What Penalties Might Be Incurred During Tax Return Season To Watch Out For?

It’s getting closer to the time of year when your tax return may be on your mind. You may have even started looking into what is required to lodge your income tax return to get ahead on the task.

Making sure that your details are correct and that any information regarding your earned income from the year is lodged is the responsibility of you as a taxpayer and of your tax agent.

If, during the lodgement of your tax return, you fail to meet and comply with the tax obligations expected of you as a taxpayer, the Australian Taxation Office has severe penalties that they can enforce.

Taxation laws within Australia authorise the ATO the ability to impose administrative penalties on taxpayers for failing to comply with their obligations.

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 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 ATO determines the tax-related liability.

To ensure that the statements, returns and lodgements are done this coming tax season correctly, and avoid the risk of potential penalties, speak with a trusted tax professional.