Australia’s revenue system relies on taxpayers providing correct information to establish their tax liability under the law and paying the correct amount of tax.
Sometimes taxpayers fail to correctly report an amount they are required to or do not meet other tax obligations. Taxpayers who fail to meet their tax obligations may be liable to penalties and/or interest charges. When we find an error or omission, we take into account the relevant individual circumstances, including your compliance history, when deciding what action to take, particularly in relation to any penalties or possible prosecution action. These circumstances include the reasons for the discrepancy or failure to meet a tax obligation and how well the taxpayer has complied with their tax obligations in the past. We also consider the taxpayer’s attitude towards complying with the tax laws.
A penalty is an amount that is calculated in accordance with a statutory formula (for example, false or misleading statement penalties) or in multiples of a ‘penalty unit’. A penalty unit is currently $110.
The types of penalty which apply can be administrative, civil or criminal. Civil and criminal penalties are imposed by courts whereas administrative penalties are imposed without the need for court action. This guide explains administrative penalties (excluding scheme penalties).
Interest charges are imposed on outstanding amounts such as shortfall amounts, late payments and unpaid tax debts. Interest charges apply whether or not a penalty applies. Having interest charges applied to a shortfall amount does not depend upon, or imply, dishonesty on your part.
An interest charge is worked out daily on a compounding basis on amounts that are outstanding. The interest charge is calculated by applying the interest rate, which is determined quarterly, to the outstanding amount. Interest charges are designed to:
encourage taxpayers to pay their tax liabilities by the due date
ensure that taxpayers, who do not pay their tax liabilities on time, do not get an advantage over those who do pay in full and on time, and
compensate the government for the effect of late payments.
You will usually not have an interest charge that relates to a shortfall amount imposed if, on or after 1 January 2006, you reasonably rely in good faith on:
advice given to you or your agent by the Tax Office or a statement in a publication approved in writing by the Commissioner, unless the advice, statement or publication is labelled as non-binding, or
the Commissioner’s general administrative practice.
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