Overdue tax returns: what it costs to leave them, and how to fix it

If you have tax returns you have not lodged — one year or ten — the situation is almost certainly more fixable than you think, and almost certainly getting worse while you wait.

Most people in this position are not avoiding tax. They had a hard year, missed a deadline, felt embarrassed, and then the embarrassment did the rest.

What it actually costs to leave it

The failure to lodge on time penalty is one penalty unit for every 28 days a document is late, up to a maximum of five units per document. From 1 July 2026 a penalty unit is $364.

So the maximum FTL penalty is around $1,820 per return for an individual or small entity. Five unlodged returns can be $9,100 in penalties before a cent of actual tax. Larger entities face multiples of that.

On top of penalties, the general interest charge accrues on unpaid tax and compounds daily. Interest is the part that quietly turns a manageable debt into an unmanageable one.

The part that motivates people most

Around two-thirds of individual returns produce a refund. A meaningful proportion of long-overdue returns turn out to be owed money, not owing it — particularly where the person was on PAYG withholding the whole time, had deductions they never claimed, or had a low-income year.

We regularly lodge five or six years at once and hand someone a net refund. The fear was worse than the debt.

What the ATO actually does

The ATO’s stated approach is to work with people who engage. Before applying an FTL penalty, they will normally warn you by phone or in writing and issue a notice to lodge, giving you a chance to lodge or explain your circumstances.

Penalties can be remitted in whole or in part where there are extenuating circumstances — illness, family breakdown, natural disaster, mental health, business collapse. That remission is far easier to obtain when you came forward than when they found you.

If you do not engage, the ATO can issue a default assessment — an estimate of your income based on the data they hold, which typically ignores every deduction you were entitled to. A default assessment carries an administrative penalty of 75% of the tax-related liability, and the onus is then on you to prove it wrong.

What happens to the debt

Two things worth knowing, because they surprise people:

Business tax debts can be reported to credit bureaus where they meet certain criteria and the business is not engaging with the ATO. That affects your ability to borrow.
Directors are personally liable for a company’s unpaid PAYG withholding, GST and super guarantee through the director penalty regime. The company structure does not shield you from these.

Both of these outcomes are largely avoidable by engaging.

The process, honestly

We check your ATO record. As your registered tax agent we can see exactly which years are outstanding and what income the ATO already has for each. You may have fewer missing years than you think.
We reconstruct what we can. Income statements, bank interest, dividends and health insurance are generally pre-filled. For deductions we work with whatever you have — bank statements are usually enough to establish a reasonable basis.
We lodge, generally oldest first.
We ask for penalty remission where there are grounds, in the same submission.
If tax is owed, we arrange a payment plan. The ATO offers these routinely, and interest remission can sometimes be negotiated where there is a genuine hardship history.

Two things that are not true

“It has been so long they must have forgotten.” There is no time limit on the obligation to lodge. Single Touch Payroll means the ATO has had your income data in near real time for years.
“I cannot afford to lodge because I cannot afford to pay.” These are separate problems. Lodging stops the penalties accruing. Payment is then a conversation about a plan.

Need a hand with this?

We deal with overdue lodgements regularly and without judgement. It is a normal part of practice, not a confession. If you have unlodged years, the first step is simply letting us look at your ATO record so you know what you are actually facing.

Book a consultation

Call 0410 250 400

Sources

This article is general information only and does not take your personal circumstances into account. Rates and thresholds are current at the date of publication. Speak to us before acting on anything you read here.