Warning: This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.
With new legislative measures like the small business and general business tax break, also known as the investment allowance, it's possible that some taxpayers will make errors. In this case, they may incorrectly claim a tax deduction under Division 41 of the Income Tax Assessment Act 1997.
The small business and general business tax break was originally announced by the government on 12 December 2008, with a start date for eligible expenditure from 13 December 2008. There were further policy changes announced on 3 February 2009 and again in the Budget on 12 May 2009. The measure subsequently received Royal Assent on 22 May 2009.
Many taxpayers will have made investment decisions prior to Royal Assent to purchase certain assets with the expectation of coming within the scope of this policy. It is important that taxpayers lodge their tax return correctly reflecting the law. There may be circumstances where taxpayers may not have satisfied one or more of the eligibility criteria but still claim the deduction in their tax return on the understanding that their claim was legitimate.
If such an error is identified in a tax return, it may be corrected by the taxpayer or the Commissioner. When an error is corrected, the taxpayer will have to pay any increase in the tax liability. In addition, subject to the comments provided below, they will need to pay any shortfall penalty and shortfall interest charge.
Where an error occurred, the Commissioner will consider whether it is appropriate to impose shortfall penalties.
If reasonable care was taken in preparing the tax return, a penalty for false or misleading statements will not be applicable. The new measure and its complexity in relation to the taxpayer's individual circumstances will be taken into account in determining whether reasonable care was taken. The Tax Office will take a reasonable approach, as we are aware new legislation can have the potential to affect taxpayers' capacity to understand their entitlements or obligations.
If the taxpayer corrects the error prior to any compliance activity, penalty for a false or misleading statement generally will be remitted to nil.
If the taxpayer follows the Guide to small business and general business tax break or other Tax Office material published at the time of making their statement, they generally will have taken reasonable care.
If the amount of the shortfall is over legislated thresholds, taxpayers are also required to take a reasonably arguable position in making the statements in the tax return. Taxpayers need to reach their position (at the time of making the statement) by researching and considering the relevant authorities.
If the taxpayer did not take reasonable care when making the statement and a penalty is imposed, the Commissioner will take the existence of the new measure into account when making a penalty remission decision. Decisions will be based on the individual facts of the case, but if the taxpayer has acted reasonably and has a good tax compliance history, part or full remission will be given.
If, in claiming the amount, the taxpayer was reckless or intentionally disregarded the law when considering their circumstances and the eligibility criteria, a higher penalty may be imposed. Although the decision will be based on the circumstances of the case, remission generally will not be given.
Where a mistake is made and corrected by either the taxpayer or the Tax Office, shortfall interest charge will be imposed. It will accrue from the date the amount should have been paid had it been correctly reported to when the amended notice of assessment is given to the taxpayer.
Remission of the shortfall interest charge will be considered according to Tax Office guidelines. Being new legislation is not of itself grounds for remission.
The main grounds for some remission of interest charges for self-amendments are:
- where the taxpayer has a good tax compliance record and they have made a prompt self-amendment of a genuine mistake
- where the Tax Office has not processed the request for amendment within the taxpayers' charter standards.
Where we conduct a tax audit, some remission may be given where the Tax Office is responsible for delaying the completion of the tax audit.
For more information about penalties and interest charges generally, refer to About penalties and interest charges
Last Modified: Thursday, 6 August 2009