The Australian Taxation Office (ATO) revised its guidance on Penalties and Interest on 21 August 2024, explaining how penalties and interest are applied in different situations, including failure to meet tax obligations.

Interest charges

Tax laws impose interest charges from the date a tax liability was due to be paid until it and the accrued interest charges are paid. If a debt is increased by an amended assessment, interest charges also apply from the date the original assessment was due to be paid.

This is intended to:

• Ensure that taxpayers who have underpaid their tax during this period don’t receive an advantage over those who have paid their tax;
• Compensate the community for the impact of late payments.

As interest charges are compounding, they can quickly add up. The law provides us with the discretionary power to remit interest charges in certain circumstances.

Where a tax shortfall results from an audit or review and interest applies, ATO will give you a written statement about the reasons for the decision not to remit all or part of it. This statement will refer to the evidence on which our findings were based.

Administrative penalties

You’re not liable to a penalty if you make a false or misleading statement and you (and your tax adviser) took reasonable care. However, if reasonable care wasn’t taken, the law imposes penalties based on your (or your tax adviser’s) behaviour. The more culpable the behaviour leading to the statement, the higher the level of penalty. The facts and circumstances of a case ultimately determine the level of penalty, if any.

Even if you have taken reasonable care, you may be liable for a penalty if you don’t have a reasonably arguable position about a contestable income tax or petroleum resource rent tax issue.

If we find that you’ve made an inadvertent error in your tax return or activity statement, we’ll show you what it is and how to get it right next time, and provide penalty relief (not apply the penalty this time).

The aim is to help you get back on track if you have made an inadvertent error.

Penalty relief applies to eligible individuals and entities with a turnover of less than AUD 10 million.

The amount of penalty that may apply in these and other circumstances may be reduced by making a voluntary disclosure.

There are significant reductions if you:

• Make a voluntary disclosure before you are notified of an ATO audit or risk review
• Make an early disclosure (such as seeking a private binding ruling)
• Make an acknowledged voluntary disclosure during the risk review stage of any compliance activity. In some circumstances a lesser reduction may be available for voluntary disclosures after notification of an audit.

Administrative statement penalties are doubled for Significant global entities.

Excise penalties

Some administrative penalties and interest charges may apply under the Excise system.

Certain acts or omissions are offences against the Excise Act 1901 for which specific penalties are also prescribed.

Promoter penalties

The promoter penalty legislation is aimed at dealing with those who market unlawful arrangements to the detriment of both taxpayers and ethical advisers. Penalties can apply directly to individuals as well as businesses.

The provisions are intended to apply in the following circumstances:

• When an entity engages in conduct that results in them or another entity being a promoter of an unlawful tax or super scheme
• When an entity promotes a scheme on the basis that it conforms with a public, private or oral ruling but the scheme is materially different to that described in the ruling
• When an entity implements a scheme, promoted on the basis of conformity with a public, private or oral ruling, in a way that is materially different to that described in the ruling
• When an entity promotes early access to super before meeting a condition of release.

Prosecutions

Tax and super laws specify a range of criminal offences that apply where taxpayers have not complied with their obligations. Sanctions may apply to both individuals and companies.

As for any taxpayer, business taxpayers may be prosecuted for offences such as:

• Making a false or misleading statement (including withholding information material to a tax matter)
• Keeping incorrect or false records
• Refusing or failing to provide a completed return or information, or to produce records or documents
• Refusing or failing to attend before a tax officer or answer questions as and when required by a notice from us
• Hindering or obstructing a tax officer who is exercising our access powers.

These offences are prosecuted before a court under the authority of the Commonwealth Director of Public Prosecutions (CDPP).

We also investigate, at times with the assistance of other law enforcement agencies, serious criminal breaches under the Criminal Code (such as fraud and money laundering).

These matters are prosecuted by the CDPP.The decision to prosecute for any Commonwealth criminal offence is made according to the Commonwealth prosecution guidelines, which are available from the Commonwealth Director of Public Prosecutions.