ATO penalties: how they're calculated, and how to ask for them to be waived

How failure to lodge penalties are calculated

FTL penalties apply per late document — each BAS, tax return or statement — and accrue in 28-day blocks:

1 penalty unit per 28 days (or part) late, capped at 5 units. A penalty unit is $364 for lodgments due from 1 July 2026 ($330 for late 2024 to mid-2026). The result is then multiplied by business size:

The trap isn't one penalty — it's the stack. Four quarters of unlodged BAS plus two tax returns is six documents, each accruing separately. A sole trader who's two years behind can face $8,000–$10,000 in FTL penalties before the actual tax debt is even counted. (The bigger cost of unlodged BAS is usually the director penalty lockdown risk — see BAS & GST debt.)

The other penalties you might be looking at

Beyond FTL, the common ones are false or misleading statement penalties — 25%, 50% or 75% of the tax shortfall depending on whether the ATO says you failed to take reasonable care, were reckless, or intentionally disregarded the law — and super guarantee penalties, which can reach 200% of the SGC. All are remittable in whole or part, and shortfall penalties are also commonly reduced by objection, because the "carelessness" label is often arguable.

Safe harbour and the first-offence practice

Two protections do a lot of quiet work:

• Safe harbour: if you gave a registered tax or BAS agent everything they needed in time to lodge, and the lodgment was late or wrong because of the agent, FTL and lack-of-reasonable-care penalties generally shouldn't apply to you. The ATO doesn't apply this automatically — you (or the agent) have to raise it.
• First-offence practice: the ATO's stated approach is not to punish an isolated lapse by a taxpayer with a good lodgment history. One late BAS after years of clean compliance is routinely remitted in full — often with a single well-framed request.

How to write a remission request that works

Remission is discretionary, which means the decision turns on the story and the evidence. The requests that succeed share a structure:

1. What happened, with dates. The specific event — illness, disaster, family crisis, system failure, agent breakdown — and when it occurred relative to the due date.
2. Why it was outside your control. This is the legal test the officer is applying. "Cash flow was tight" fails; "our bookkeeper resigned without notice in the week lodgments fell due, and here's the timeline of replacing them" can succeed.
3. What you did about it. Steps taken to lodge as soon as reasonably possible. The gap between the problem ending and the lodgment happening is scrutinised.
4. Your compliance history. Years of on-time lodgment is your strongest single asset — say so explicitly.
5. Current status. Everything now lodged, payment made or a payment plan in place. Remission requests from taxpayers still in default rarely succeed.
6. A specific ask. Name the penalties and periods and request full remission, with partial remission as the fallback.

Attach evidence — medical certificates, correspondence, insurance claims. One request covering all penalties and periods, told once and told well, beats piecemeal phone calls.

Remission vs objection: two different doors

These get confused constantly, and choosing the wrong door wastes months:

• Objection says "this penalty is legally wrong" — the document wasn't late, safe harbour applies, the shortfall percentage is too high. Formal process, strict time limits (generally 60 days for penalty assessments), full review rights. See disputing an ATO debt.
• Remission says "the penalty is validly imposed, but shouldn't stand given the circumstances". No deadline, less formal — but limited review rights if refused (broadly, only where the remaining penalty exceeds two penalty units).

If you have a genuine legal argument, object within time and ask for remission as the alternative — you can do both. Interest (GIC) remission is a separate request with its own tests: getting ATO interest remitted.

The 2025–26 tightening: why asking properly now matters more

Two shifts changed this landscape. From 1 July 2025, GIC and SIC stopped being tax-deductible — see why ATO interest costs nearly double now — which pushed a wave of remission requests at the ATO just as it moved to a firmer enforcement posture. Then in January 2026 the ATO overhauled the process: a dedicated remission team, new structured request forms for GIC and FTL remission, and published examples of what does and doesn't qualify.

The practical effect: casual phone-call remissions are largely gone, outcomes are more consistent, and requests are assessed against documented criteria. A request that engages those criteria with evidence still succeeds; a vague plea for leniency doesn't. If penalties are one part of a larger debt problem, sequence the whole thing — start with what's my situation?