The law imposes penalties on trustees for:
- failing to lodge a tax return on time and in the approved form (which includes all applicable schedules)
- having a tax shortfall or over-claiming a credit that is caused by
- making a false or misleading statement
- taking a position that is not reasonably arguable
- refusing to provide a tax return from which the Commissioner can determine a liability
- failing to keep and produce proper records
- preventing access to premises and documents
- failing to retain or produce declarations.
Trustees are liable for the general interest charge where they have:
- not paid a tax, penalty or certain other amounts by the due date
- varied their PAYG instalment amount or rate to less than 85% of the amount or rate that would have covered the trustee's actual liability on business and investment income for the year, or
- amended their income tax assessment to increase their liability (for the 2004-05 and later income years this interest charge is known as the 'shortfall interest charge').
Shortfall interest charge
Where an assessment is amended because of a tax shortfall, the due date for payment of the amended assessment is 21 days after the Commissioner gives the notice increasing the liability. Generally trustees are liable to pay a shortfall interest charge from the due date of the original assessment to the day before the issue date of the amended notice of assessment on the increase. Trustees will be notified of the amount of the shortfall interest charge and it will be due 21 days after the notice is given. The general interest charge will apply automatically to any unpaid amount of the amended assessment and the shortfall interest charge once the due date has passed.
The shortfall interest charge is calculated at a rate 4% lower than the general interest charge.
The Commissioner may remit all or part of the shortfall interest charge when it is fair and reasonable to do so.
Penalties
In addition to interest charges, penalties may be applied to any tax shortfall.
If a taxpayer does not follow a private ruling they have obtained, penalties may still apply for a tax shortfall that arises if, for example, they have not exercised reasonable care or do not have a 'reasonably arguable' position.
The Commissioner must explain, in writing, the reasons for a penalty and, if remission of a penalty has been considered but not fully granted, the reasons for the decision.
The law makes it clear that, when considering whether a penalty should be imposed, the ATO will consider a taxpayer's position to be 'reasonably arguable' if it would be concluded in the circumstances that what is argued for is about as likely to be correct as incorrect, or is more likely to be correct than incorrect.