Businesses and individuals are legally obliged to pay taxes to contribute to Australia’s welfare. Funding supports vital societal attributes like healthcare, education, transport, and defence.
Missed payments could yield serious consequences, like penalties, that hit your business financially and reputationally. Understanding tax penalties and their impact on small businesses can help you take preventative measures efficiently.
What Are Tax Penalties?
The Australian Taxation Office imposes penalties on individuals or entities that don’t meet their tax obligations. They enforce this provision to sustain a fair economy and prevent avoidance.
Penalties are similar to fines because you’ll have to pay an additional amount to compensate for late or non-compliance. The Australian Taxation Office charges penalties in units. As of 2023, one unit comprises $313, a raise from 2022’s value of $275.
When Do You Get Tax Penalties?
As a small business owner, you could face penalties in the following circumstances:
- Submitting late payments: Lodging taxes after their due dates can incur a failure to lodge (FTL) penalty. The ATO charges one unit for every day missed. Sole traders, partnerships, trusts and individual taxes are due on 31st October and company tax by 28th February.
- Filing misleading or incorrect information: Intentionally submitting less income than accrued or falsifying deductible purchases that reduce your assessable income will result in a penalty.
- Failing to lodge a tax return: Penalties apply to intentional and accidental tax obligation neglect.
How Do Tax Penalties Affect Small Businesses
Besides the existing tax amount, small businesses must account for a non-negotiable increased expense, which could cause significant financial strain. Bills could affect a business’ foundations by stagnating growth strategies, risking assets, and preventing recruitment. Constantly neglecting taxes could involve a federal sentence, too.