Penalty provisions exist to encourage taxpayers to “take reasonable care in complying with their tax obligations” and take the form of different penalty unit amounts calculated in Australian dollars.
Best of Intentions
The ATO recognises that not everyone lodges taxes on time and that sometimes life gets in the way, stating “[g]enerally, we don’t apply penalties in isolated cases of late lodgement”. Thus, a case-by-case approach considers the unique and specific circumstances of each individual when deciding upon a course of action.
Extenuating Circumstances
Factors that the ATO takes into consideration includes extenuating circumstances, such as natural disasters, serious illness, and other circumstances beyond one’s control that could not be predicted or anticipated which results in missing the deadline for lodgement extensions.
ATO Tax Principles
The ATO strongly believes that those who try to cheat the system for personal gain “should not gain an advantage over taxpayers who do the right thing”. To that end, taxpayers with a history of good compliance are treated with greater leniency than those with a history of violations. The ATO also allows for human errors and accidents, provided good faith is exhibited by the taxpayer(s) in question.
Challenging a Penalty
For those who would seek to challenge official findings and penalties, several options are available. With some penalties, Australians can simply request that the penalty be remitted – either in full or in part – or simply be cancelled. Some penalties, however, require that a formal objection be lodged.
Types of Penalties
There are two classes of penalties as specified by the ATO:
Non-Objection Penalties: penalties that do not require any formal objections to be lodged. Usually these involve:
- Failing to lodge documents on time
- Failing to withhold Pay As You Go (PAYG) withholding amounts
Objection Penalties: penalties that require the lodging of a formal objection to dispute a decision. The ATO’s examples of this include:
- A tax shortfall
- Misleading or false statements in a:
- Tax return
- Business activity statement
- Fuel scheme claim form
- Superannuation statement
- Failing to provide officially requested documents
Calculating Penalties
The ATO calculates penalties by using either multiples of a penalty unit (the unit of measure utilised to determine the value associated with an offense) or a statutory formula that is “based on your behaviour and the amount of tax avoided”.
The ATO will always provide the reason for a penalty, the sum owed, and a payment due date. Failure to pay a fine will result in the accretion of daily interest charges that will be added to the outstanding sum.
Penalty Relief
For honest mistakes or mistakes made by a third party (e.g. a tax agent), taxpayers may be eligible for penalty relief and not have a penalty applied. In the course of an audit, the results of an analysis of circumstances and case-specific criteria may result in the ATO issuing a penalty relief, whose intended aim is “to help you get back on the right track if you have made an inadvertent error”.
Lodging Complaints
Requests for a remittance or cancellation of a penalty can be lodged through the Online services for business portal, a tax agent, or via a letter to the ATO.
ATO Assessment Process
When reviewing a request to remit or cancel a penalty, the ATO considers multiple historic factors, including:
- A taxpayer’s compliance history and tax debt
- The ATO’s reasons for its initial decision
- Data sources – were shortfalls identified and reported by the taxpayer or the ATO
Having a good compliance history, where taxes were regularly submitted on time, non-disputed debt was paid, and there were no recent penalty liabilities, will all factor into the ATO’s decision-making process. The length of a tax deferral and sum of money owed that was saved will also affect the penalty sum and how much the ATO will be willing to deduct from the original charge.
Appeals
Requests for an external review of the ATO’s decisions can be submitted to the Administrative Review Tribunal (ART) or Federal Court. Complaint concerning the ATO’s administrative process or decisions can also be lodged with the Inspector-General of Taxation and Taxation Ombudsman (IGTO).
Key Takeaways
The purpose of penalties, as stated by the ATO, is to “encourage taxpayers to take reasonable care to comply with their obligations”. The ATO recognises that the majority of Australians strive to be honest with their tax submissions and acknowledges that honest mistakes and human error will happen.
To that end, it tries to make its resolution process simple and accommodating, whilst also ensuring it has systems and mechanisms in place to hold to account those who would abuse the system for personal gain.
