- Most ATO penalties come down to two things: lodging late and paying late. A failure-to-lodge penalty is currently $330 per 28-day period (capped at 5 periods for small businesses), and unpaid tax attracts a general interest charge of 10.96% a year, compounding daily.
- Two recent changes raise the stakes: since 1 July 2025, GIC and shortfall interest are no longer tax-deductible, and from 1 July 2026, Payday Super requires super to be paid within 7 business days of each payday, not quarterly.
- Almost every penalty here is avoidable with on-time lodgement and payment, and many can be reduced or remitted if you act fast but the costliest ones, the super guarantee charge and director penalties, are also the hardest to have waived.
Nothing derails a business faster than an unexpected ATO penalty. One missed BAS, a forgotten PAYG payment, or a small reporting error can snowball into hundreds or thousands in fines and it isn’t only the money, it’s the stress, the paperwork, and the worry of being on the ATO’s radar.
The good news: penalties are calculated on fixed formulas, not guesswork, so you can usually work out exactly what you’re facing and most are preventable with the right systems and a registered tax accountant keeping your lodgements accurate and on time. This guide lists the 12 penalties Australian businesses trigger most often in 2026, with the current amounts, what sets each one off, and the specific step that prevents it.
Most penalties stay with the company, a director penalty notice doesn't. If your business reports its PAYG, GST and super on time, you keep your defences; miss the three-month reporting window and you're personally on the hook. Lodging on time is what protects you, not the company structure.
What ATO penalties do businesses get hit with most?
The most common ATO penalties are:
- The failure-to-lodge (FTL) penalty for late BAS or returns
- The general interest charge (GIC) on unpaid tax
- Shortfall penalties for incorrect statements, and
- The super guarantee charge (SGC) for late employee super
Each runs on a set formula, penalty units for late lodgement, a daily compounding rate for unpaid amounts, a percentage of the shortfall for errors, and a three-part charge for late super so the cost is predictable once you know the inputs. Here’s each one in detail.
ATO penalties at a glance
Penalty | What triggers it | Current cost (2026) |
False or misleading statement | A statement understates your tax | 25%, 50% or 75% of the shortfall |
Not reasonably arguable position | An aggressive position with no reasonable basis | 25% of the shortfall |
Failure to lodge (FTL) | Late BAS, IAS or tax return | $330 per 28 days, max $1,650 (small business) |
Failure to register for GST | Not registering when turnover requires it | Back-payment of GST, possible GIC and activity statement penalties, plus a possible administrative penalty of 20 penalty units |
Poor record-keeping | No records kept for 5 years | 20 penalty units ($6,600) |
Failure to issue tax invoices | Not issuing required invoices/adjustment notes | 20 penalty units ($6,600) |
General interest charge (GIC) | Unpaid tax after the due date | 10.96% p.a., compounding daily |
Shortfall interest charge (SIC) | An amended assessment increases your tax | 6.96% p.a., compounding daily |
Super guarantee charge (SGC) | Super paid late or not at all | Shortfall + 10% interest + $20/employee/quarter |
Part 7 penalty | Not lodging an SGC statement | Up to 200% of the SGC |
Failure to withhold (PAYG) | Not withholding tax from wages | Equal to the amount you failed to withhold |
Director penalty notice (DPN) | Company doesn’t pay PAYGW, GST or super | Directors personally liable for the full amount |
1. Submitting false or misleading information
Providing incorrect figures, even by mistake, can result in penalties based on how serious the error is:
- Failure to take reasonable care: 25% of the shortfall amount
- Recklessness: 50% of the shortfall amount
- Intentional disregard: 75% of the shortfall amount
For large entities (Significant Global Entities), these rates can double, and penalties may still apply even if there’s no shortfall (e.g., incorrect information during an audit).
How to avoid it:
Double-check every report, or have a registered tax accountant review it before lodgement, that review is also your evidence that reasonable care was taken.
2. Making claims that aren’t reasonably arguable
If you take a tax position that lacks a reasonable basis, say, claiming an ineligible deduction, the ATO can impose a 25% penalty on the shortfall.
- For trusts and partnerships: Applies if the shortfall exceeds $20,000 or 2% of net income.
- For others: If the shortfall exceeds $10,000 or 1% of the income tax (or PRRT) payable, whichever is greater
How to avoid it:
If a position is borderline, get advice before lodging. Professional sign-off is far cheaper than a 25% penalty on a five- or six-figure shortfall.
3. Failure to lodge on time (FTL)
The ATO can apply Failure to Lodge (FTL) penalties when required documents (like BAS/IAS/tax returns) are lodged late. Separately, there are administrative penalties for failing to register for GST (or cancel GST registration) when required.
- Each penalty unit is $330 (for offences committed on or after 7 November 2024), the ATO reviews this rate periodically
- The ATO charges 1 penalty unit for every 28 days (or part thereof) that a return is late, capped at 5 units.
- Small entities: × 1 (base rate)
- Medium entities: × 2
- Large entities: × 5
Common triggers include:
- Missing BAS, IAS, or income tax return lodgements
- Failing to register for GST or cancel it when required
- Failing to issue required tax invoices or adjustment notes can attract a separate administrative penalty (20 penalty units under s288-45), rather than an FTL penalty.
How to avoid it:
Lodge on time even when you can’t pay, the penalty is for not lodging, not for not paying. Use accounting software with deadline reminders, and check the key ATO tax return dates at the start of each year.
4. Failure to register for GST when required
You must register for GST once your turnover reaches $75,000 ($150,000 for non-profits), or immediately if you provide taxi or ride-share services. Keep trading past the threshold without registering, and the ATO can backdate your registration.
The real cost is rarely a single penalty unit.
- You become liable for the GST you should have collected on past sales, often out of your own pocket if you can’t recover it from customers, plus GIC on the shortfall and a possible FTL penalty for the unlodged statements.
How to avoid it:
Track your rolling 12-month turnover and register as you approach $75,000, not after. Our guide on what is BAS covers the GST reporting that follows.
5. Poor record-keeping or non-cooperation
Australian tax law requires you to keep records that explain your transactions for five years and to make them available to the ATO on request.
- Failing to keep records, retain them for the full period, refusing ATO access, or not providing declarations can each attract 20 penalty units, $6,600 at the current rate.
- Weak records also turn minor audit queries into shortfall penalties.
How to avoid it:
Store every invoice, bank statement and piece of ATO correspondence digitally. The ATO accepts well-organised electronic records, what matters is that they’re complete, legible and retrievable.
6. Failure to issue tax invoices or adjustment notes
If you’re registered for GST and make a taxable sale over $82.50 including GST, you must provide a tax invoice within 28 days when the customer asks.
- Failing to do so attracts a separate administrative penalty of 20 penalty units ($6,600), distinct from any FTL penalty.
- It’s usually a systems problem, not intent.
How to avoid it:
Configure your invoicing software to produce compliant tax invoices by default; ABN, GST amount, and the words “tax invoice” included.
Most of the penalties on this list don't come from anyone doing the wrong thing, they come from a busy month. Super that went out a day late, a BAS that quietly slipped past its date. The ATO's formulas don't care that you meant well, and now that interest isn't deductible anymore, letting a debt sit costs you more than it once did. Sort out the calendar and you've dealt with most of your risk right there.
7. General interest charge (GIC) on unpaid tax
GIC is the ATO’s interest on any tax-related liability still unpaid after its due date, income tax, GST, PAYG withholding, FBT or the super guarantee charge. It starts the day after the due date and compounds daily.
- For the April–June 2026 quarter the GIC rate is 10.96% per annum (the ATO resets it quarterly), and daily compounding means a debt left to sit grows faster than the headline rate suggests.
- The bigger shift: GIC incurred from 1 July 2025 is no longer tax-deductible. Previously you could claim it back to soften the cost, that relief is gone, making an ATO debt one of the most expensive forms of finance a business can carry.
How to avoid it:
Pay by the due date. If cash flow won’t stretch, a payment plan stops enforcement but does not stop GIC accruing, so compare the after-tax cost against a bank facility first.
8. Shortfall interest charge (SIC) on amended assessments
SIC applies when the ATO amends an assessment and your tax goes up, it covers the period you had use of money that was really the ATO’s.
- It uses a lower uplift than GIC: the current rate is 6.96% per annum for the April–June 2026 quarter, compounding daily, and it also lost its deductibility from 1 July 2025.
- The extra tax and SIC are generally due 21 days after the ATO issues the amended assessment. After that due date, GIC applies automatically to any unpaid extra tax and SIC.
How to avoid it:
Get your positions right the first time and keep the records to support them. Most SIC arises from under-reported income or over-claimed deductions found later, exactly what a pre-lodgement review prevents.
9. Super guarantee charge (SGC) for late or unpaid super
This is the penalty that catches the most well-meaning employers, because it applies the moment super misses the deadline, even by a day, and even if you pay in full shortly after.
When super is late you can’t simply pay the contribution; you must lodge an SGC statement and pay the super guarantee charge, which is deliberately more expensive than the original obligation.
It has three parts:
- the shortfall calculated on total salary and wages (not just ordinary time earnings),
- nominal interest of 10% a year from the start of the quarter, and
- an administration fee of $20 per employee, per quarter
Unlike on-time super, the SGC is not tax-deductible, so you pay more, on a wider base, and can’t claim it. The super guarantee rate is now 12% (from 1 July 2025).
How to avoid it:
Pay super well before each deadline and confirm it has reached the fund, not just left your account, the deadline is about receipt, not payment.
10. Part 7 penalty for not lodging an SGC statement
On top of the SGC itself, there’s a penalty for not coming forward. Miss the super deadline and fail to lodge an SGC statement on time, and the ATO can add a Part 7 penalty of up to 200% of the SGC. In practice it’s reduced heavily for employers who self-report promptly, but it can be unforgiving where the shortfall surfaces through an audit or an employee complaint.
How to avoid it:
If you’ve missed a super payment, lodge the SGC statement straight away. Voluntary, on-time disclosure is what keeps this penalty near zero.
11. Failure to withhold PAYG
Employers must withhold tax from employees’ wages (and from some payments to contractors and other businesses) and send it to the ATO.
Fail to withhold when required, and the penalty is generally equal to the amount you should have withheld, effectively doubling the cost of the mistake, on top of any FTL penalty for late activity statements. Get on top of your PAYG obligations before they compound.
How to avoid it:
Run withholding through compliant payroll software and reconcile it against each activity statement before lodging.
12. Director penalty notices (DPN); personal liability
This is the one that pierces the company. Where a company doesn’t pay its PAYG withholding, net GST or super guarantee charge, the ATO can issue a director penalty notice making the directors personally liable for the unpaid amount.
- If the company reported the liabilities but didn’t pay, a director can usually avoid personal liability by paying, appointing an administrator, or beginning to wind up.
- But if the amounts were never reported within three months of the due date, the notice “locks down” and the only way to remove the liability is to pay it.
How to avoid it:
Lodge on time even when you can’t pay. Reporting within the three-month window keeps your options open; silence removes them.
How does the ATO calculate penalties?
ATO penalties generally fall into two categories: administrative penalties (calculated in penalty units) and shortfall penalties (based on the amount of tax underpaid).
1. Administrative penalties (Penalty units)
Administrative penalties apply for late lodgement, poor record-keeping, or failing to register or cancel tax obligations when required.
- As of 7 November 2024, one penalty unit equals $330 (indexed periodically).
- The total penalty depends on your business size and how late or severe the breach is.
- Example: Failure to lodge a Business Activity Statement (BAS) may attract 1 penalty unit for every 28 days late, up to a maximum of 5 units.
- That means a small business could owe $330 – $1,650 per missed statement.
2. Shortfall penalties (False or misleading statements)
These apply when you make a false or misleading statement that results in paying less tax than you should have, known as a shortfall amount.
The ATO determines penalties based on your level of care:
Behaviour | Penalty (% of shortfall) |
Failure to take reasonable care | 25% |
Recklessness | 50% |
Intentional disregard of the law | 75% |
These rates may double for Significant Global Entities (SGEs).
If the error is identified and voluntarily disclosed before ATO contact, penalties can be reduced by up to 80%.
Can the ATO waive or reduce a penalty? Relief and remission
The ATO recognises that genuine mistakes happen, and offers two routes to lower a penalty.
- Penalty relief (no penalty applied) generally suits inadvertent errors by individuals and small entities (turnover under $10 million) where reasonable care was taken. It’s usually available only once in a three-year period, can be applied automatically during an audit, and does not apply to FBT or super guarantee charges.
- Remission (penalty reduced or cancelled) is a request you make where relief doesn’t apply. The ATO weighs your compliance history, whether the cause was outside your control (illness, natural disaster, system failure), and whether you acted in good faith once you found the error. A voluntary disclosure before an audit can reduce the base penalty by up to 80%; a disclosure after audit contact often still earns around 20%.
If you spot an error, act quickly: correct it, disclose if appropriate, document how it arose, and have a registered tax accountant advise on whether relief or remission is realistic and prepare the request.
How to avoid ATO penalties in the first place
Staying penalty-free isn’t about scrambling at tax time, it’s about systems that keep you compliant year-round.
- Build compliance into daily operations. Automate invoicing, payroll and BAS prep through software connected to the ATO, so lodgements are accurate every time, not just on deadline week.
- Keep evidence, not just records. Store every tax invoice, payroll summary and bank record securely for at least five years. Cloud bookkeeping makes them retrievable when the ATO asks “why.”
- Stay transparent. If you lodge late, make an error or underpay, proactive disclosure is your best shield, it can cut penalties by up to 80%.
- Use professional oversight. A registered tax accountant spots risks before the ATO does, backs every figure with documentation, and secures safe-harbour protection if a mistake happens on their end.
- Keep pace with change. Penalty unit values, interest rates and rules like Payday Super shift regularly. Your accountant should apply each update before it becomes a compliance issue.
What to do if you’ve already received an ATO penalty notice
Penalties aren’t final. You can often reduce, challenge or remit them entirely if you act quickly.
- Review the notice and confirm the details. Check the penalty type, the reason, the amount and the due date, some penalties are system-generated on incomplete data and simply wrong.
- Check for automatic relief. Small businesses (turnover under $10m) with a strong record and a first late lodgement in three years are often remitted automatically.
- Submit a remission request. Lodge through ATO Online Services or your registered agent, with a clear factual explanation, supporting evidence, and proof you’ve fixed the issue. Be factual, not emotional.
- Lodge a voluntary disclosure for any shortfall. Disclosing an underpayment before the ATO contacts you can cut shortfall penalties by up to 80% and strengthens any remission request.
- Use safe-harbour protection for agent errors may protect you from certain administrative penalties if you gave your registered tax or BAS agent all relevant information and the failure was linked to the agent’s lack of reasonable care or late lodgement. It does not remove the underlying tax, interest, or all possible penalties.
- Object within the time limit. If remission is denied, you generally have 60 days from the notice date to lodge a formal objection, your accountant can draft it.
One to watch: Payday Super from 1 July 2026
The biggest change to employer obligations in years takes effect on 1 July 2026. Under Payday Super, now law, employers must pay super at the same time as wages, with contributions reaching employees’ funds within 7 business days of each payday rather than quarterly. Super will be calculated on a new “qualifying earnings” base, and the Small Business Superannuation Clearing House closes on 30 June 2026.
The penalty consequence is real: miss the 7-day window and the non-deductible SGC applies just as it does now but far more often, because the deadline attaches to every pay run. If you employ staff, review your payroll software and cash-flow timing before July.
The GIC rate resets every quarter, and as you saw above, the super rules change again under Payday Super from 1 July 2026, so it's worth checking the current figures before you act on anything. If you'd rather not second-guess it, a registered tax agent can tell you exactly where you stand.
How Sleek keeps you penalty-free
Most penalties don’t happen because an owner doesn’t care, they happen because the calendar got away from them during a busy stretch. Sleek keeps your lodgements on time so these never hit.
With Sleek accounting, you get:
- Registered tax accountants with CPA/CA backgrounds, not just compliance, but strategic advice tailored to your business.
- Full tax compliance, from BAS, GST, PAYG, to ATO correspondence, Sleek handles it all so you never miss a deadline.
- Strategic tax planning to maximise deductions, manage cash flow, and structure your business for growth.
- All-in-one accounting and bookkeeping support to reconcile your accounts and prepare your financial statements
- Clean, reconciled, audit-ready records, removing the record-keeping and invoicing penalties before they can arise.
- Transparent, upfront pricing, only pay for what you need, with no hidden fees.
Avoid ATO penalties, let Sleek manage your compliance. Talk to a Sleek accountant and get your lodgements off your plate.
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Frequently Asked Questions
Can I appeal or challenge an ATO penalty notice?
Yes. You can object to a penalty or assessment within the timeframe specified on your notice. The sooner you respond with supporting evidence, such as corrected records or an explanation of the reasonable care you took, the stronger your position is likely to be. A registered tax accountant can help prepare a compliant objection and manage ATO correspondence on your behalf.
What is changing with super payments in 2026?
From 1 July 2026, Payday Super generally requires SG contributions to be received by the employee’s super fund within 7 business days of payday, subject to limited exceptions, such as certain new employee or new fund situations where 20 business days may apply. Missing that window can trigger the same non-deductible Super Guarantee Charge (SGC) that applies today, but with payment deadlines attached to each payday rather than each quarter. Review your payroll system and cash-flow timing before July to stay compliant.
What is the penalty for lodging a BAS late in Australia?
A late BAS can attract a Failure to Lodge (FTL) penalty of $330 for every 28 days (or part thereof) that it remains overdue, capped at five periods. For a small business, that means a maximum penalty of $1,650 per statement. The penalty may apply even if the BAS is nil or results in a refund. Lodging on time, or using a registered BAS or tax agent to access extended lodgement deadlines where available, is the best way to avoid it.
