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As a citizen of Australia, you need to pay tax on a timely manner otherwise interest or penalty may be charged on your unpaid tax liabilities. There is a long list of matters for which ATO can issue penalties. These include a failure to:

  •  Keep or retain records;
  • Issue a tax invoice;
  • Withhold as required.

These are called administrative penalties because the ATO can issue them itself, rather than needing to take a taxpayer to court. Hence, there are two main penalties that concern the committee during the inquiry.

  •  First is for statements and unarguable positions that lead to a shortfall of tax. That is, where the ATO believes that the taxpayer has a greater tax liability than is shown in th
  •  Second is for failure to lodge a return or other document.

Shortfall penalties largely depend on the taxpayer’s conduct. The main penalties are calculated as a percentage of the taxpayer’s shortfall amount. Following table shows penalty amounts for the tax shortfall.


Taxpayer’s Conduct Penalty
Intentional disregard of a tax law 75%
Recklessness as to the operation of a tax law 50%
Scheme with the sole or dominant purpose of reducing tax 50%
Entered into a scheme where the treatment was reasonably arguable 25%
Lack of reasonable care 35%
Treatment not reasonably arguable and the shortfall amount is more than the greater of $10,000 or 1% of the taxpayer’s total income tax liability for that year 25%
Reasonable Care NIL


Reasonable care for a tax payer is determined by the individual circumstances of that taxpayer taking into account age, health, education, culture and other individual factors.

Decrease of Penalty
The ATO decreases the base penalty if the taxpayer tells the ATO about the shortfall. The reduction depends on when the taxpayer makes the disclosure. If the taxpayer does so before an audit commences, then the reduction is 100% for a shortfall of less than $1,000 or 80% for a shortfall of $1,000 or more. If the taxpayer tells the ATO after an audit starts, the reduction is 20% if the disclosure saves the ATO significant time or resources.
In order to reduce penalty, you can make request:

  • Through the online Business or Tax Agent portals (you must be registered);  By phone (for small penalties and simple cases);
  • By fax or mail.

Why Charge Interest?
The purpose of charging interest is to ensure that:

  • Taxpayers who complete their tax returns correctly and pay their tax on time are not worse off than taxpayers who lodge incorrect returns and pay less tax than they should, even if this is by mistake.
  •  Government revenue is not disadvantaged by taxpayers who don't pay their tax on time.

If you are dissatisfied with an interest charge, you can ask the ATO to remit it. They can generally remit (reduce or cancel) interest charges where it is fair and reasonable for the circumstances.

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