What Happens if You Haven’t Paid Taxes in 3 Years? | Australia
Written by Bindi Gethen
Before the COVID-19 pandemic hit, nearly $34 billion in tax was not paid in Australia. The Australian Taxation Office (ATO) estimated a 7.3% gap between the collected tax and what was expected in 2018-19, amounting to about $33.5 billion, which was an increase from the previous year.
Most of the missing tax dollars were attributed to small businesses ($12.5 billion) and individuals ($8.4 billion), with an additional $2.6 billion missing from large corporate groups.
So what happens if you haven’t paid taxes in 3 years? If you haven’t paid taxes for three years, you’re not just at the threshold of a potential problem – you’re already knee-deep in it. Unfiled tax returns and unpaid taxes can lead to penalties, interest charges, legal action, and in severe cases, criminal prosecution. However, while the situation is undoubtedly serious, it’s not hopeless.
What to Do if You Haven’t Filed Tax Returns in Years
There’s a common saying – nothing in life is certain except death and taxes. This can feel exceptionally true when you’re facing the repercussions of unfiled taxes. When it’s been a while since you’ve filed your tax returns, it’s normal to be anxious, uncertain about what steps to take.
Despite the heavy sense of dread, tax-related problems won’t solve themselves. Procrastination only exacerbates the issue. It’s important to understand the gravity of the situation and face the facts.
With tax evasion being a criminal offence in Australia, the ATO can initiate a series of actions against you. The penalties may range from a fine of 75% of the tax-related liability to criminal prosecution. The specifics vary depending on the severity of the tax avoidance, but the implications are undeniably serious.
In the first instance, you will accrue a Failure To Lodge (FTL) penalty. This penalty is calculated at the rate of one penalty unit for each period of 28 days or part thereof that the document is overdue, up to a maximum of five penalty units. The cost of a penalty unit is subject to change and is set by the Australian government.
As well as FTL penalties, the ATO can charge a General Interest Charge (GIC) on the outstanding amount of tax owed. The GIC rate is adjusted quarterly and is a way for the ATO to recoup the ‘time value’ of the outstanding tax money, a principle that applies to any overdue debt.
Please don’t wait for the implications to exacerbate. You’re running the risk of imprisonment, hefty fines, as well as a type of white-collar crime.
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Debt Collection Measures of the ATO for Collecting Unpaid Taxes
If you are facing unpaid taxes, it’s crucial to understand the measures that the ATO can take to collect them. While some might imagine a team of suits showing up at your doorstep with a court order, the ATO’s measures are typically less dramatic but nonetheless impactful:
Reminder Letters and Phone Calls: The ATO’s initial step in dealing with unpaid taxes usually involves sending reminder letters or making phone calls to alert businesses of their outstanding tax liabilities. These reminders are intended to prompt voluntary compliance.
General Interest Charge (GIC): If tax obligations remain unpaid after the due date, the ATO imposes a GIC, which is calculated daily based on the unpaid tax amount. The GIC compensates for the time value of the money that the government could otherwise have been utilising.
Garnishee Order: If the debt continues to remain unpaid, the ATO may issue a garnishee order to recover the owed amount. This allows the ATO to direct a third party that owes money to the taxpayer or holds funds for the taxpayer, such as a bank, to pay that money directly to the ATO instead.
Director Penalty Notices (DPNs): In cases of continued non-compliance, the ATO may issue DPNs. This makes directors personally liable for their company’s unpaid Pay As You Go (PAYG) withholding amounts and Superannuation Guarantee Charge (SGC) obligations. There are two types of DPNs: a non-lockdown DPN (which allows the director to avoid personal liability by taking certain steps) and a lockdown DPN (which does not allow the director to avoid personal liability).
Legal Recovery Action: If a taxpayer still does not meet their tax obligations despite the measures mentioned above, the ATO may initiate legal recovery action. This can involve issuing a statutory demand, judgement debt, or initiating bankruptcy or winding up proceedings against the taxpayer.
Departure Prohibition Order (DPO): If the ATO believes a debtor is likely to leave Australia without paying their tax debt, it can issue a DPO. This order prevents the debtor from leaving the country until the tax debt is paid in full, an arrangement for payment is made, or security for the debt is provided.
Seizure and sale of property: As a last resort, the ATO can seize a debtor’s property and sell it to satisfy unpaid tax liabilities. This measure is typically reserved for the most serious cases of tax evasion or persistent non-compliance.
Insolvency Proceedings: In extreme cases, the ATO might resort to insolvency proceedings against the debtor. Depending on the debtor’s situation, this might involve the appointment of a trustee (in bankruptcy proceedings) or a liquidator (in winding up proceedings) to oversee the sale of the debtor’s assets and the distribution of the proceeds among the creditors.
Pro tip
The ATO prefers voluntary compliance and typically only uses these measures when other attempts to collect unpaid taxes have failed. They also offer help and support for taxpayers who are struggling to meet their tax obligations, including payment plans and temporary debt relief in certain circumstances.
The Bookkeeping Studio: We Fix Your Tax Problems
Bottom line: Taxes, as dreary and daunting as they may be, are not something you can sweep under the rug, hoping they’ll magically disappear. Neglect them for three years, and you’re setting yourself up for a rough ride, complete with penalties, interest charges, and in the worst-case scenario, legal consequences that could shake your business to its core.
But here’s the silver lining in all of this – even if you’re in a hole, there are ways out. Whether it’s reaching out to a tax professional, setting up a payment plan with the ATO, or facing your debt head-on, there are solutions. The key is to take action, however uncomfortable it might be. Find out how The Bookkeeping Studio can help with your taxes today.
Hey, my name’s Bindi Gethen! I’m the founder of The Bookkeeping Studio in Australia. With over 15 years of experience in the industry, I have a deep understanding of the challenges that small and medium-sized business owners face when it comes to managing their finances.
I am passionate about empowering my clients with the financial information they need to succeed. My team and I pride ourselves on our commitment to exceptional value, accuracy, and confidentiality. Our virtual bookkeeping services include payroll, budgets, and management reporting, among others.
Not to toot our own horn, but we can assure you that you won’t find a bookkeeping partner like us anywhere else in the Southern Highlands.
