Tax Penalties

If you or your tax agent take a position on the application of income tax or petroleum resource rent tax (PRRT) laws that is not reasonably arguable, and the resulting shortfall amount exceeds a certain threshold, you will be subject to a base penalty of 25% of the shortfall amount.

The threshold for determining the penalty depends on the taxpayer type:

• For partnerships and trusts, the threshold is the greater of $20,000 or 2% of the entity’s net income, as calculated in its return.
• For other taxpayers, the threshold is the greater of $10,000 or 1% of their income tax or PRRT liability, based on their income tax or PRRT return.

If you are classified as a significant global entity (SGE), a penalty multiplier will be applied to double the base penalty.

Also, you must keep in mind that for false/misleading statement penalties and for PRRT, the base penalty amount may be adjusted based on aggravating or mitigating circumstances or remitted if it is deemed fair and reasonable to do so.If you or your tax agent take a position on the application of income tax or petroleum resource rent tax (PRRT) laws that is not reasonably arguable, and the resulting shortfall amount exceeds a certain threshold, you will be subject to a base penalty of 25% of the shortfall amount.

The threshold for determining the penalty depends on the taxpayer type:

• For partnerships and trusts, the threshold is the greater of $20,000 or 2% of the entity’s net income, as calculated in its return.
• For other taxpayers, the threshold is the greater of $10,000 or 1% of their income tax or PRRT liability, based on their income tax or PRRT return.

If you are classified as a significant global entity (SGE), a penalty multiplier will be applied to double the base penalty.

Also, you must keep in mind that for false/misleading statement penalties and for PRRT, the base penalty amount may be adjusted based on aggravating or mitigating circumstances or remitted if it is deemed fair and reasonable to do so.

If you fail to submit a document that is necessary to establish your tax-related liability by the specified deadline, and as a result, the tax authority determines your liability in the absence of that document, you will be subject to a penalty equal to 75% of the tax-related liability.

For instance, if you fail to lodge your tax return within the required timeframe and the tax authority determines your income tax liability using alternative methods, this penalty will apply.

The base penalty amount can be subject to an increase in certain circumstances, or it may be remitted if deemed fair and reasonable to do so. It’s important to fulfill your obligations by submitting the necessary statements on time to avoid penalties and ensure compliance with the tax laws.Failure to Lodge on Time Penalty
Individuals who fail to meet their tax lodgment obligations by the specified due date may be subject to a Failure to Lodge (FTL) on time penalty imposed by the tax authorities.

This penalty applies when there is a requirement to lodge or report certain documents, such as tax returns, PAYG instalments, GST, or PAYG withholding, but they are not submitted by the due date.

Safe harbour provisions may offer protection to individuals who engage a tax agent to handle their tax affairs.

The tax authorities acknowledge that there can be instances where individuals are unable to meet their lodgment obligations on time, despite having good intentions. In isolated cases of late lodgment, penalties are generally not imposed.

Thus, we can say that they take into account the specific circumstances of the individual when deciding on the appropriate course of action.

In cases where the FTL penalty is applied, the tax authorities will issue a written notification that includes the following information:

• The reason for the penalty
• The amount of the penalty
• The due date for payment, which will be provided with at least 14 days’ notice

Lodgments Subject to FTL Penalties
The automated penalty system applies FTL penalties to various late-lodged returns, reports, and statements, including

• activity statements
• tax returns
• FBT returns
• PAYG withholding annual reports
• Single Touch Payroll reports
• annual GST returns and information reports
• taxable payment annual reports.

In situations of escalating non-compliance, FTL penalties may be manually applied when a taxpayer fails to lodge after being requested to do so.Exceptions for Refunds or Nil Results
Exceptions apply to penalties for late-lodged tax returns, FBT returns, annual GST returns, or activity statements that lead to a refund or a nil result. However, there are certain situations where penalties may still be imposed:

• If the Failure to Lodge (FTL) penalty was already applied prior to the lodgment, it will not be remitted even if subsequent lodgment results in a refund or nil result.
• If the unlodged item pertains to a third-party data report, such as a taxable payments annual report.
• If the taxpayer is classified as a large entity.

Individuals are advised to ensure timely lodgment of their tax obligations to avoid incurring FTL penalties imposed by the tax authorities.

If you fail to withhold or pay the required PAYG withholding amount, you become liable for a penalty. This situation arises when you are obligated to withhold from payments made to employees, directors, office holders, or other individuals in different capacities.

It also applies to payments made to enterprises that have not provided an Australian business number (ABN) for a supply.

Additionally, penalties can be imposed for not paying amounts withheld, alienated personal services payments, or non-cash benefits.

The penalty incurred is equal to the amount that should have been withheld or paid.Director Penalties
Company directors hold legal responsibility for ensuring their company fulfills its PAYG withholding obligations.

If a company fails to meet a PAYG withholding obligation in full by the due date, the director automatically becomes personally liable for a penalty equivalent to the unpaid amount. It is crucial for directors to ensure compliance with PAYG withholding obligations to avoid personal liability for penalties.

Some other situations where penalties for failing to fulfill tax obligations occur are as follows:

1. If you fail to maintain or retain the necessary records as mandated by tax regulations, you may be subject to a penalty of 20 penalty units.
2. Failure to retain or provide the required declarations, such as income declarations, can result in a penalty of 20 penalty units.
3. If you do not grant access or fail to provide reasonable facilities to an authorized tax officer during an audit or investigation, a penalty of 20 penalty units may be imposed.
4. Failing to apply for or cancel the GST registration as required by the tax authority may lead to a penalty of 20 penalty units.
5. If you fail to issue a tax invoice or adjustment note in situations where it is necessary, a penalty of 20 penalty units may be applicable.
6. In cases where both the principal and agent issue tax invoices or adjustment notes for the same taxable supply or adjustment event, a penalty of 20 penalty units can be imposed.
7. If you are required to register as a PAYG (Pay As You Go) withholder but fail to do so, a penalty of 5 penalty units may apply. Note that high tax withholders must be registered.
8. If you fail to lodge an activity statement electronically when it is required, you may be subject to a penalty of 5 penalty units. Non-electronic notifications are not considered compliant.

Failure to make an electronic payment when it is required can result in a penalty of 5 penalty units. Non-electronic payments are not considered compliant.