Tax penalty amnesty: ATO urges small businesses to confess their late debts and avoid hefty fines

The Australian Taxation Office is encouraging small businesses which have fallen behind on their tax debts to take advantage of its new penalty amnesty scheme, which accounting experts see as one of the last accommodating gestures from the tax office before it ramps up its debt collection efforts.

What is the tax penalty amnesty scheme?

Introduced in the May 2023-2024 federal budget, the scheme will waive failure to lodge (FTL) penalties on certain overdue payments held by small businesses.

Income tax returns, fringe benefit tax returns, and business activity statements (BAS) originally due between December 1, 2019, and February 28, 2022 will not incur FTL penalties if businesses come forward from June 1 to December 31, 2023.

Taking advantage of the amnesty could save small businesses up to $1,100 in fines per overdue payment.

The amnesty will not apply to late superannuation obligations and other penalties linked to the Taxable Payments Reporting System.

Businesses with late payments outside of the amnesty period can still apply for ordinary penalty remissions on a case-by-case basis.

Who does it cover?

The amnesty is applicable to businesses with an annual turnover of less than $10 million when the payment first came due.

How do you access the tax penalty amnesty scheme?

The ATO says businesses looking to take advantage of the scheme simply have to file their overdue payments through their usual channels, either independently or through their registered tax or BAS agent.

Businesses and tax agents will not need to file penalty remission forms, with the tax office automatically taking care of it.

FTL penalties may temporarily appear on a business’ ATO account, the tax office said Wednesday but assured taxpayers eligible fines will be remitted.

Why is the amnesty in place?

The economic havoc of COVID-19, border restrictions, and tumultuous trading conditions since the nation reopened have pushed many small businesses away from standard tax reporting practices.

The consequences are profound: as of March, the ATO said around 65% of its collectable tax debt, or $30 billion, was held by small businesses.

That is mostly comprised of employees’ tax withholding, GST, and other liabilities reported to the ATO on standard activity statements.

Losing out on late payment penalties is a price the ATO is willing to pay if it means small businesses will re-engage with the tax system and work down their underlying debts.

“The past few years have been tough for many small businesses, with the pandemic and natural disasters having a significant impact,” said ATO Assistant Commissioner Emma Tobias in a statement.

“We understand that things like lodging ATO forms may have slipped down the list of priorities. But it is important to get back on track with tax obligations.

“Lodging these forms are not optional, so we hope our amnesty will make it easier for impacted small businesses to get back on track.”

Budget papers reveal the measure and extra funding for the ATO is expected to draw $718 million into the federal government’s coffers over the next five years.

Even though late superannuation obligations are not covered by the FTL amnesty, the combined budget measures are set to direct $12.3 million in unpaid superannuation to employees.

The new scheme is separate from the 2018 superannuation payment amnesty, which closed in early 2020.

What happens afterwards?

Here’s the thing: businesses that file their overdue payments still need to actually pay them.

The ATO remains open to payment plans which help small businesses get on top of their outstanding debts.

“We understand that some small businesses may be worried about paying an amount owing on their overdue lodgment,” Tobias said.

“If you are unable to make full payment of your debt, remember we can work together with you or your registered tax or BAS agent to figure out the right solution for you.”

As has been the case for some time, businesses may also be able to establish their own payment plan online.

Businesses uncertain about their ability to pay should contact their tax agent or advisor to establish what options are available.

What happens if I don’t file my overdue payments?

The ATO’s pandemic-era leniency has already run thin, as evidenced by surging court actions filed by the tax office against businesses and individuals behind on their tax payments.

Enterprises that refuse to engage with the tax system should reasonably expect that the ATO will not turn a blind eye.

The amnesty system has been described by some accounting experts as “the last olive branch” the tax office will extend to late payers before enforcement activities really ramp up.