Receiving an unexpected notice from the Australian Taxation Office (ATO) can be stressful. A Failure to Lodge (FTL) penalty isn’t a bill for tax you owe, but an administrative fine for not submitting documents like tax returns or Business Activity Statements (BAS) on time. Fortunately, if you have a legitimate reason for the delay, you may be eligible for a failure to lodge penalty remission.

This guide explains how these penalties work and provides a clear, step-by-step process for requesting the ATO to reduce or cancel them.

Key Takeaways

• What it is: A failure to lodge (FTL) penalty is a fine for not submitting your tax returns, BAS, or other required documents by the due date.
• How it’s calculated: The ATO uses a “penalty unit” system. The total fine depends on how many days your lodgement is overdue and the size of your entity (turnover).
• What remission means: Penalty remission is the ATO’s process for reducing or cancelling a penalty if you can prove you had a “reasonable excuse” for the delay.
• First step is crucial: You must lodge the outstanding document before you can ask for a penalty remission. The ATO will not consider a request otherwise.
• Evidence is everything: Success depends on providing strong, verifiable evidence (e.g., doctor’s certificate, statutory declaration) to support your claim.
• It’s not automatic: The ATO has discretion and assesses each failure to lodge penalty remission request on a case-by-case basis.

What is a Failure to Lodge Penalty?

A Failure to Lodge (FTL) penalty is an administrative fine imposed by the ATO under the Taxation Administration Act 1953. It is designed to encourage taxpayers to meet their lodgement deadlines for documents such as:

• Income tax returns
• Business Activity Statements (BAS)
• Fringe Benefits Tax (FBT) returns
• PAYG withholding annual reports

It’s a common myth that you only get penalised if you owe tax. The reality is you can be fined for lodging late even if you are due a refund. The penalty is about compliance with deadlines, not the amount of tax payable.

The ATO will send a formal penalty notice to your myGov inbox or postal address, clearly stating the penalty amount and which lodgement it relates to. Understanding this notice is the first step before you can apply for a failure to lodge penalty remission. To learn more about how these penalties are calculated, see our detailed guide on the late tax return penalty from the ATO.

How the ATO Calculates Failure to Lodge Penalties

The ATO uses a structured formula to calculate FTL penalties. The amount is determined by two key factors: how late the document is and the size of your entity. This framework ensures the penalty is proportionate.

Penalty Units Explained

The system is built on penalty units. For every 28-day period (or part thereof) that a document is overdue, one penalty unit is applied. For example, lodging one day late or 27 days late both fall within the first 28-day block and attract one penalty unit.

The dollar value of a penalty unit is indexed and changes over time. It is critical to check current ATO guidance for the latest rate.

Penalty Caps and Entity Size Multipliers

The ATO also applies a size multiplier to the penalty units:

• Small entities: Individuals and businesses with a turnover under $1 million. The penalty is calculated based on one penalty unit per 28-day period.
• Medium entities: Businesses with a turnover from $1 million to less than $20 million. The base penalty amount is doubled.
• Large entities: Businesses with a turnover of $20 million or more. The base penalty amount is multiplied by five.

The penalty is capped at a maximum of five penalty units. The table below illustrates the principle.

ATO FTL Penalty Calculation Principle

Days Overdue	Small Entity (Base Penalty Units)	Medium Entity (Penalty Units x2)	Large Entity (Penalty Units x5)
1 – 28	1 penalty unit	2 penalty units	5 penalty units
29 – 56	2 penalty units	4 penalty units	10 penalty units
57 – 84	3 penalty units	6 penalty units	15 penalty units
85 – 112	4 penalty units	8 penalty units	20 penalty units
113+	5 penalty units	10 penalty units	25 penalty units

This structure means a large company faces a significantly steeper fine than a sole trader for the same delay, underscoring the importance of timely lodgements like your BAS lodgement dates.

What is Failure to Lodge Penalty Remission?

Failure to lodge penalty remission is the official term for the ATO’s power to reduce or cancel an FTL penalty. It is not an automatic right; it is a discretionary decision made by the ATO when a taxpayer can demonstrate there were extenuating circumstances.

The ATO assesses every remission request on its own merits, considering the facts and evidence you provide.

When the ATO Will Remit (Reduce or Cancel) Penalties

To grant remission, the ATO must be satisfied you had a reasonable excuse for the delay. This is a high standard that goes beyond simple forgetfulness or being busy. It refers to circumstances that were genuinely beyond your control, making it practically impossible to lodge on time.

Common grounds for a successful ATO failure to lodge penalty remission include:

• Serious illness or accident: A sudden medical crisis affecting you, a close family member, or a key person in your business.
• Natural disaster: Events like floods, bushfires, or cyclones that directly impacted your home, business, or access to records.
• Loss of a key person: The unexpected death or serious illness of a director or essential staff member responsible for tax compliance.
• ATO system issues: If ATO portals or systems were down, preventing you from lodging.
• Unforeseen circumstances: Other serious and unexpected events beyond your control.

Your compliance history is also a significant factor. A taxpayer with a clean record is more likely to receive a favourable outcome than one with a history of late lodgements.

The ATO’s power to remit is discretionary. Proving a ‘reasonable excuse’ with solid evidence is crucial. For complex cases, understanding your rights in ATO disputes is vital.

How to Request an FTL Penalty Remission

Requesting the ATO to waive a penalty is a structured process. Follow these steps carefully to build a compelling case and maximise your chances of a positive outcome.

1. Lodge the Overdue Document First

This is the most critical and non-negotiable step. The ATO will not consider a penalty remission application if the outstanding tax return, BAS, or other report has not been lodged. Lodging demonstrates your commitment to rectifying the situation.

2. Gather Your Supporting Evidence

Your word is not enough. You must provide clear, verifiable evidence that supports your claim of a reasonable excuse. Examples include:

• A doctor’s certificate detailing the nature and dates of an illness.
• A statutory declaration outlining the specific circumstances.
• Insurance claims or police reports related to a natural disaster or theft.
• A death certificate for a key person.
• Correspondence from a tax agent if their circumstances caused the delay.

3. Draft a Clear, Factual Written Request

Your request should be concise, honest, and professional. Structure it clearly:

• State your purpose: Clearly state you are requesting a remission of a specific FTL penalty.
• Explain the circumstances: Provide a timeline of events and explain exactly how these events prevented you from lodging on time.
• Reference your evidence: Refer directly to the documents you have attached.
• Highlight your compliance history: If you have a good record, mention it.
• Outline preventative measures: Briefly explain what you have done to ensure future compliance.

4. Submit Your Request to the ATO

You have three main options for lodging your failure to lodge penalty remission request:

• Through a Registered Tax Agent: This is often the most effective method. Agents use dedicated portals and can frame the request professionally.
• Online via ATO Portals: You can submit a request through ATO Online services (for individuals via myGov) or Online services for business.
• By Mail: You can send a written request to the address specified on your penalty notice, ensuring you attach copies of all evidence.

Worked Example: Late BAS Penalty Remission

Let’s look at a practical scenario for a failure to lodge BAS penalty remission.

• The Business: ‘Coastal Cafe Pty Ltd’, a small business with a turnover of $800,000.
• The Situation: The December quarterly BAS was due on 28 February. The company director, Sarah, who manages all bookkeeping, was in a serious car accident on 20 February and was hospitalised for three weeks.
• The Outcome: The BAS was lodged 45 days late on 14 April. The ATO issued an FTL penalty notice for two penalty units (one for the first 28-day block, and another for the second).
• The Remission Request: Sarah’s accountant lodged the overdue BAS. They then immediately submitted a penalty remission application to the ATO. The request included:
  • A clear timeline of events.
  • A copy of the hospital admission and discharge papers.
  • A letter from Sarah’s doctor confirming she was unable to work.
  • A note highlighting the cafe’s excellent 10-year record of on-time lodgements.
• The Result: The ATO assessed the evidence and agreed that a serious accident constituted a reasonable excuse. They granted a full remission, cancelling the FTL penalty.

Common Mistakes That Cause Remission Requests to Fail

Many applications for administrative penalties remission are denied due to simple, avoidable errors. Here are the most common pitfalls and how to avoid them.

• Mistake: Requesting remission before lodging the overdue document.
• Quick Fix: Always lodge the outstanding return or BAS first. This is a mandatory prerequisite for the ATO to even consider your request.
• Mistake: Providing a vague excuse like “I was busy” or “I forgot”.
• Quick Fix: The ATO requires a reasonable excuse backed by proof. Provide specific, dated evidence like a doctor’s certificate or a statutory declaration that directly links the circumstance to the late lodgement.
• Mistake: Blaming your tax agent without justification.
• Quick Fix: You are ultimately responsible for your tax obligations. This reason is only valid if your agent’s failure was due to circumstances beyond your control (e.g., their own serious illness) and you can provide evidence from them.
• Mistake: Not explaining what you’ve done to prevent it from happening again.
• Quick Fix: Briefly mention the steps you have taken, such as setting up new calendar reminders, hiring a bookkeeper, or changing internal processes. This shows the ATO you are proactive about future compliance.

As reported by Accountants Daily, the ATO’s penalty system is complex, and getting the evidence right is critical to a successful outcome.

Checklist for Your Remission Request

Before submitting your failure to lodge penalty remission request, use this checklist to ensure you have covered all the essential elements for a strong application.

• [ ] Outstanding Document Lodged: The overdue tax return or BAS has been submitted to the ATO.
• [ ] Penalty Notice Details Included: The request clearly identifies the specific penalty notice (date, amount, lodgement period).
• [ ] Factual Explanation Written: The request provides a clear, concise timeline of events.
• [ ] Causal Link Established: You have clearly explained how the events directly prevented you from lodging on time.
• [ ] Supporting Evidence Attached: All relevant documents (doctor’s notes, statutory declarations, reports) are included.
• [ ] Good Compliance History Mentioned: If applicable, you have highlighted your past on-time lodgement record.
• [ ] Preventative Measures Outlined: You have briefly explained what steps you have taken to ensure future compliance.
• [ ] Contact Details Correct: Your name, TFN/ABN, and contact information are correct.

Frequently Asked Questions

What is the difference between a penalty remission and an objection?

A remission request asks the ATO to exercise its discretion to cancel a penalty based on extenuating circumstances. An objection is a formal legal challenge arguing that the penalty was applied incorrectly according to the law. You typically request remission first.

How long do I have to request a penalty remission?

There is no strict legislative timeframe for requesting a remission. However, it is best practice to submit your request as soon as possible after you have lodged the overdue document and received the penalty notice.

Will the ATO remit a penalty if it was my first time lodging late?

A good compliance history is a very strong factor in your favour. If it’s your first offence and you have a reasonable excuse, the ATO is more likely to grant a remission.

Can I get a failure to lodge penalty for a tax return with a refund?

Generally, the ATO does not apply an FTL penalty if the lodgement results in a refund or a nil liability. However, they reserve the right to do so, especially for taxpayers with poor compliance histories, as the legal obligation to lodge on time still exists.

What happens if I ignore an FTL penalty notice?

Ignoring the penalty is the worst course of action. The debt is legally enforceable, and the ATO will start charging General Interest Charge (GIC) on the unpaid amount. They will eventually commence recovery action, which can include garnishing wages or bank accounts.

Does penalty remission also cancel interest charges?

No. A failure to lodge penalty remission only addresses the administrative penalty itself. Any General Interest Charge (GIC) applied to an unpaid tax liability is separate. You can request an ATO penalty interest remission, but it is assessed on different grounds.

What if my remission request is denied?

If the ATO denies your remission request, you will receive a decision in writing. Your next option is to lodge a formal objection to the penalty decision within the specified timeframes. This is a more complex legal process where professional advice is highly recommended.

How much are ATO penalty units in Australia?

The value of an ATO penalty unit is indexed and changes periodically. To find the current rate for a failure to lodge on time penalty in Australia, you must check the official ATO website for the most up-to-date information.