The ATO has harsh rules on administrative penalties for conduct. However, it is important to note what penalties are liable for the ATO to impose on individuals and businesses alike.
Making a False or Misleading Statement or Taking a Position That is Not Reasonably Arguable
You are liable for a penalty should you make a false or misleading statement on your tax return, activity statement, or amendment request which results in you having a difference in the amount payable that you calculated and the correct payable that the ATO has calculated based on available information.
It is important to note that the penalty will not be applied if you prove that you took reasonable care in producing the statement and the statement you provided is in line with interpretations of the tax law appropriate to the statement in question. It is best to avoid this altogether using the Australian and International taxation specialists at International Commercial Services.
Below are the base penalties based on the percentage of the shortfall amount taken from the ATO.
- Failure to take reasonable care: The base penalty is 25% of the shortfall amount. Generally, you fail to take reasonable care if you have not done what a reasonable person in the same circumstances would have done.
- Recklessness: The base penalty is 50% of the shortfall amount. You are reckless if a reasonable person in your circumstances would have been aware that there was a real risk of a shortfall amount arising and you disregarded or showed indifference to, that risk.
- Intentional disregard: The base penalty is 75% of the shortfall amount. You intentionally disregard the law if you are fully aware of a clear tax obligation, and you disregard the obligation with the intention of bringing about certain results (underpaying tax or over-claiming an entitlement).
If you are a significant Global Entity, it is possible for the tax penalties percentages to be doubled.
You may not be liable to an administrative penalty for making a false or misleading statement if the following conditions apply:
- The statement was lodged by your registered tax agent. At International Commercial Services, we have our own in-house registered tax agent to take care of any queries or issues that may potentially arise.
- You provided your tax agent with all the relevant tax information to ensure that the statement was made in a correct manner. Our system means that we have all records on file since the day you begin using our services, which will help if you are ever picked for an audit.
- The false or misleading statement was the result of your agent failing to take reasonable care. With just under two decades of dealing with international entities in Australia, we have seen almost every scenario imaginable to ensure that you are never put in a position that would cause us to fail to take reasonable care in handling your business in Australia.
- The statement was made on or after 1st March 2010.
Penalty for Failing to Make a Statement
Failing to lodge a tax return or activity statement all together can have some serious consequences. It can result in a penalty of 75% of the tax-related liability if the following two conditions apply.
- You fail to lodge a document necessary to establish your tax-related liability. i.e., a tax return.
- In the absence of that document, the ATO determines your tax-related liability based on the information they have.
To make this as simple as possible, just lodge your tax returns on time and as accurately as possible. The ATO simply wants to know the tax position you are in by the lodgement date. Even if you can not pay the liability upfront due to other circumstances, the ATO is lenient if you lodge your returns on time and can provide payment arrangements to help you pay the debt.
Remission of Penalties
The ATO can remit the penalties imposed according to varying scenarios. They consider whether there were situations beyond your control that prevented you from meeting your obligations. With the recent COVID wave spreading through Sydney you might find your business has been disrupted and cash flow is tighter than usual. Again, the best result would simply be to lodge your return and then allow us to negotiate a payment arrangement on your behalf with the ATO to avoid being put in this position in the first place.
Essentially, tax penalties provisions are there to encourage all taxpayers to take reasonable care in complying with their tax obligations. The ATO will aim to consider each circumstance case-by-case when deciding which action to take if any at all. If the ATO has found that you are liable for a penalty, they will notify you in writing and include three key details:
- The reason for the penalty
- The amount of the penalty
- The due date for payment (usually at least 14 days after the notice has been issued)
The tax penalties imposed are not tax-deductible in any year.
Get In Contact with Us!
Long story short, to avoid tax penalties in Australia, it is important to lodge returns with reasonable care, on time, and pay the amounts due within the appropriate period. What the ATO is most focused on is ensuring that you produce returns that are prepared in a reasonable fashion and are lodged on time. The payment aspect is possible to be arranged in installments without any late payment fees and penalties.
The team at International Commercial Services has just under decades in dealing with an array of global entities setting up businesses in Australia. That is why it is best to talk to us in ensuring that you know your obligations associated with setting up business in Australia. Australia has many tax laws subject to interpretation which can be difficult for an untrained eye to decipher.