A Commonwealth penalty unit increased from $330 to $364 on 1 July 2026. While this may appear to be a minor administrative adjustment, it has a direct and immediate effect on many Australian Taxation Office penalties, including late lodgement of tax returns, activity statements, and other required documents.

The penalty unit is the standard unit of measurement used to calculate a wide range of Commonwealth fines and penalties. Because many Tax Office administrative penalties are expressed in penalty units rather than fixed dollar amounts, the indexation of the unit flows directly through to the amount payable.

How the 'failure to lodge' penalty works

One of the most commonly applied Tax Office penalties is the 'failure to lodge on time' penalty. This applies when a tax return, business activity statement, fringe benefits tax return or other required document is lodged after its due date.

The penalty is calculated at one penalty unit per 28-day period (or part thereof) that the document remains overdue, up to a maximum of five penalty units. The base amount is then multiplied depending on the size of the entity.



These amounts apply per document. An entity that lodges multiple activity statements late accumulates penalties separately on each one. A medium-sized business that lodges four consecutive quarterly activity statements late could face penalties well above $10,000 before any interest on the underlying tax debt is considered.

Other penalties affected by the increase

The failure to lodge penalty is the most commonly encountered penalty expressed in penalty units, but it is not the only one.

Other administrative penalties affected by the increase include:

• Shortfall penalties: These apply where a taxpayer's income tax, goods and services tax, fringe benefits tax or other assessed liability is understated. Base penalty amounts are expressed as a percentage of the tax shortfall, but minimum penalty amounts for certain categories are expressed in penalty units and have increased accordingly.
• Penalties for false or misleading statements: Where a statement made to the Tax Office is false or misleading in a material particular, penalties expressed in penalty units have increased.
• Trustee and promoter penalties: Penalties applicable to trustees of non-complying superannuation funds and promoters of tax avoidance schemes are also penalty-unit based and have increased.
  

The general interest charge is separate

It is important to understand that the failure to lodge penalty is separate from, and applies in addition to, the general interest charge on any unpaid tax debt. The general interest charge is currently 11.17% per annum compounding daily and has not been tax-deductible since 1 July 2025, meaning the full cost of any ATO debt lands directly on the bottom line with no tax offset.

This means an entity that both lodges late and has an underlying tax debt faces two separate and compounding costs: the failure to lodge penalty based on the time overdue, and the general interest charge on the unpaid amount. These run concurrently and are not offset against each other

Remission of penalties

The Tax Office has a discretion to remit failure to lodge penalties in appropriate circumstances.

Factors the Tax Office considers include:

• Whether the taxpayer has a good prior lodgement history
• Whether the failure was due to circumstances genuinely beyond the taxpayer's control
• Whether the taxpayer took prompt action to remedy the situation once the failure was identified
• Whether the taxpayer engaged proactively with the Tax Office rather than waiting to be contacted.

Where a taxpayer uses a registered tax agent and has provided all necessary information to the agent on time, safe harbour provisions may protect against a failure to lodge penalty in some circumstances. The safe harbour does not apply where there is a pattern of late lodgement or where the taxpayer contributed to the delay.

An important note on lodgement versus payment

Lodging on time and paying on time are two separate obligations. A taxpayer who lodges their return on time but cannot pay the resulting liability avoids the failure to lodge penalty but still incurs the general interest charge on the unpaid amount. Conversely, a taxpayer who pays an estimated liability but fails to lodge the underlying return on time avoids interest on the payment but may still incur a failure to lodge penalty.

In almost all circumstances, lodging on time and then arranging a payment plan for any unpaid amount is a better outcome than delaying lodgement to avoid engaging with the Tax Office.

What to do if you have overdue lodgements

The sooner an overdue return or activity statement is lodged, the lower the total failure to lodge penalty – because the penalty stops accruing from the date of lodgement. Where penalties have already been applied, it is worth requesting remission, particularly where there is a reasonable explanation for the delay. Please contact us if you have overdue lodgements or are concerned about penalties that have been or may be applied.

Please contact us if you have any questions - email us or phone our team on 02 9899 3044.