Is your business late on its tax payments? ATO fines will soon become significantly more expensive

When Labor handed down its 2022-2023 federal budget last month, the most hotly debated tax issue — the reversal of Stage Three tax cuts — was notably absent.

In the back-and-forth over the decision to stick with the controversial income tax cuts, a measure the government did take received notably less attention.

Now, businesses that fall behind on their tax lodgements can expect the financial penalties to increase dramatically from January 1, 2023, with more rises to follow.

Nestled in the budget papers is a scheduled increase to Commonwealth Penalty Units from the current level of $222 to $275 at the start of next year.

Commonwealth Penalty Units dictate the value of fines for tax, communication, financial and fraud offences.

For businesses, those penalties can be applied to the following late returns, reports, and statements:

• Activity statements
• Tax returns
• FBT returns
• PAYG withholding annual reports
• Single Touch Payroll reports
• Annual GST returns and information reports
• Taxable payment annual reports.

Small entities can expect to pay one penalty unit for each 28-day period that their tax return or statement is overdue, up to a maximum of five penalty units.

In effect, the increased financial value of Commonwealth Penalty Units means a maximum fine could become $265 more expensive at the turn of the year.

Medium-sized employers for PAYG withholding purposes, or those with assessable income or current GST turnover of more than $1 million and less than $20 million, can expect those penalties to be multiplied by two.

Even greater penalties are expected in the future, as the budget papers note the amount will increase every three years in line with Consumer Price Index (CPI) growth.

The next indexation is slated for July 1, 2023. The Reserve Bank of Australia estimates CPI will grow 6.25% over the year to June 2023, driving the cost of late payments even further.

“This measure is estimated to increase receipts by $31.6 million over the 4 years from 2022–23,” the budget papers state.

The tweaks could have a sizable impact on small businesses already struggling to juggle their tax obligations with the soaring cost of doing businesses.

Notice of the increased penalty unit value forms part of a broader boost to tax compliance measures after years of pandemic-era leniency from the Australian Taxation Office.

In its post-budget rundown, CPA Australia noted that while the economic roadmap “does not contain major tax changes, it does seek to begin some budget repair work via tax integrity measures”.

These include new funding for the Tax Avoidance Taskforce, which will grow by $200 million per year over four years from 2022-2023.

Additional resources will extend the Personal Income Taxation Compliance Program for another two years, while the Shadow Economy Program, targeting illegal transactions occurring beyond the scope of regulatory systems, will also receive another three years of funding from mid-2023.

Despite the increasing compliance activities, taxpaying businesses with extenuating circumstances can apply for a penalty remission.