ATO penalties and penalty remission

ATO penalties are administrative penalties, mainly for false or misleading statements, positions that aren't reasonably arguable and lodging late. ATO penalty remission means the ATO cancelling all or part of a penalty (Taxation Administration Act 1953 (TAA), Sch 1 s 298-20(1)). If it doesn't remit in full, it must give written reasons (s 298-20(2)).

We act on ATO penalties for businesses, directors and individuals across Australia, often alongside the underlying ATO audit or objection. Section references are to Schedule 1 of the TAA unless we say otherwise.

What are the main ATO penalty risks?

• False or misleading statements. A statement to the ATO that is false or misleading in a material particular (s 284-75(1)). Your agent's statements are treated as yours (s 284-25).
• Positions that aren't reasonably arguable. An income tax position that isn't at least about as likely to be correct as incorrect (s 284-15), where the shortfall is above a threshold: generally the greater of $10,000 or 1% of the income tax on your return, and higher for trusts and partnerships (s 284-90(3)).
• Lodging late (s 286-75), or not at all. If the ATO has to work out your liability without the return, a further penalty applies, with a base of 75% of that liability (ss 284-75(3), 284-90(1) item 7).
• Other penalties, such as for tax avoidance schemes (Subdiv 284-C) and failing to keep records (s 288-25).

General interest charge runs on a penalty left unpaid after its due date, which is at least 14 days after the penalty notice (ss 298-15, 298-25).

How much is the penalty for a false or misleading statement?

The base penalty depends on the behaviour behind the error and whether it caused a shortfall, such as understated tax or an overstated refund (s 284-80).

Behaviour (yours or your agent's)	With a shortfall	Without a shortfall
Intentional disregard of the law	75% of the shortfall	60 penalty units
Recklessness	50% of the shortfall	40 penalty units
Failure to take reasonable care	25% of the shortfall	20 penalty units
Position not reasonably arguable	25% of the shortfall	Not applicable

If more than one applies, the highest is used (s 284-90(2)). Base penalties are generally doubled for significant global entities (s 284-90(1A)).

Increases and reductions

• Up 20% if you obstructed the ATO, didn't tell it within a reasonable time after finding the error, or have had a similar penalty before (s 284-220(1)).
• Down 80% (or to nil if the shortfall is under $1,000) for a voluntary disclosure in the approved form before the ATO tells you it will examine your affairs (s 284-225(2), (3)). After that it is 20%, and only if the disclosure can reasonably be estimated to have saved the ATO significant time or resources (s 284-225(1)), unless the ATO treats it as made before the notice (s 284-225(5)). See making a voluntary disclosure to the ATO.
• Reduced to the extent you followed ATO advice, general administrative practice or an approved ATO publication (s 284-224).

For example, suppose an audit finds a $40,000 shortfall from a failure to take reasonable care. The base penalty is $10,000, or generally $2,000 if you had made a voluntary disclosure before the audit notice.

When does no penalty apply?

A wrong return doesn't automatically mean a penalty. ATO guidance is that a reasonable and genuine attempt to comply generally won't be penalised (PS LA 2012/5 para 7).

• Reasonable care. No penalty applies for a false or misleading statement if you and your agent took reasonable care (s 284-75(5)).
• Safe harbour. Nor does one apply if a registered tax or BAS agent made the statement, you gave them all relevant information, and the error didn't come from the agent's recklessness or intentional disregard of the law (s 284-75(6)). You need evidence that you gave them everything (s 284-75(7)). Late lodgement has a similar rule (s 286-75(1A)).
• Penalty relief. As a policy, the ATO generally doesn't apply reasonable care or reasonably arguable penalties to most individuals and small businesses for errors in returns and activity statements. It is excluded if relief was given in the past 3 years, where there was recklessness or intentional disregard, and for wealthy individuals and larger businesses (PS LA 2012/5, Appendix B, paras 251–266).

The reasonable care and safe harbour exceptions don't apply to the separate penalty for a position that isn't reasonably arguable (s 284-75(2), (5), (6)). Appointing an agent doesn't end your own responsibility to ask questions and make reasonable enquiries (PS LA 2012/5 para 161).

What is the penalty for lodging late?

The failure to lodge on time penalty is 1 penalty unit for each 28 days or part of 28 days late, up to 5 penalty units (s 286-80(2)). It is doubled for medium entities, multiplied by 5 for large entities and by 500 for significant global entities (s 286-80(3)–(4A)). The penalty unit value is the one applying at the start of each 28-day period (s 286-80(5); Crimes Act 1914 s 4AA). A penalty unit is $364 from 1 July 2026 ($330 from 7 November 2024 to 30 June 2026), so the maximum for a smaller business is now $1,820 per document. Our guide to late lodgement and failure to lodge penalties explains who counts as medium or large.

How do you ask for ATO penalty remission?

Write to the ATO, directly or through your tax agent, explaining what happened and how it caused the error or delay. Include evidence, such as medical records or emails with your agent, and answer the ATO's guidance point by point. Often the most useful time to argue for remission or a lower behaviour category is before the ATO decides, when it should generally give you a chance to explain (PS LA 2012/5 para 7). See responding to an ATO position paper.

Shortfall penalties. The ATO may remit where the penalty gives an unjust result (PS LA 2012/5 para 146), for example where you took reasonable care but your agent was reckless, or a trustee and a beneficiary are both penalised for the same shortfall (paras 158–160, 168). The penalty rate alone isn't a reason to remit, and capacity to pay isn't usually considered (paras 144–145).

Late lodgement penalties. Under PS LA 2011/19 (updated May 2026), the ATO generally remits only once the document is lodged (para 34). It should remit where unforeseeable circumstances beyond your control caused the delay and you couldn't have asked for more time, and may remit where that is fair and reasonable, with the onus on you (paras 36–38). Severe, life-threatening illness, disasters and family violence that affected your ability to lodge usually support remission; being busy or on holiday usually won't (paras 42–43).

Is there an ATO penalty waiver approval rate?

There's no set approval rate for remission (sometimes called a penalty waiver). The ATO describes its power to remit as unfettered but decides each case on its own facts, and says penalties shouldn't be remitted arbitrarily or as a matter of course (PS LA 2012/5 paras 139–142, 144). The outcome turns on your reasons and evidence.

Can you object to an ATO penalty?

• Shortfall penalties, like other Division 284 penalties, are assessed (s 298-30(1)), so you can object to the assessment under Part IVC of the TAA, for example that no penalty applies or the behaviour category is wrong (s 298-30(2)).
• Remission refusals can be objected to if more than 2 penalty units remain payable after the decision (s 298-20(3)). If 2 penalty units or less remain, the ATO points to judicial review under the Administrative Decisions (Judicial Review) Act 1977 (PS LA 2011/19 para 47).
• Late lodgement penalties aren't assessed, so the usual review route is through a remission decision. On the ATO's view, a decision that the agent safe harbour doesn't apply carries no objection right (PS LA 2011/19 paras 47–48).
• Time limits are generally 60 days after the notice of the decision is served on you (TAA s 14ZW(1)(c)) or, for a Division 284 penalty relating to an assessment, the period for objecting to that assessment if longer (TAA s 14ZW(1BB)). If you're out of time, you can still lodge the objection with a written request explaining the delay in full, which the ATO may accept or refuse (TAA ss 14ZW(2)–(3), 14ZX).

A disallowed objection can generally go to the Administrative Review Tribunal or the Federal Court (TAA s 14ZZ), usually within 60 days after the objection decision is served on you (TAA ss 14ZZC, 14ZZN). See ATO objection time limits.

Are ATO penalties tax deductible?

Generally no. Penalties payable under an Australian law can't be deducted (Income Tax Assessment Act 1997 (ITAA 1997) s 26-5(1)(a)), and neither can general interest charge or shortfall interest charge for income years starting on or after 1 July 2025 (s 26-5(1A)). See ATO interest is no longer tax deductible. Where both apply, we usually deal with the penalty and GIC remission together.

How we help with ATO penalties

• Test the penalty: whether reasonable care, safe harbour or penalty relief applies, and whether the behaviour category and shortfall are right.
• Argue for remission or a lower penalty before the ATO decides, and object or go to the ART or Federal Court where the case warrants it.
• Keep your accountant involved. We work alongside your accountant or tax agent, not around them.

Next step

Send us the penalty notice or position paper and the date you received it, the return or activity statement it relates to, and any other ATO letters about it. Add a short note on what went wrong and who prepared the statement. In a first call we'll work out whether the penalty can be challenged, which route fits and when your deadline falls.