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  • Statements and positions that are not reasonably arguable

    Penalties apply to taxpayers who:

    False or misleading statement penalty – shortfall amount

    You'll be liable for this penalty if you make a false or misleading statement (for example, in a tax return, activity statement or amendment request) that results in you having a shortfall amount. The shortfall amount is the difference between the correct tax liability or credit entitlement, and the liability or entitlement worked out using the information you provided.

    The penalty will not be imposed if either of the following apply:

    • you took reasonable care in making the statement (but you may still be subject to another penalty provision, such as taking a position that is not reasonably arguable)
    • your statement accords with our advice, published statements or general administrative practices in relation to a tax law.

    Under the safe harbour provisions, you may not be penalised if the incorrect statement was made by your agent when you provided them with the relevant, correct information.

    You may receive penalty relief where a penalty is not applied if you have made an error in your income tax return or activity statement.

    The base penalty is a percentage of the shortfall amount. The percentage used is determined by the behaviour that led to the shortfall amount:

    • Failure to take reasonable care: The base penalty is 25% of the shortfall amount. Generally, you fail to take reasonable care if you have not done what a reasonable person in the same circumstances would have done.
    • Recklessness: The base penalty is 50% of the shortfall amount. You are reckless if a reasonable person in your circumstances would have been aware that there was a real risk of a shortfall amount arising and you disregarded, or showed indifference to, that risk.
    • Intentional disregard: The base penalty is 75% of the shortfall amount. You intentionally disregard the law if you are fully aware of a clear tax obligation and you disregard the obligation with the intention of bringing about certain results (underpaying tax or over-claiming an entitlement).

    The penalty percentages are doubled for this penalty if you are a Significant Global Entity (SGE).

    The base penalty amount can be increased or reduced if there are aggravating or mitigating circumstances or remitted where it is fair and reasonable to do so.

    See also:

    • PS LA 2012/5 Administration of penalties for making false or misleading statements that result in shortfall amounts

    False or misleading statement penalty – no shortfall amount

    You're liable for this penalty if you make a false or misleading statement (for example, in an objection, private ruling request or during an audit) that does not result in you having a shortfall amount.

    The penalty will not be applied if:

    • you took reasonable care in making the statement, or
    • your statement accords with our advice, published statements or general administrative practices in relation to a tax law.

    The base penalty is calculated as a multiple of a penalty unit. The multiple used is determined by the behaviour that led to the false or misleading statement:

    • Failure to take reasonable care – the base penalty is 20 penalty units. Generally, you fail to take reasonable care if you make a false or misleading statement that a reasonable person in the same circumstances would not have made.
    • Recklessness – the base penalty is 40 penalty units. You are reckless if a reasonable person in your circumstances would have been aware that there was a real risk that the statement was false or misleading and you disregarded, or showed indifference to, that risk.
    • Intentional disregard – the base penalty is 60 penalty units. You intentionally disregard the law if you are fully aware that a statement is false or misleading and you choose to make it anyway with the intention of bringing about certain results (for example, underpaying tax or over-claiming an entitlement). A penalty multiplier will apply to double this penalty if you are a Significant Global Entity (SGE).

    The base penalty amount can be increased or reduced if there are aggravating or mitigating circumstances or remitted where it is fair and reasonable to do so.

    See also:

    • PS LA 2012/4 Administration of penalties for making false or misleading statements that do not result in shortfall amounts

    Safe harbour

    You may not be liable to an administrative penalty for making a false or misleading statement if all the following apply:

    • the statement was made by your registered agent
    • you gave your agent all the relevant tax information to enable the statement to be made correctly (you or your agent will need to prove that this information was provided)
    • the false or misleading statement was the result of your agent failing to take reasonable care
    • the statement was made on or after 1 March 2010.

    We'll consider the available information and decide if safe harbour applies. Safe harbour does not affect any remission of a penalty.

    Penalty for taking a position on income tax or petroleum resource rent tax that is not reasonably arguable

    If you treat an income tax or petroleum resource rent tax (PRRT) law as applying in a manner that is not reasonably arguable, and the resulting shortfall amount exceeds a certain threshold, you will be liable for a base penalty of 25% of the shortfall amount.

    • For partnerships and trusts, the threshold is the greater of $20,000 or 2% of the entity's net income (if any) worked out on the basis of its return.
    • For other taxpayers the threshold is the greater of $10,000 or 1% of the taxpayer's income tax or PRRT worked out on the basis of their income tax or PRRT return.

    A penalty multiplier will apply to double this penalty if you are a Significant Global Entity (SGE).

    The base penalty amount can be increased or reduced if there are aggravating or mitigating circumstances or remitted where it is fair and reasonable to do so.

    See also:

    • For an explanation of ‘reasonably arguable’ refer to MT 2008/2 Shortfall penalties: administrative penalty for taking a position that is not reasonably arguable

    Penalty for failing to make a statement

    You are liable for a penalty of 75% of the tax-related liability if both of the following apply:

    • you fail to lodge a document necessary to establish your tax-related liability
    • in the absence of that document, we determine your tax-related liability.

    This penalty will apply if, for example, you fail to lodge your tax return and we determine your income tax liability by other methods.

    The base penalty amount can be increased in some instances or remitted where it is fair and reasonable to do so.

    Increases and reductions in the base penalty amount

    The base penalty for false or misleading statement penalties, and for taking a position on income tax or PRRT that is not reasonably arguable, can be increased or reduced if there are aggravating or mitigating circumstances.

    The base penalty will generally be reduced if you voluntarily tell us about the error. The amount of the reduction depends on when you tell us, and may be as much as 80%.

    The base penalty is increased by 20% if you:

    • attempted to prevent or obstruct us from finding out about the shortfall amount, or the false or misleading nature of the statement,
    • became aware of the shortfall amount, or the false or misleading nature of the statement, but did not inform us within a reasonable time, or
    • have previously had the same type of penalty calculated for you.

    Remission of penalties

    We have discretion to remit (decrease or remove) the penalty according to individual circumstances, so we frequently make decisions about whether to remit a penalty before advising you of your penalty.

    In deciding whether to remit a penalty we consider whether:

    • there were circumstances beyond your control which prevented you from meeting your obligations
    • the imposition of the penalty produces an unjust result, and
    • it would be fair and reasonable to remit the penalty, taking into account a range of factors, depending on the type of penalty.

    If we have already made a decision not to remit your penalty, or to only remit part of your penalty, you can generally object to this decision through the objection process.

    If you're dissatisfied with a penalty imposed on you, and we have not already made a remission decision, you may, in most cases, ask us to remit it.

    See also:

    Last modified: 31 Aug 2018QC 47927