ATO Interpretative Decision

ATO ID 2002/149

Superannuation

• This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Should the Commissioner exercise his discretion under subsection 227(3) of the Income Tax Assessment Act 1936 (ITAA 1936) to remit tax shortfall penalty in whole or part?

Decision

No. Exercise of the discretion under subsection 227(3) of the ITAA 1936 is not warranted on the facts.

Facts

Previously, the taxpayer was self-employed. During that time, the taxpayer claimed deductions for non-employer sponsored superannuation contributions.

Subsequently, the taxpayer commenced employment with a company but continued to contribute to the original superannuation fund. The taxpayer claimed to have never received any information from a superannuation fund regarding the employer contributions.

The taxpayer claimed a deduction for non-employer sponsored superannuation in their income tax return for the year ended 30 June 1997. The claim was disallowed on the grounds that the taxpayer was no longer self-employed. However, due to the amount of the taxpayer's taxable income, they were instead allowed a superannuation contributions rebate. Overall, a tax shortfall occurred. In this instance, no tax shortfall penalty was imposed.

The following year, the taxpayer made the same deduction claim in the income tax return for the year ended 30 June 1998. Again, the claim for deduction was disallowed, a superannuation rebate allowed instead, and an overall tax shortfall occurred. This time a tax shortfall penalty was imposed.

The penalty was imposed at the rate of 50% pursuant to section 226H of the ITAA 1936, as the Commissioner considered the taxpayer had been 'reckless'.

The taxpayer asked that the penalty be remitted in whole or in part.

Reasons for Decision

A taxpayer who has a tax shortfall for a year of income may be liable to pay a penalty tax. A tax shortfall is defined in section 222A of the ITAA 1936 and broadly means, in relation to a taxpayer and a year of income, the difference between the tax properly payable by the taxpayer and the tax payable based on the taxpayer's return for the year of income. Penalties are imposed at varying rates depending on the behaviour of the taxpayer.

The Commissioner has the discretion under subsection 227(3) of the ITAA 1936 to remit a tax shortfall penalty. Taxation Ruling TR 94/7 provides guidelines on how this discretion is to be exercised. The discretion is only to be used in exceptional circumstances such as where the penalty provides a clearly unnecessary or unjust result.

In this case, after the taxpayer's claim for non-employer sponsored superannuation contributions was disallowed for the 1997 financial year, the taxpayer should have been aware that a deduction was not allowable. To make a similar claim in the following year was 'reckless' of the taxpayer.

The exercising of the Commissioner's discretion to remit a tax shortfall penalty was not warranted in this case.

Legislative References:
Income Tax Assessment Act 1936
   section 222A
   section 226H
   subsection 227(3)

Related Public Rulings (including Determinations)
TR 94/7

Other References:
Previously released as CDS10369

Keywords
Superannuation, retirement & employment termination
Income tax shortfall
Remission of penalties
Shortfalls
Superannuation contributions

Business Line:  Superannuation

Date of publication:  8 February 2002

ISSN: 1445-2782