The Law Handbook 2024

Chapter 5.5: Taxation 401 Penalties for taxation shortfalls Nature of behaviour Basic Penalty Amount (BPA) (% of shortfall) Penalty adjusted for: Lack of cooperation Voluntary disclosure by taxpayer During audit Before audit Intentional disregard of the law 75 90 60 15 Recklessness 50 60 40 10 Failure to take reasonable care 25 30 20 5 Case not reasonably arguable 25 30 20 5 Failure to provide documents 75 90 60 15 • failing to lodge tax returns and other documents by the due date or in the approved form; and • late payment of tax. The penalties for these two common actions are as follows. Failing to lodge tax return For small entities (including most individuals), there is an ATO base penalty of one Commonwealth penalty unit (see ‘Note: Penalty units’, below) for each 28-day period or part thereof (up to five periods) during which the documents are not lodged. Late payment of tax The shortfall interest charge ( SIC ) and the general interest charge ( GIC ) are uniform, tax-deductible charges. The GIC and SIC are each calculated daily on a compounding basis. Shortfall interest charge The SIC is payable where your tax assessment is amended to increase the amount of tax payable. The SIC rates range from 4.00 to 6.46 per cent for quarters in the 2022–2023 financial year. General interest charge The GIC is payable where you do not pay tax by the time it is due or where your assessment for a year (before the 2004–2005 income year) is amended to increase the amount of tax payable. The GIC rates range from 8.00 to 10.46 per cent for the quarters in the 2022–2023 financial year. Tax shortfall provisions You will have a tax shortfall if, due to your own actions, you paid less tax than the ATO considers you should have paid. This may be due to several factors, including deliberate understatement of your income, carelessness, or where you contend that the Acts could be interpreted in a particular way favourable to you but cannot ‘reasonably argue’ that your interpretation is acceptable. The penalties imposed are complex and are determined by a number of factors, including the degree of seriousness of the offence, whether you cooperated with the ATO, and whether you voluntarily disclosed the offence to the ATO. The penalties, expressed as a percentage of the shortfall, are shown in the table above. The ATO has a fair amount of scope as to the penalty to be imposed within particular limits and may also remit penalties where it deems appropriate. The ATO has recently established a ‘penalty relief ’ framework for individuals and small businesses. Through this framework, the ATO will not impose penalties that arise from inadvertent errors in income tax returns. For more information about this framework, see www.ato.gov.au/general/interest- and-penalties/penalties/penalty-relief. Some of the terms used in the above have been the subject of discussion and interpretation as follows.