ATO Interpretative Decision

ATO ID 2001/260 (Withdrawn)

Income Tax

• This ATO ID is a straight application of the law and does not contain an interpretative decision
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

1. Whether the taxpayer, who correctly states that they are a non-resident on their tax return but is incorrectly taxed as a resident, is subject to penalty tax under section 226G of the Income Tax Assessment Act 1936 (ITAA 1936) for failing to exercise reasonable care.

2. Whether the General Interest Charge (GIC) imposed under section 170AA (ITAA 1936) should be remitted under section 8AAG of the Taxation Administration Act 1953 (TAA 1953).

Decision

1. The taxpayer is not subject to penalty tax under section 226G (ITAA 1936).

2. The GIC imposed under section 170AA (ITAA 1936) should be remitted.

Facts

The taxpayer lodges their income tax return. The tax return correctly states that the taxpayer is a non-resident. The Australian Taxation Office (ATO) incorrectly assesses the taxpayer as a resident and then issues a refund to the taxpayer as a result of the error. The taxpayer returns the refund cheque to the ATO and asks for an amendment to the assessment so the taxpayer is treated as a non-resident. The taxpayer takes this course of action as soon as the incorrect assessment is received.

The amendment is processed and a correct assessment is issued. The amended assessment includes an amount of penalty tax imposed under section 226G (ITAA 1936) that is equal to 25% of the tax shortfall for a failure to take reasonable care. The penalty tax is reduced by 80% under section 226Z (ITAA 1936) because of the voluntary disclosure. The taxpayer is also liable to pay GIC under section 170AA (ITAA 1936).

The taxpayer objects to the imposition of the penalty tax and asks that the GIC be remitted.

Reasons for Decision

The taxpayer is liable to pay penalty tax where there is a 'tax shortfall' caused by the particular behaviour of the taxpayer or tax agent. Subsection 222A(1) (ITAA 1936) states that a tax shortfall is the difference between the tax payable for a year in accordance with the 'proper tax' and the 'statement tax', which is the tax that would have been payable for that year if it were assessed on the basis of 'taxation statements' made by the taxpayer.

The taxpayer correctly stated that the taxpayer was a non-resident in the tax return lodged by the taxpayer. If the tax had been assessed on the basis of the taxpayer's statement, it would have equalled the proper tax amount. Accordingly, the taxpayer's 'statement tax' amount was correct. The ATO inadvertently raised an incorrect assessment by treating the taxpayer as a resident. Penalty tax was incorrectly imposed under section 226G (ITAA 1936). There was no 'tax shortfall' caused by the particular behaviour of the taxpayer and therefore no penalty tax should be imposed.

Where an assessment is amended to increase the amount of tax payable, a taxpayer is generally liable to pay the GIC under section 170AA (ITAA 1936). However, section 8AAG (TAA 1953) allows the Commissioner to remit all or part of the GIC payable. As the increase in tax payable in this case was not caused by the actions of the taxpayer and the taxpayer took steps to correct the error made by the ATO, the GIC should be remitted in full.

Legislative References:
Income Tax Assessment Act 1936
   section 170AA
   subsection 222A(1)
   section 226G
   section 226Z

Keywords
Tax administration
General interest charge
Income tax penalties
Income tax shortfall
Remission of penalties
Remission of section 170AA interest

Business Line:  Small Business/Individual Taxpayers

Date of publication:  27 August 2001

ISSN: 1445-2782