Paying tax in Australia is based on a system that relies on self-assessment. When errors in your self-assessment occur, there is a very real possibility that you could be liable for penalties or interest charges. The penalties and fines issued by the ATO are designed to “encourage taxpayers to take reasonable care in complying with their tax obligations”.
Well, what is reasonable care you might ask? The ATO views reasonable care as something a reasonable person would do considering their age, health, level of knowledge and circumstances. When it comes to providing information to the ATO, it is important that it is done correctly as it is from this information that your tax liability is determined.
Tax laws allow for administrative penalties to be dealt with directly, however there are also civil and criminal penalties that can be imposed by a court of law. The tax system of penalties is fairly uniform and so is covered by most tax laws. This means that a penalty will be handed out under the same provisions and relates to certain categories of obligations which include:
- positions that are not “reasonably arguable”
- failure to lodge on time
- failing to withhold
- “other” tax obligations
So, for instance, “failure to lodge on time” would apply to not lodging a tax return or not lodging an activity statement. There is a multitude of ways that you can earn yourself a penalty or fine, which includes:
- not taking reasonable care
- intentional disregard
- making false or misleading statements
- not lodging a document on time
- failure to withhold
- failure to pay a withheld amount
If you find yourself on the receiving end of a penalty or fine, the ATO should notify you in writing of the amount owing, when it is due and why you have been fined.
Staying on the right side of the ATO will go a long way to ensure that you do not receive a penalty or fine! The following are a few things you can do to make sure it doesn’t happen to you:
- keep sufficient and accurate records
- stick to the proven and genuine tax deductions
- structure your business legitimately
- ensure your business is registered for all of the appropriate taxes
- keep your contact details up to date
There are separate penalties relating to superannuation obligations for employers, such as the superannuation guarantee charge. You can read more about this here.
The process of dealing with a penalty or fine can be quite complex. Should you receive a penalty or fine and are not sure what you should do next, then please give us a call.