ATO Late Lodgement Penalty vs General Interest Charge: What’s the Difference?

Missing a tax deadline can be stressful, especially when an ATO notice mentions a penalty or interest charge. One common source of confusion is the difference between a Failure to Lodge (FTL) penalty and the General Interest Charge (GIC).

They are not the same thing.

An FTL penalty is generally connected with lodging a required document late, while GIC is generally connected with paying a tax debt late. In some situations, a taxpayer may face one, the other, or potentially both.

Understanding the difference can make it easier to work out what the ATO is asking you to pay and what steps you may need to take.

What Is an ATO Late Lodgement Penalty?

A Failure To Lodge penalty may be applicable if you are required to lodge your tax return, activity statement or other document by a certain date but fail to lodge it by the due date.

The ATO claims that it usually takes into account the circumstances before imposing the penalty and might not do so for an isolated case of late lodgement. If the penalty is imposed, the ATO will give written notice about the reason, the penalty imposed and the date for payment.

For small business entities, the FTL penalty is usually calculated at a rate of one penalty unit per each 28 days, or part thereof, the document is overdue.

In simple terms:

FTL penalty = You lodged something late.

What Is the General Interest Charge?

The General Interest Charge is quite unique.

The GIC charge usually applies in situations where an outstanding tax debt owed to the ATO has not been paid by its due date. The rationale behind the GIC charge is to provide compensation for the period during which the tax debt has not been paid.

This is a situation whereby you could lodge your tax return before the deadline and yet you could incur GIC if you fail to pay off the tax debt created by your lodgment.

Consider the situation whereby you lodge the return before the deadline, and after the lodgment, the ATO realizes you owe $4,000. Failure to pay the amount by its due date leads to GIC.

In layman’s terms:

GIC = You have a tax debt and paid it late.

FTL Penalty vs GIC: The Key Difference

The easiest way to remember the distinction is to focus on what was late.

The two charges can arise independently, so receiving one does not automatically mean you will receive the other.

Can You Get Both Charges?

In some circumstances, yes.

Suppose someone does not lodge their tax return by the required deadline and later lodges it. The ATO then calculates a tax amount that remains unpaid after the payment due date.

There are now two separate issues:

• Issue 1: The tax return was lodged late.
• Issue 2: The resulting tax debt was paid late.

An FTL penalty may relate to the first issue, while GIC relates to the second.

The exact outcome depends on the individual's circumstances, lodgement history, payment dates and ATO assessment.

What If Your Tax Return Is Only a Few Days Late?

Just being late does not automatically result in the imposition of an FTL penalty.

According to the ATO, it is their practice not to impose FTL penalties in one-off instances of late lodgements, taking into account the circumstances of the individual.

This is not to say that deadlines do not have to be observed. If there are repeated instances of not lodging on time, the ATO will take appropriate action.

If you find out that your return is late, it is wise to proceed with filing it rather than wait further, due to fears about a potential penalty.

Can an ATO Penalty Be Remitted?

Potentially.

The ATO has discretion to remit an FTL penalty in whole or in part. It considers the circumstances surrounding the late lodgement when deciding whether remission is appropriate.

The same general principle applies to GIC, where the ATO can consider requests for remission in appropriate circumstances.

However, remission is not automatic. A request should explain the relevant circumstances and provide supporting information where appropriate.

Factors such as serious personal difficulties, circumstances outside your control or an otherwise good compliance history may be relevant, depending on the situation.

Should You Lodge a Late Return Before Paying?

This depends on your circumstances, but delaying lodgement simply because you cannot immediately pay the resulting tax bill can create additional problems.

Lodging allows the ATO to determine your actual tax position. Once the return is processed, you will have a clearer understanding of the amount owing and the relevant payment arrangements.

A taxpayer who is behind with their return may therefore need to deal with two separate tasks:

1. Bring the lodgement up to date.
2. Address any tax debt that results.

Keeping these issues separate can make the situation easier to manage.

What If You Have Several Overdue Returns?

Multiple overdue returns can be more complicated than a single late lodgement.

You may need to work through several financial years, gather older records and determine whether there are outstanding tax debts, refunds or other obligations.

In this situation, getting assistance from a registered tax agent can be useful, particularly when records are incomplete or several returns need to be prepared and lodged.

Professional support can also help you understand correspondence from the ATO and determine whether a penalty remission request may be appropriate.

What Should You Do After Receiving an ATO Notice?

Don't ignore it.

First, check exactly what the notice relates to. Is the issue an FTL penalty, GIC, an unpaid tax debt or something else?

Next, check the relevant lodgement and payment dates. If you believe the ATO has applied a charge incorrectly, gather documents that support your position.

If the return is still outstanding, deal with the lodgement rather than putting it off further.

Where a penalty or interest charge has been applied, review whether you may have grounds to request remission.

How Can You Avoid These Problems?

The simplest approach is to stay ahead of both lodgement and payment deadlines.

Keep tax records organised throughout the year, check your ATO correspondence regularly and make sure you understand your next lodgement and payment dates.

If you know you may have difficulty meeting a deadline, taking action before the due date can be better than waiting until the obligation becomes overdue.

Final Thoughts

An ATO late lodgement penalty and the General Interest Charge are two different things.

An FTL penalty is generally about failing to lodge a required document on time, while GIC is generally about paying a tax debt late. Knowing the difference can help you understand an ATO notice and decide what needs to be addressed first.

The important thing is not to ignore an overdue tax return or an ATO notice. Acting promptly can help prevent the situation from becoming more complicated.

If you have a Late tax Return and are unsure whether a penalty, interest charge or both may apply, getting professional advice can help you understand your options and bring your tax affairs up to date.

This article is for general information only and does not constitute personalised tax or legal advice. ATO rules and outcomes can vary according to individual circumstances.