Australia’s revenue system relies on tax payers providing correct information to establish their tax obligation under the law and paying the correct amount of tax.
Sometimes tax payers fail to correctly report an amount they required to or do not meet the other tax obligations. Tax payers who fail to meet their tax liability may be liable for the penalties and Interest Charges When ATO finds an error or omission, he/she looks into taxpayers account for relevant circumstances, including taxpayer compliance history, when deciding what action to take, particularly for any penalties.
A Penalty is a figure that is computed using either a statutory formula or in multiples of penalty unit. A penalty unit is currently $ 170. If the penalty is for an offence that took place before 28December 2012, the value of a penalty units is $110.
The various types of penalty are:
- Civil or criminal
Civil and criminal penalties are imposed by the courts and Administrative penalties are imposed without the hearing for court session.
Interest charges apply to unpaid amounts, such as insufficient amounts, delayed payments and tax debts. Interest charges are mandatory despite of imposing penalties.
Interest charges are allocated daily on compounding basis on unpaid amount. Interest charge is computed by applying interest rate, which is decided quarterly, to the unpaid amounts. Interest charges are created to:
- Motivate taxpayers to pay their liabilities by the due date.
- Compensate the government for the effect of late payments
Taxpayers will usually not have an interest charge allocated for a shortfall fund if taxpayers reasonably trust in good faith on either:
- Advice given to taxpayers or their agents by ATO or a statement in a publication approved in writing by ATO, unless the advice, statement or publication is labeled as non-binding
- ATO general administrative practice
The tax law authorize the ATO to impose administrative penalties for conduct such as not taking reasonable care in claiming a deduction to which taxpayers are entitled or making a false or misleading statement.
The objective of levying the penalty is to encourage taxpayers to take reasonable care in complying with their tax liabilities
The law specifies the conditions that make taxpayers liable to a penalty. However, ATO have power to reduce the penalty amount according to individual circumstances, so ATO frequently reduce a penalty before advising taxpayers of their tax debt.
If taxpayers are dissatisfied with a penalty imposed on them, in most cases they ask ATO to remit it. They can also object to some penalties through the objection process.
- How to request a remission of penalty
- Disputing a penalty through the objection process
- How ATO assess a request for reduction
- How ATO advice taxpayers of their decision.
- Further action taxpayers can take.