ATO Penalties and Interest Charges, and Remission Requests

Understanding Penalties and Interest Charges

The ATO has the power to impose penalties for the late lodgement of documents due, including:

• Income tax returns
• Business activity statements (BAS)
• Instalment Activity Statements (IAS)
• Fringe benefits tax (FBT) returns
• Self‑managed super fund (SMSF) annual returns
• Taxable Payment Annual Reports (TPAR)
• Transfer Balance Account Reports (TBAR)

These penalties can range from hundreds of dollars for individuals, to thousands of dollars for small businesses and many hundreds of thousands of dollars for large entities. Further, the ATO has the power to impose interest charges on outstanding tax debts. The current general interest charge rate is 10.65%. Keep in mind that ATO interest charges are no longer tax deductible.

Criteria for Remission Requests

Should you find yourself in a position where you were unable to lodge on time, and the ATO have imposed a penalty and/or interest charges, it is possible to request a remission, but this request will require valid reasons and evidence.

The ATO has provided a list of reasons that are more likely vs less likely to be accepted when requesting remission of interest and penalties:

Circumstances Likely to be Accepted

Circumstances where the ATO have said it would be more likely to accept GIC remission requests include:

• Where an individual (or their tax or BAS agent) has been impacted by a natural disaster (such as fire, flood or drought).
• Where industrial action has impacted an individual or their tax or BAS agent.
• Unforeseen collapse of a major debtor.
• Sudden ill health of an individual, sole trader or key personnel in a small business.
• Sudden ill health of an individual's tax or BAS agent, where it was not practical to make alternative arrangements to meet their obligations.
• Theft of, or damage to, property critical to business operations.
• Where an individual has experienced or is currently experiencing financial abuse, coercive control, family and domestic violence or other circumstances that contribute to experiencing vulnerability that impact their ability to meet their tax obligations.
• Bereavement of a family member.
  
  

Circumstances Likely to be Declined

Whereas the below requests are likely to be declined:

• Adverse business conditions that impact cash flow.
• General economic downturn.
• Fluctuations in currency or exchange rates.
• General business risks, such as late payment of invoices by a customer.
• Using monies to expand your business instead of paying overdue taxes.
• Missing a lodgment or payment date because an individual did not allow their tax or BAS agent sufficient time to meet deadlines.
• Being away on holidays when lodgment or payment is due.

Best Practices for Compliance

Obviously it is preferable to stay on top of your ATO lodgement and payment obligations, and avoid interest and penalties being imposed in the first place! It’s important to engage with the ATO early if you find your obligations getting on top of you. A good compliance history will always work in your favour, and having good systems in terms of bookkeeping and document filing will always make life easier when it comes to tax time.