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Australia Interest and Penalties Guide

the Australian tax interest and penalties. The guide covers: the general interest charge — GIC (the "GIC on the unpaid tax") — the GIC is the interest charged by the ATO on the unpaid tax (the "tax shortfall", the "late payment of the tax", the "late payment of the BAS"); the GIC is calculated on the "daily basis" at the "GIC rate" (the "benchmark rate plus 7%") — for the 2025-26 quarter, the GIC rate is 11.54% per annum; the GIC applies from the "due date of the payment" to the "date of the full payment"; the GIC is the "non-deductible expense" except for the business tax payments (the "GIC on the business tax" may be deductible as the "cost of the borrowing"); the shortfall interest charge — SIC (the "SIC on the tax shortfall") — the SIC is the interest charged by the ATO on the "tax shortfall" resulting from the "incorrect tax return" (the "understatement of the income" or the "overstatement of the deduction"); the SIC rate is the "benchmark rate plus 3%" — for the 2025-26 quarter, the SIC rate is 7.54% per annum; the SIC is calculated from the "due date of the original payment" to the "date of the amended assessment"; the SIC is the "non-deductible expense" for the all taxpayers; the failure-to-lodge penalty (the "FTL penalty") — the ATO imposes the "failure-to-lodge penalty" (the "FTL penalty") for the late lodgement of the tax return, the BAS, the activity statement or the other documents; the FTL penalty: (a) the "first penalty" — $330 for each 28-day period that the return is overdue (the "base penalty for the small entity"), (b) the "maximum penalty" — $1,650 for the 5 overdue periods (the "5 x $330"); the FTL penalty is increased for the "large entity" (the "annual turnover above $10 million" — the "double the penalty" at $660 per 28-day period); the shortfall penalties (the "penalties for the incorrect returns") — the ATO imposes the "shortfall penalty" (the "base penalty amount" as the percentage of the tax shortfall) based on the "culpability" of the taxpayer: (a) the "lack of the reasonable care" — 25% of the tax shortfall, (b) the "recklessness" — 50% of the tax shortfall, (c) the "intentional disregard of the law" — 75% of the tax shortfall.

Penalty Remission

  • Voluntary disclosure reduction: The taxpayer who makes the "voluntary disclosure" of the error before the ATO audit receives the 80% reduction of the base penalty (the "penalty reduction for the voluntary disclosure"). The taxpayer who makes the disclosure during the audit (but before the ATO advises the audit findings) receives the 40% reduction.
  • GIC and SIC remission: The taxpayer can apply for the "remission of the GIC or the SIC" if: (a) the delay is caused by the ATO (the "ATO processing delay" or the "ATO error"), (b) the taxpayer has the "exceptional circumstances" (the "serious illness, the natural disaster, the death in the family"), (c) the remission is "fair and the reasonable" in the circumstances. The remission application must be in writing.
  • Objection to the penalty: The taxpayer can lodge the "objection" against the penalty notice within the "60 days" of the penalty date. The objection grounds include: (a) the "penalty was incorrectly applied" (the "return was lodged on time"), (b) the "penalty amount is incorrect", (c) the "taxpayer had the "reasonable excuse" for the failure (the "unforeseen circumstances, the illness, the natural disaster").

For the objection process and the AAT review, see our Disagreeing with an ATO Decision Guide →.

Reasonable Excuse Provisions

  • Reasonable excuse for the late lodgement: The taxpayer can claim the "reasonable excuse" for the late lodgement if the failure was due to: (a) the "physical or the mental illness", (b) the "natural disaster" (the "flood, the bushfire, the cyclone"), (c) the "death or the serious illness of the family member", (d) the "incorrect advice from the ATO" (the "misleading ATO guidance"), (e) the "computer or the system failure". The reasonable excuse must be documented and provided to the ATO with the explanation.
  • Safe harbour for the small business: The small business entity (the "aggregated turnover under $10 million") may be eligible for the "safe harbour" from the FTL penalty if the lodgement is less than 28 days overdue. The safe harbour applies to the "first lodgement in the 2-year period" only.
  • Penalty for the tax agent error: If the taxpayer relies on the registered tax agent and the agent causes the delay or the error, the taxpayer may not be liable for the penalty if the taxpayer can demonstrate the "reasonable reliance" on the agent. The ATO may remit the penalty and pursue the agent for the misconduct.

For the tax debt collection and the payment options, see our Tax Debt Collection Guide →.