Do I get a late lodgement penalty if I am owed a refund?

Why there is usually no penalty

The failure to lodge penalty exists to get returns in so the ATO can collect tax. Where a late return shows nothing owing, the ATO says it will generally not impose the penalty. Its guidance on the penalty states that it does not usually apply where the lodgement results in a refund or a nil result, except for large withholders and certain third party reports. The ATO also usually warns before penalising, so a first late return with a refund rarely attracts anything.

Interest does not apply either. General interest charge only runs on an unpaid amount, so a refund return cannot accrue interest.

When you can still be penalised

• Repeated non lodgement. Several years of unlodged returns, or ignoring the ATO's written requests to lodge, can attract penalties even where refunds are involved, because the ATO treats the pattern as the problem.
• You are wrong about the refund. If the return actually shows tax payable once lodged, the ordinary late lodgement penalty applies: $364 per 28 days, capped at $1,820 for an individual or small entity, plus interest on the tax from the original due date.
• Default assessments. If you do not lodge, the ATO can issue a default assessment based on its own estimate, which is usually higher than reality and carries penalties. You then have to lodge to correct it.
• Activity statements. A late BAS is a separate document. The same practice generally applies to a nil or refund statement, but the penalty can be imposed, especially for larger entities.

What happens to the refund

The refund is not automatically yours. The ATO offsets refunds against any outstanding tax debt, including debts on hold, debts on a payment plan and, for sole traders, business debts such as GST. So a late return that shows a $3,000 refund may produce nothing in your bank account if you owe the ATO $3,000 elsewhere. That is not a penalty, just the ATO collecting what it is owed, and it is covered in can the ATO keep my tax refund.

Why lodging anyway matters

Waiting because you expect a refund is a bet. Unlodged returns keep the ATO guessing, block payment plans on any other debt, and can lead to a default assessment that turns a refund year into a debt year on paper. If you have several years outstanding, lodge the most recent first and work back; our page on not having lodged for years walks through it. A registered agent can see your ATO account, confirm what is outstanding and lodge the backlog with safe harbour protection if you give them what they need.

What to do next

1. Lodge the return now, because the refund cannot be paid until you do and the position only gets worse with time.
2. Check your ATO account for any other debts the refund might be offset against.
3. If a penalty has been applied on a refund return, request remission and quote the ATO's own practice on refund and nil results.

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