadline
The most effective strategy is prevention. For bookkeeping clients:
- Set internal deadlines two weeks before ATO due dates to allow time for data collection issues
- Use the ATO's portal to monitor outstanding lodgements across your client base regularly
- If a client can't lodge by the due date, consider requesting an extension (agent extensions are available for most obligations through the lodgement program) before the deadline, not after
- If a tax debt can't be paid, set up a payment arrangement with the ATO before the due date — GIC still accrues, but it demonstrates good faith and avoids further action
Acting early — and communicating with the ATO before problems escalate — consistently produces better outcomes than dealing with penalties and debt after the fact.