In the absence of a carrot, expect the stick

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Penalties |  Penalty units |  Other tax obligations |  The process |  Interest |  Avoiding penalties

If former prime minister Paul Keating can be nabbed for non-lodgement (he said he was too busy), you can be sure we hoi polloi will fare no better, or maybe a lot worse, should we fail to toe the Tax Office line.

The penalties and fines exacted by the Tax Office are designed, it says, to 'encourage taxpayers to take reasonable care in complying with their tax obligations'. Given that Australia's taxation is based on a system of self-assessment, and that we deal with many taxes that are far from simple or straightforward (such as the twists and turns of the goods and services tax and the various regimes within the income tax system itself, such as taxing capital gains), 'reasonable care' can seem a big ask.

On top of interest charges that apply to what is essentially a late payment of underpaid tax, there are various penalties (the salt in the wound, some may say) that the Tax Office can also decide to impose for not sticking to the rules. But we are talking about the government's revenue collection, so the weight of the law is behind the penalties regime that 'encourages' Australians to pay their tax, and to pay it on time.

Penalties
The tax law provides for these 'administrative' penalties which are able to be issued directly, but there are also civil and criminal penalties that are imposed by the courts.

One comfort is that the system of penalties is fairly uniform and regulated over most tax laws. Generally this means that a penalty will be doled out under the same 'provisions'. For example, the penalty for 'failure to lodge' will apply to not lodging a tax return, or not lodging an activity statement.

The penalty provisions relate to certain categories of obligations. These are:

• positions that are not 'reasonably arguable'
• failing to lodge on time
• failing to withhold
• 'other' tax obligations.

For employers, there are separate penalties relating to superannuation obligations, such as the superannuation guarantee charge.

Generally, penalty amounts can be calculated with a statutory formula that allocates a percentage multiple for the 'shortfall' amount – that is, the difference between the amount of tax (or credit entitlement) that resulted from the information provided to the Tax Office in the first instance, and the amount that is actually the correct tax or entitlement.

As well as having to make up the shortfall, you will be required to cover this percentage – the 'punitive' bit. The percentage applied is pegged to certain 'behaviours' – failure to take reasonable care, recklessness, and intentional disregard. The size of the percentage reflects the severity of that mischief.

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