Tax & ATO News Australia

Consultation paper September 2016: Proposed changes to penalties for small business and individuals.

The ATO has recently released a consultation paper titled ‘Proposed changes to penalties for small business and individuals.’ More information on the proposed changes can be found on the ATO website.
 

Essentially, under the proposed changes, the ATO will provide ‘one chance’ before applying a penalty in the following circumstances:

  • For certain small businesses and individual clients, the ATO will not apply penalties for false or misleading statements for failure to take reasonable care for errors made in income tax returns and activity statements, and
  • the ATO will not apply failure to lodge on time penalties for late lodgement of income tax returns and activity statements


The ATO is of the opinion that it is open to the Commissioner to exercise his general powers of administration to give effect to these changes, and therefore a law change is not required.

 

The following parameters would apply to this proposal:

  • The one chance policy would be available to small businesses (with turnovers under $2 million) and individuals, subject to some criteria, with eligible taxpayers being informed at the time that the ‘one chance’ opportunity is provided.
  • This policy would not extend to taxpayers who demonstrate reckless or dishonest behaviour, or those who disengage or cease communicating with the ATO during an audit or review
  • Those who receive their one chance will be given a clear explanation of their error, and what they need to do to get things right in the future.
  • After the one chance has been provided, failure to lodge on time penalties would automatically apply if lodgement was not received by the due date.


The ATO claims that this policy is designed to benefit the taxpayer, as the taxpayer will save time and money by, for example, avoiding the need to research penalty information, lodge objections, and of course, release from the penalties that would otherwise be imposed.

 

However, those with a more cynical eye, or those who have more experience in dealing with the ATO, will likely have a different idea about the ATO’s motives, as well as the possible effects of the proposed changes.
 

Firstly, it is possible that these new rules may encourage overzealous auditors to circumvent the one chance policy by pursuing taxpayers for the 50% penalty rate for reckless or dishonest behaviour where they would not have previously.
 

There are also areas of uncertainty which have not yet been addressed by the ATO. Say, for example, that a taxpayer has not lodged their returns for the 2012, 2013, and 2014 financial years. In light of an audit, would the one chance rule apply to all three years, or just to the first year, with penalties then being automatically assessed for the following years?
 

The ATO’s intentions surrounding future penalties after one chance has been given are also cause for concern, particularly in light of the ATO’s statement that,

‘After the one chance opportunity has been provided, failure to lodge on time would automatically apply if lodgement was not received by the due date.’

Whilst according to the legislation penalties do indeed automatically apply, the current opportunity to contact the ATO to explain the reasons for delay seeking an exercise of the Commissioner’s discretion to remit the penalty seems to be closed to a taxpayer who has been given ‘one chance’.
 

A taxpayer with good grounds to be treated leniently would have to pursue more formal legal avenues, which would likely mean greater costs and more time, a result that is antithetical to the ATO’s supposed intentions.
 

While these proposed changes may appear good natured and well-intentioned at first glance, it remains to be seen whether the likely results of the changes will result in a net positive for the taxpayers of Australia.
 

Posted in: Tax & ATO News Australia at 10 October 16

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Tax & ATO News Australia

Author: David Hughes

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