With tax return season approaching quickly this year, you may have already started looking into lodging your income tax return. Ensuring that your details are correct and that any information about your earned income from the year is lodged is the responsibility of the taxpayer and their tax agent. However, if during this income tax return process the tax obligations of the taxpayer fail to be complied with, the Australian Taxation Office has severe penalties that they can enforce.

Australian taxation laws authorise the ATO with the ability to impose administrative penalties for failing to comply with the tax obligations that taxpayers inherently possess.

As an example, taxpayers may be liable to penalties for making false or misleading statements, failing to lodge tax returns or taking a tax position that is not reasonably arguable. False or misleading statements have different consequences if the statement given results in a shortfall amount or not. In both cases, the penalty will not be imposed if the taxpayer took reasonable care in making the statement (though they may still be subject to another penalty provision) or the statement of the taxpayer is in accordance with the ATO’s advice, published statements or general administrative practices in relation to a tax law.

The penalty base rate for statements that resulted in a shortfall amount is calculated as a percentage of the tax shortfall, or in the case of no shortfall amount, as a multiple of a penalty unit. This percentage is determined by the behaviour that led to the shortfall amount or as a multiple of a penalty unit, which are as follows:

Failure to take reasonable care – 25% of the shortfall amount or 20 penalty units
Reasonable care is not taken if the taxpayer failed to do what a reasonable person in the same situation would have done.
Recklessness – 50% of the shortfall amount or 40 penalty units
Recklessness is determined as disregarding or showing indifference to a real risk of a shortfall amount arising that a reasonable person would have been aware of.
Intentional Disregard – 75% of the shortfall amount or 60 penalty units
Intentionally disregarding the law occurs if there is full awareness of a clear tax obligation, and the obligation is disregarded with the intention of bringing about certain results (underpaying tax or over-claiming an entitlement).

If a statement fails to be lodged at the appropriate time, you may be liable for a penalty of 75% of the tax-related liability if:

A document that is necessary to establish tax-related liability fails to be lodged
In the absence of that document, the tax-related liability is determined by the ATO.

To ensure that the statements, returns and lodgements are done correctly, and avoid the risk of potential penalties, contact us today. We’re here to help.