An ATO letter left unopened does not go away. The ATO works through a set sequence: reminders by SMS, myGov, letter or phone, then firmer action such as garnishee notices, director penalty notices and, for some businesses, reporting the debt to credit reporting bureaus.
This guide explains each stage as it applies to 2025-26 returns being lodged now and the 2026-27 income year, the interest and penalties that build while you wait, and how to check a letter is genuine. Every figure was checked against ATO firmer action pages and related ATO guidance on 9 October 2026.
It is written for individuals, sole traders and company directors with a letter sitting in a drawer. If the letter is about a return you have not lodged, read our guide to the overdue tax return penalty in Australia alongside this one.
Key takeaways
- Unpaid tax attracts the general interest charge (GIC), compounding daily. The rate for October to December 2026 is 11.51% a year.
- Late lodgment can attract 1 penalty unit ($364 from 1 July 2026) per 28 days, up to 5 units for individuals and small entities.
- If you never lodge, a default assessment can carry a 75% administrative penalty.
- Before a garnishee notice the ATO sends a warning letter. Wage garnishees are usually up to 30 cents in the dollar of post-tax pay.
- Businesses with $100,000+ overdue for more than 90 days that are not engaging can be reported to credit bureaus after a 28-day notice.
- Directors can be pursued personally 21 days after a director penalty notice.
Ignoring ATO letters at a glance
| Stage | What you receive | What follows if you ignore it |
|---|---|---|
| Reminder | SMS, myGov message, letter or phone call after a due date | Firmer action. Some debts are referred to the external collection agency recoveriescorp |
| Lodgment warning or final notice | A notice requiring lodgment by a set date | Default assessment with penalties, or prosecution |
| Garnishee warning letter | A letter asking you to pay the debt | Garnishee notice to your bank, employer or customers |
| Notice of intent to disclose (businesses) | 28 days to take the steps listed | Debt reported to credit reporting bureaus |
| Director penalty notice | 21 days to act | Personal recovery from the director |
| Bankruptcy notice or statutory demand | 21 days to pay or agree a plan | Creditor’s petition or winding-up application |
Source: ATO firmer action, ATO legal action, ATO if you don’t pay, checked 9 October 2026.
Is the ATO letter real? Check before you do anything
Scammers copy ATO branding, so check first. The ATO’s scam guidance says it will not:
- send unsolicited emails or SMS containing hyperlinks or QR codes, or ask for personal identifying information that way
- threaten arrest, demand you stay on the line, or make unsolicited robocalls
- ask for payment by gift card, crypto, cash delivery, or into a personal or offshore account
- charge a fee to release a refund or threaten to cancel your TFN
If you are unsure, do not reply to the message. Log in to myGov or ATO online services yourself, ask your tax agent to check the account, or call the ATO on 1800 008 540.
What happens in the first weeks after you ignore an ATO letter?
Interest starts compounding
Any amount not paid by its due date attracts GIC. It compounds daily. The GIC rate for October to December 2026 is 11.51% a year, or 0.03153425% a day, and it is reset each quarter. GIC incurred from 1 July 2025 is not tax deductible. Our guide to ATO interest on overdue tax covers how it is worked out and when remission may be possible.
Penalties for late lodgment
If the letter is a lodgment reminder, a failure to lodge on time penalty can apply: 1 penalty unit for each 28 days or part of 28 days the document is late, capped at 5 units for individuals and small entities. A penalty unit is $364 on or after 1 July 2026 ($330 from 7 November 2024 to 30 June 2026).
What is a default assessment and why is it worse than lodging late?
If the ATO cannot get your overdue return or activity statement, it can issue a default assessment using data it already holds: such as employer wage reports, bank data and earlier returns. It normally sends a warning letter with a lodgment date first.
A default assessment usually attracts an administrative penalty of 75% of the tax-related liability, which can rise to 90% for a pattern of non-compliance. As the ATO puts it, for every $100 you owe, an extra $75 is payable. A separate late lodgment penalty can apply as well. To dispute it, you must object with evidence.
When does the ATO send a garnishee notice?
A garnishee notice requires someone who holds or owes you money to pay it to the ATO instead. The ATO sends a warning letter before issuing one, and you receive a copy of the notice itself. Notices can continue until the debt is paid unless the ATO varies or withdraws them.
| Who can receive it | How much |
|---|---|
| Your bank or financial institution | Up to the available balance or your overdue debt, whichever is less |
| Your employer | Usually up to 30 cents in the dollar of your post-tax income |
| Customers or trade debtors of your business | Amounts they owe you, limited to available funds |
| Merchant card providers | A proportionate share of merchant facility funds |
| Solicitors, agents or buyers on a property sale | Surplus equity after secured creditors are paid |
Can the ATO report my business tax debt to credit bureaus?
Yes, if all of these apply: the business has an ABN and is not an excluded entity, at least $100,000 is overdue by more than 90 days, it is not engaging with the ATO, and there is no active Tax Ombudsman complaint about the reporting. The ATO first sends a written notice and you have 28 days to act. A payment plan you keep to, an active objection or review, or an application for release stops the disclosure (ATO disclosure of business tax debts).
What if I am a company director?
Directors can become personally liable for the company’s unpaid PAYG withholding, GST and super guarantee charge under the director penalty regime. The ATO can start recovering from you 21 days after it issues a director penalty notice to your ASIC-registered address, so keep that address current.
If the liabilities were reported within 3 months of their due date, the penalty can be remitted within the 21 days by paying in full, appointing an administrator or small business restructuring practitioner, or starting a winding up. If they were reported late or not at all, only full payment clears it. Our guide to director penalty notices for unpaid super goes into more detail.
Can the ATO take me to court or make me bankrupt?
Yes. If firmer action fails, the ATO can take legal action. For individuals that can mean a court judgment and a bankruptcy notice, which gives you 21 days to pay or agree a plan before a creditor’s petition. For companies, a statutory demand gives 21 days before a winding-up application.
Not lodging is treated more seriously than not paying. Failing to lodge is a criminal offence, and on conviction a court can impose extra fines and imprisonment of up to 12 months. The ATO usually contacts you by phone and in writing first. For an example of how a large ATO debt can play out, see our explainer on the Sam Wood ATO tax debt.
Worked example: a sole trader who left two letters unopened
Priya, a sole trader, has a $10,000 tax debt that has been overdue for 90 days, and an activity statement due after 1 July 2026 that is now 100 days late.
GIC at 0.03153425% a day, compounding for 90 days: $10,000 x (1.000315342590 – 1) = $287.83, assuming the rate does not change.
Late lodgment: 100 days is 3 full 28-day periods plus part of a fourth, so 4 penalty units. 4 x $364 = $1,456.
Total now owing: $10,000 + $287.83 + $1,456 = $11,743.83, before any garnishee or further interest. An early call could have put a payment plan in place.
What should I do when an ATO letter arrives?
- Check it is genuine using the steps above.
- Find the due date and the action asked for: lodge, pay, provide documents or contact the ATO.
- If it is about a review or audit, read our guides to an ATO audit letter and what happens when the ATO reviews your return.
- If you cannot pay in full, ask for a payment plan. Debts of $200,000 or less can usually be set up online, though GIC keeps accruing (ATO payment plans).
- If you think the ATO is wrong, say so in writing before the deadline.
The ATO’s taxation statistics for individuals give a picture of how individuals deal with the tax system each year. If you are unhappy with how a matter was handled, you can complain; the Australian National Audit Office has examined how the ATO manages complaints.
Rule of thumb: Answer every ATO letter before its due date, even if all you can say is that you need more time or a payment plan. Engagement is what the ATO uses to decide whether to escalate.
Common mistakes when an ATO letter arrives
- Leaving it unopened. Interest and late lodgment penalties keep building from the due date whether you read the letter or not.
- Assuming the ATO is wrong and doing nothing. A default assessment stands until you lodge or object, and the 75% penalty can apply in the meantime.
- Clicking a link in a text message. The ATO does not send unsolicited SMS with links. Log in to myGov directly instead.
- Offering a payment plan you cannot keep. Defaulting on a plan is one of the triggers for firmer action.
- Letting your ASIC address go stale. A director penalty notice sent to your registered address still counts, even if you never see it.
FAQ about ignoring ATO letters
Can the ATO take money from my bank account without going to court?
Yes. A garnishee notice is an administrative step, not a court order. The ATO sends a warning letter first, then can require your bank to pay up to the available balance or the overdue debt, whichever is less. You are sent a copy of the notice. Contacting the ATO early can lead to the notice being varied or withdrawn if you agree to suitable alternative payments.
What happens if I ignore an ATO letter about a late tax return?
A failure to lodge penalty can apply for every 28 days the return is late. If the ATO still cannot get the return, it can issue a default assessment based on the data it holds, with an administrative penalty of 75% of the tax-related liability. Failing to lodge is also a criminal offence, and the ATO can prosecute after giving notice.
How can I tell if an ATO letter or text is a scam?
The ATO says it will not send unsolicited SMS or emails with hyperlinks or QR codes, threaten arrest, or ask for payment by gift card, crypto or into a personal account. If you are unsure, do not respond. Log in to myGov or ATO online services directly, or call the ATO scam line on 1800 008 540.
Will the ATO report my business tax debt to credit bureaus?
Only if the business has an ABN, at least $100,000 is overdue by more than 90 days, and it is not engaging with the ATO. You get a notice first and have 28 days to act. Entering and keeping to a payment plan, objecting or seeking review generally stops the disclosure.
Can I go to jail for ignoring the ATO?
Not owing money is a civil debt, so the usual consequences are interest, garnishee notices, bankruptcy or winding up. Failing to lodge a return is different: it is a criminal offence, and on conviction a court can impose fines and imprisonment of up to 12 months. The ATO normally contacts you and gives you time to catch up first.
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Talk to a registered tax agent
If an ATO letter has you worried, Nanak Accountants can read it with you, check your ATO account, lodge anything outstanding and negotiate a payment plan or remission request. Call 1300 626 258 or see our tax audit assistance service.
This article is general information only and is not personal tax or legal advice. Figures and rules were checked against the ATO firmer action, garnishee notice, disclosure of business tax debts, director penalty, legal action, default assessment, scam, penalty unit, failure to lodge and GIC pages on 9 October 2026. Rates and thresholds change, so confirm the current position before acting.
