If you have overdue tax returns, the instinct is to leave them alone. The cheaper move is the opposite. People on wages with tax already withheld often find that catching up brings a refund. The ones who face real penalties and interest are usually those with business, rental or overseas income who have not lodged at all. Coming forward yourself, rather than waiting for the ATO, makes a big difference to how it ends.
First, work out what you actually owe the ATO
Not everyone has to lodge every year. If your income was below the tax-free threshold and the right tax was withheld, you may not need a return for some years, but you should tell the ATO with a non-lodgment advice. Otherwise those years keep showing as outstanding.
Link the ATO to myGov and you can see which years show as due, along with the income your employer, bank and share platforms have reported. A registered tax agent can pull your full lodgment history and, while you are catching up, may be able to arrange more time for the outstanding returns.
| Your situation | What you are likely facing | First step |
|---|---|---|
| Mainly salary or wages with tax withheld, a few years not lodged | Often a refund or close to nil; penalty risk is usually low | Check the pre-filled income statements in myGov and lodge year by year |
| ABN, rental, overseas or investment income, a few years not lodged | Possible tax owing, plus general interest charge and failure to lodge penalties | Pull together income and expense records for each year and work out what is owed |
| Returns lodged, but some income left out | A shortfall, with a possible shortfall penalty | Correct it in writing before the ATO contacts you |
| Already received an ATO reminder or a default assessment | Default assessments are often higher than the real figure, and interest starts running | Lodge the real figures promptly and keep to any deadline in the letter |
How failure to lodge penalties work on overdue tax returns
The failure to lodge (FTL) penalty is counted in penalty units. You are charged one penalty unit for each period of 28 days, or part of one, that a return is late, up to a maximum of five units. Medium entities are multiplied by two and large entities by five. The dollar value of a penalty unit is set by the Commonwealth and indexed, and the value that applies is the one in force when the return was due. Check the ATO for the current figure.
The penalty is separate from any tax owing. Unpaid tax also attracts the general interest charge (GIC), calculated daily at a rate updated each quarter. For people who owe tax, the interest often hurts more than the penalty, so the longer you wait the more it costs.
Penalties are not automatic in full. If this is your first time late, or you could not lodge because of illness, a natural disaster or a family crisis, you can ask the ATO in writing to remit the penalty. Explain what happened and your plan to catch up. The ATO looks at your lodgment history and how you are engaging now.
Why voluntary disclosure is worth it
If the problem is not just late returns but income that was left out of returns you did lodge, such as overseas rent, crypto gains or cash income, you are into shortfall penalties. The base rate depends on how the shortfall happened, from failing to take reasonable care through to intentional disregard.
Timing is everything. Correcting the return and making a voluntary disclosure in writing before the ATO tells you it is examining your affairs can reduce the penalty substantially. Disclosing after an examination has started still helps, but by much less. The ATO matches data from banks, overseas tax authorities, crypto exchanges and ride-share platforms, so it is better to explain it yourself first.
Catching up on overdue tax returns, step by step
Gather what you can: income statements, bank interest, rental records, and invoices and receipts for any ABN work. Where records are missing, rebuild them from bank statements and keep notes on how you did it. Do not claim expenses you cannot support.
Then lodge from the earliest year forward and work out the tax for each year. If the total owed is more than you can pay at once, you can ask the ATO for a payment plan after lodging. While you keep to the plan, the ATO generally will not take further recovery action, though interest keeps running on the balance. If you have received a default assessment, lodging the real figures lets the ATO amend it.
For several years of overdue tax returns at once, it is worth using a registered tax agent: they can negotiate the timetable with the ATO and check each year for deductions you are entitled to, so you do not overpay while catching up.
Frequently asked questions
Can I go to jail for not lodging tax returns in Australia?
In almost all cases, no. The usual consequences of not lodging are failure to lodge penalties, general interest charge on unpaid tax and default assessments. Prosecution is reserved for serious cases such as persistent refusal to lodge, deliberate concealment or fraud. The sooner you come forward, the gentler the outcome tends to be.
Will I definitely be fined for lodging late?
Not necessarily. The FTL penalty is one penalty unit for each 28 days late, up to five units, and you can ask the ATO in writing to remit it if this is your first time or you had a genuine reason. Many wage earners who end up with a refund pay little or nothing in penalties. Check the ATO for the current penalty unit value.
What if I have lost my records?
Start with the income your employer and bank have reported to the ATO, which you can see in myGov. Rebuild the rest from bank statements, contracts and invoices, and keep notes on how you did it. Do not claim expenses you cannot support.
What is a voluntary disclosure?
It is telling the ATO in writing, before it notifies you of an examination, that an earlier return was wrong or left out income, and correcting it. Doing this first can substantially reduce shortfall penalties. Disclosing after an examination has started still helps, but much less.
What if I cannot pay the tax I owe once I catch up?
You can ask the ATO for a payment plan based on what you can afford. While you keep to the plan, the ATO generally will not take further recovery action. Interest continues on the balance, so pay it down as quickly as you can.
Get the years sorted, one at a time
If you have several years outstanding, a registered tax agent can pull your lodgment history from the ATO, agree a catch-up timetable, and make sure each year claims what it is entitled to before any tax is paid. TXAS Tax & Accounting Solutions helps Melbourne individuals and small businesses bring overdue returns up to date. Call (03) 8827 0025, email om@txas.com.au, or visit us at 313 Burwood Highway, Burwood East VIC 3151. This article is general information only. It does not take your circumstances into account and is not tax, financial or legal advice. Penalty amounts and rules are set by the ATO and can change.
