Failure to lodge penalty notice: how it's calculated and how to get it remitted

The failure to lodge on time penalty, usually shortened to FTL, is charged because a return or statement was lodged late or not at all. It is not a charge on the tax owing, and it is not interest.

The penalty accrues per 28-day period that the lodgement is late, up to a maximum number of periods. So it grows with time but not indefinitely, and after that maximum is reached it stops increasing however long the lodgement remains outstanding.

The amount is higher for medium and large entities than for small ones, so the same lateness produces a bigger penalty for a larger business.

One important qualification for individuals: where the year results in a refund or a nil outcome, the ATO generally does not apply the penalty. A great many late individual returns fall into exactly that category, which is why lodging is so often less costly than people expect.

To put numbers against your own situation, the penalty and interest calculator estimates the exposure, and how late lodgement penalties and interest actually work walks through the mechanics.

Because a lodgement was late. That is the trigger, on its own, regardless of whether tax was payable.

Penalties are more often applied where the ATO has already sent reminders, where tax is payable rather than refundable, or where there is a pattern of late lodgement across several years or several statements.

Activity statements produce penalties more readily than annual returns for a simple structural reason: there are more of them, so a backlog of quarters means a backlog of separate lodgements.

The penalty is a debt on your ATO account once it is applied. Left alone, it sits there and attracts the general interest charge like any other balance.

Ignoring it also lets the strongest argument for remission go stale. Remission decisions turn on your explanation and on your compliance record, and both are viewed more favourably when you come forward and bring lodgements up to date than when the ATO has to keep chasing.

If the underlying lodgement is still outstanding, the penalty is only part of the problem - a default assessment can follow as well.

Lodge first. Get the outstanding returns or statements in. This stops the penalty position getting worse, and for individuals it may establish that a refund or nil outcome applies, in which case a penalty generally should not have been charged in the first place.

Then request remission. The ATO can remit the penalty in full or in part where there is a reasonable explanation, or where you have a good compliance history. Illness, family crisis, business failure, a run of years where things genuinely came apart - these are the kinds of explanations that get considered. Our guide on how to request penalty remission sets out how a request is put together and what actually persuades.

Then deal with the debt. Whatever remains after remission can go onto a payment plan alongside any tax owing. If you would like someone to handle the lodgements and the remission request together, a free assessment is the starting point, with a fixed fee quoted before any work begins.