Code of settlement practice

Treatment of penalties and interest charges

48. Wherever possible, agreement should be reached in respect of the substantive issues before officers consider settlement of penalties or interest charges.
49. ATO policy governing the remission of penalty, general interest charge and shortfall interest charge is set out in the policy documents listed below.

Document	Subject
PS LA 2012/5	Administration of penalties for false or misleading statements that result in shortfall amounts
PS LA 2012/4	Administration of penalties for false or misleading statements that do not result in shortfall amounts
PS LA 2011/12	Administration of general interest charge (GIC) imposed for late payment or under estimation of liability
PS LA 2006/8	Remission of shortfall interest charge and general interest charge for shortfall periods
PS LA 2003/11	Remission of penalty for failure to withhold as required by Division 12 in Schedule 1 to the Taxation Administration Act 1953
PS LA 2002/8	Administration of penalties under the new tax system
PS LA 2000/9	Remission of penalties under the new tax system
TR 2001/3	Income tax: penalty tax and trusts
TR 94/7	Income tax: tax shortfall penalties: guidelines for the exercise of the Commissioner's discretion to remit penalty otherwise attracted
MT 2012/3	Administrative penalties: voluntary disclosures
MT 2011/1	Miscellaneous taxes: application of penalties and interest charges to the Commonwealth, States, Northern Territory and Australian Capital Territory
MT 2008/2	Shortfall penalties: administrative penalty for taking a position that is not reasonably arguable
MT 2008/1	Penalty relating to statements: meaning of reasonable care, recklessness and intentional disregard

50. Remission of penalties and interest charges must be determined in accordance with these policy documents which require authorised officers to deal with each case on its own particular merits.
51. However, as a matter of practical reality, cases will arise where penalty and interest charges could properly be considered as part of the settlement of the case. Remission of the general interest charge for late payment (as distinct from the interest charge during the shortfall period) as part of an overall settlement should be referred to the ATO's Debt business line for advice.
52. It is ATO policy that officers must never use threats, either implied or actual, of imposing penalties or interest as a lever to settle cases (see, for example, Caratti v Deputy Commissioner of Taxation 93 ATC 5192; (1993) 27 ATR 448).

Sections within Part 2: Factors affecting settlement

• Meaning of settlement
• Disputes as to quantum
• Borderline questions of law and fact
• Legal basis for settlement
• The good management rule
• When settlement discussions may occur
• Circumstances where it would be generally inappropriate to settle
• Circumstances where it may be appropriate to settle
• Where unrelated issues are involved: global settlements
• Relevance of ability to pay
• Alternative dispute resolution, including mediation
• Settlements and prosecutions
• Treatment of penalties and interest charges