Falling behind on tax is more common than people admit. A bad year, a separation, an illness, a business that grew faster than the bookkeeping, or an accountant who stopped answering: it doesn't take much. Then the letters start, and the longer they go unopened, the harder it is to make the call.
Here's the honest picture: what it costs to stay behind, what we do to catch you up, and what's realistic with the ATO.
What happens if you don't lodge your tax returns or BAS?
The ATO doesn't forget. Overdue lodgements and unpaid tax lead, step by step, to:
- Reminder letters, SMS and calls, then final notices.
- Failure to lodge penalties for each overdue return or activity statement.
- General interest charge on any unpaid tax, compounding daily.
- Default assessments, where the ATO estimates your income and taxes you on its number, often higher than the real one.
- Debt recovery: garnishee notices to your bank or customers, legal proceedings, and in some cases reporting business tax debts to credit agencies.
- Director penalties if your company hasn't paid PAYG withholding, GST or super.
None of that is a reason to panic. All of it is a reason to start now.
What penalties and interest are we actually talking about?
| Charge | How it works (as at October 2026) | Can it be reduced? |
|---|---|---|
| Failure to lodge (FTL) penalty | 1 penalty unit for each 28 days (or part) a return or BAS is late, up to 5 units. The penalty unit is $364 from 1 July 2026, so up to $1,820 per document for a small business or individual. Medium and large entities pay 2 or 5 times that | Yes. The ATO can remit it, and a safe harbour may apply if your tax agent caused the delay |
| General interest charge (GIC) | Charged on unpaid tax, compounding daily. 11.51% a year for October to December 2026. Not tax deductible for income years starting on or after 1 July 2025 | Yes, in part or full, where the delay wasn't your fault or there are special circumstances |
| Shortfall penalties | Where tax was understated, 25% to 75% of the shortfall depending on behaviour | Reduced by up to 80% for voluntary disclosure before the ATO contacts you |
The penalty unit value depends on when the failure to lodge occurred, so penalties for older years use the lower amounts in force at the time ($330 from 7 November 2024 to 30 June 2026, $313 from 1 July 2023).
Key point: The ATO treats people who come forward before it contacts them far more favourably than people it has to chase. Every week you wait makes your case for remission weaker.
Worked example: what three years of silence can cost
Example: Say a small company hasn't lodged its last two company tax returns or its last four quarterly BAS, all more than 140 days late, and owes $40,000 in tax.
| Item | Rough cost |
|---|---|
| FTL penalties: 6 documents × up to 5 penalty units | Up to about $10,920 at the current $364 unit (less for older periods) |
| GIC on $40,000 for one year at 11.51%, compounding daily | About $4,900, and not deductible |
| Director exposure for unpaid PAYG withholding and GST | Potentially the full amount, personally |
That's before default assessments or recovery costs. The tax itself usually can't be avoided. The penalties, interest and personal risk often can be reduced, which is where we start.
Unpaid business tax: what can the ATO do, and what help is there?
If a business doesn't pay its tax, the ATO adds interest, chases the debt, and can eventually garnishee bank accounts, report the debt to credit bureaus and, for companies, make directors personally liable. Help exists at every stage, and the earlier you use it the more options you keep.
| If your business owes the ATO and... | What can happen | What helps |
|---|---|---|
| It's recently overdue | Reminders, GIC from the due date (11.51% a year for October to December 2026, not deductible) | A self-serve payment plan if the debt is $200,000 or less, or an interest-free plan for eligible small businesses |
| Returns or BAS are also unlodged | Failure to lodge penalties and default assessments based on the ATO's estimate | Lodge first, even if you can't pay. It's the single most protective step |
| At least $100,000 is overdue by more than 90 days and you're not engaging | The ATO may report the debt to credit reporting bureaus after giving you 28 days' written notice | A payment plan you're keeping, or an active objection or review, counts as engaging |
| A plan has defaulted or warnings were ignored | Garnishee notices to your bank or customers, legal action | Renegotiate quickly, with a cash flow forecast to back the proposal |
| It's a company with unpaid PAYG withholding, GST or super | Director penalty notices make directors personally liable | Act within 21 days of a DPN. See below |
| The business can't trade out of the debt | Winding up or bankruptcy proceedings | Early advice from a registered insolvency practitioner |
Can you go to jail for not paying business taxes?
Not for being unable to pay. In Australia an unpaid tax debt is recovered as a debt, not prosecuted. What can be prosecuted is failing to lodge after formal notices, or giving the ATO false or misleading information. That's why lodging honestly, even when you can't pay, matters so much.
Owe the ATO and not sure which row you're in? Tell us what's happened and we'll find out for you.
How do we catch up overdue returns and BAS?
- Confidential free call. You tell us what's happened. We ask a few questions, explain what we can do, and give you a fixed fee. Nothing goes to the ATO until you say so.
- Get the real picture. Once you've authorised us as your tax agent, we pull your ATO records: every outstanding lodgement, every account balance, every penalty already raised, and any letters you haven't opened. For most people, knowing the actual number is a relief.
- Talk to the ATO. We tell the ATO we're acting for you and agree a lodgement schedule. That usually stops escalation while we work, and from then on the ATO talks to us, not you.
- Rebuild the records. Missing receipts and patchy bookkeeping are normal. We rebuild income and expenses from bank statements, ATO data (wages, interest, dividends, government payments), supplier statements and your own records. Our bank statement conversion agent turns years of PDF statements into checked, ready-to-import files, so we're not retyping them.
- Lodge in the right order. Usually the years and periods with the biggest risk first: BAS and PAYG withholding if you're a company director, then refunds that can reduce your debt, then the rest.
- Ask for penalties and interest to be remitted. Where the facts support it, our penalty remission agent drafts a written request with the chronology, the legal grounds and the evidence. Your accountant checks it and signs it.
- Agree a payment plan you can actually keep.
- Keep you current. Once you're up to date, we make sure it stays that way: books updated daily in Xero, BAS lodged on time, and tax planned before the year ends.
Do you have to lodge every year that's outstanding?
Generally, yes. The law requires a return for every year you had a lodgement obligation. In some cases, for example very old years for an individual with only wage income, the ATO may agree that a return is no longer necessary. We ask before preparing anything, so you don't pay for work that isn't required.
How do ATO payment plans work?
Most people with a tax debt can set up a payment plan. The ATO lets individuals and businesses set one up online if they owe $200,000 or less, with some exceptions. If you've recently had a warning of firmer action, defaulted on plans, or owe more, the plan has to be negotiated directly.
What makes a payment plan work:
- Lodge first. The ATO expects outstanding lodgements to be up to date, or on an agreed schedule, before it agrees to a plan.
- Make it affordable. A plan you default on in three months makes the next one harder to get. We build it from your actual cash flow, and our cash flow forecast agent models what you can afford alongside your other commitments.
- Keep current tax up to date. New BAS and tax must be paid on time on top of the plan.
- Understand that GIC keeps running on the balance, which is why we also apply to reduce it.
Our guide to ATO payment plans has more detail.
What should company directors know about overdue tax?
If your company is behind on PAYG withholding, GST or super, you can become personally liable through a director penalty notice. Directors can be liable for these amounts as well as the company.
What matters most is when the company reported the debt. If the company lodged its BAS and reported super on time, and simply didn't pay, a director penalty can generally be remitted by paying in full, appointing an administrator or small business restructuring practitioner, or starting a winding up within 21 days of the notice. If the debt was reported more than three months late, or never reported, paying it is generally the only way out.
That's why we lodge outstanding BAS first for company clients, even if the company can't pay yet. Lodging on time can preserve your options; leaving it doesn't. Read our guide to director penalty notices, and if you've received one, call us the same day.
Watch out: Don't move assets out of your name or the company's when you're behind with the ATO. Transfers made to avoid creditors can be reversed, and they make negotiations much harder. If the debts are beyond what a payment plan can fix, we'll refer you to a registered insolvency practitioner for advice.
What does it cost to catch up overdue tax?
We quote a fixed fee after the first call and the ATO records check, based on how many years and periods are outstanding and how much rebuilding the records need. You won't get a surprise invoice.
Once you're caught up, most business clients move onto one of our fixed-price plans, which include bookkeeping, BAS lodgements and annual tax returns. See our pricing page.
Honest alternatives: if you're an individual with only a salary or two, the ATO's own online services often prefill most of the information, and you may be able to catch up yourself. If your debt is large and the business can't trade out of it, an accountant's payment plan isn't the right tool, and you need insolvency advice early.
What should you send us?
- Every ATO letter you have, opened or not (photos are fine)
- Bank statements for the years outstanding, or permission for us to request them
- Any bookkeeping file, spreadsheets or records you kept, however incomplete
- Payment summaries or income statements, and details of any other income
- Loan, lease and vehicle documents for the business
- For companies: a list of directors, and any ASIC correspondence
- A rough idea of what you can afford to pay each month
You don't need to sort any of it first. Send it as it is, by email or straight from your phone; there's no portal to log in to.
"We have been working with Ray and the fantastic team at BPAG Accountants for several years, and it has truly been the best decision for our company… Their invaluable support has saved us a great deal of money and time." Susan McKendry, Google review
Why do people fall behind, and how do we stop it happening again?
In our experience, people rarely fall behind because they don't care. It's usually one of these:
- The books were never kept up, so every lodgement felt like a mountain
- A life event (illness, separation, a death in the family) took over
- A previous accountant stopped doing the work or left
- Cash was tight, so the BAS wasn't lodged because it couldn't be paid. (Lodge anyway. Lodging and not paying is far better than not lodging.)
What changes it is a system, not willpower. We keep your books current every day, lodge on time, raise problems early, and plan your tax before the year ends. If a big bill is coming, you know months ahead, not the week it's due. When something does go wrong in life, our customer care process for ATO debt and life events means your accountant knows to act, not just remind you.
If you're also dealing with an ATO review or audit, our ATO audits and disputes service picks that up. If the business needs ongoing help with cash, see cash flow management.
Frequently asked questions
Will the ATO prosecute me for not lodging?
Prosecution for failing to lodge is rare and usually follows repeated ignored notices. The far more common outcomes are failure to lodge penalties, default assessments based on the ATO's own estimate, and debt recovery. Lodging before the ATO escalates, through a registered tax agent, is the best protection against all of these.
What if I'm owed a refund for the years I didn't lodge?
Then lodge. Many people who fall behind are owed money, especially employees who had tax withheld from their pay. The ATO will generally use a refund to pay down any other tax debt you have first. Either way, you can't get a refund for a year you haven't lodged.
Can the ATO take money from my bank account?
Yes. For unpaid debts the ATO can issue a garnishee notice to your bank, a customer or anyone else who owes you money, requiring them to pay the ATO directly. It usually happens after other contact has failed, which is why responding early and agreeing a payment plan matters.
Does an ATO payment plan affect my credit rating?
A payment plan itself isn't reported to credit bureaus. However, the ATO can report some overdue business tax debts to credit reporting agencies where a business isn't engaging, which can affect your ability to borrow. Keeping to a payment plan is one of the best ways to avoid that.
Can a tax debt be written off?
Rarely. Individuals can apply for release from some tax debts on serious hardship grounds, but the ATO expects evidence and the criteria are strict. Businesses generally can't be released. More often, the realistic goal is reducing penalties and interest and spreading the rest over a plan you can afford.
I've received a director penalty notice. What should I do?
Act within 21 days of the notice date and call us the same day. Depending on when the company reported the debts, your options may include paying in full, or appointing an administrator or small business restructuring practitioner, or winding up the company. A payment plan alone does not stop a director penalty, so get advice before you do anything else.
Official sources
General information only, current as at 23 October 2026. It is not personal tax, legal or financial product advice and doesn't take your circumstances into account. Talk to us before you act. Where a recommendation needs a licensed financial adviser or a solicitor, we work alongside them.