Taxation Ruling
IT 2371
INCOME TAX : REMISSION UNDER SUB-SECTION 227(3) OF ADDITIONAL TAX IMPOSED BY SECTION 222 FOR LATE LODGMENT OF INCOME TAX RETURNS
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FOI status:
Edited for FOI purposesFOI number: I 1177156PREAMBLE
Sub-section 227(3) of the Income Tax Assessment Act empowers the Commissioner to remit the whole or any part of the additional tax imposed under section 222. This may be done either before or after an assessment is issued.
2. In practice, the full statutory additional tax imposed by section 222 is not normally levied. In all but exceptional circumstances, the Commissioner exercises the discretion provided by sub-section 227(3) and remits part of the statutory additional tax for late lodgment at the time of making the assessment.
3. In most cases additional tax is remitted to the extent that additional tax is actually imposed at the rate of 20% per annum on the lesser of tax payable and net amount payable. (A rate of 10% applies to periods prior to 14 February 1983). Generally, further remission will not be approved unless there are clearly extenuating circumstances.
4. The principles to be applied when considering requests for further remission of additional tax for late lodgment, received after an assessment has been issued, are set out in this Ruling.
. Objections and Appeals
5. Objections may be lodged against the calculation of additional tax for late lodgment. Insofar as the objection relates to the severity of the additional tax for late lodgment, the Commissioner's decision on the objection will be determined in accordance with the policy discussed in this Ruling.
6. From time to time, taxpayers may offer to settle disputed assessments on the basis of acceptance of all or part of the disputed adjustment to taxable income (or rebates) provided there is a reduction in additional tax for late lodgment. As a matter of general principle, additional tax for late lodgment is regarded as not negotiable. Where taxable income is amended, additional tax for late lodgment will be recalculated automatically.
7. Note that the powers of the Administrative Appeals Tribunal to review decisions of the Commissioner relating to remission of additional tax payable under section 222 are limited to additional tax that exceeds :
- (i)
- an amount calculated at the rate of 20% per annum of tax payable for the period commencing on the last day allowed for furnishing the return and ending on the day on which the return is furnished or the day on which the assessment of additional tax is made, whichever happens first; or
- (ii)
- if the amount calculated in (i) above is less than $20 - $20
- (a)
- $2.00; or
- (b)
- 10% per annum of the tax payable for the period from the due date to the actual date of lodgment or assessment (whichever is earlier).
8. Despite the fact that additional tax for late lodgment is imposed at a rate of 20% per annum, in many instances the actual additional tax is below the 20% per annum rate because :
- (a)
- (b)
- additional tax is calculated from two months after the due date for lodgment. For example, non-agent returns are due by 31 August, but additional tax is calculated from 31 October. (This does not apply to late lodgers or late payers);
- (c)
- additional tax is calculated on the lesser of tax payable and net amount payable;
- (d)
- a rate of less than 20% per annum applies to returns due before 14 February 1983.
RULING
Further Remissions - Non-Agent Returns
9. Further remission of additional tax for late lodgment may be considered under two broad categories :
- (i)
- errors in calculation by the Taxation Office; and
- (ii)
- extenuating circumstances contributing to the delay.
10. The method of recalculation of additional tax for late lodgment at the time of amending an assessment is set out in Ruling IT 2372.
. When to Remit Additional Tax for Late Lodgment
11. A request for further remission of additional tax will be granted where circumstances exist that are exceptional and unpredictable such as the sudden ill health of a taxpayer, or destruction or loss of a taxpayer's records due to fire or flood.
12. On the other hand, additional tax will not be remitted where the delay occurs through the neglect, inadvertence or omission of the taxpayer. Explanations such as :
- .
- the taxpayer forgot;
- .
- delay in receiving the group certificate or lost group certificate;
- .
- delay in establishing the distribution from a partnership, dividends receivable etc; and
- .
- absence from Australia,
13. Advanced age of a taxpayer should not be regarded as an extenuating circumstance. In the absence of the kind of circumstances discussed at paragraph 11, applications based solely on the age of the taxpayer will not be considered.
. Extent of Remission
14. In all cases, when it becomes apparent that lodgment will be delayed, the taxpayer should advise the Taxation Office of the reasons for the delay and should seek an extension of time or an arrangement to defer lodgment. Whether or not an extension or an arrangement is approved will depend on the circumstances of each individual case, but the fact the taxpayer has notified the Taxation Office of the reasons for the delay will be taken into account when considering the extent of any further remission. Other factors which are taken into account include:
- (i)
- action taken by the taxpayer to mitigate the effects of the delay;
- (ii)
- circumstances under which the return was lodged (i.e., voluntary or enforced); and
- (iii)
- lodgment history of the taxpayer.
15. The action taken by the taxpayer to reduce the extent of delay resulting from unforseen circumstances is an important factor in determining the amount of further remission. For example, a taxpayer who is unable to obtain his records from a former tax agent because of a dispute over fees etc., must be able to demonstrate that he has made efforts to resolve the dispute.
16. Notwithstanding that lodgment of the return has been enforced through issue of a final notice (this would apply particularly to late lodger/late payers) explanations for the late lodgment will still be considered. However, only where extenuating circumstances have been proved and the taxpayer can demonstrate that every possible step has been taken to speed up lodgment, will consideration be given to further remission of additional tax.
17. In considering the extent of further remission the lodgment history of the taxpayer will also be examined. If the taxpayer has an unsatisfactory lodgment history, the request for further remission should be denied.
Further Remissions : Agent Prepared Returns
. Introduction
18. Requests for further remission of additional tax by tax agents fall into two categories :
- (i)
- individual requests, where the circumstances leading to the delay arise from the taxpayer's or tax-agent's actions or omissions; and
- (ii)
- bulk requests, where the circumstances leading to the delay arise from problems experienced by the tax agent.
19. Individual requests for further remission will be treated in accordance with the guidelines laid down in paragraphs 9-17.
20. Bulk requests for further remission of additional tax are usually lodged by tax agents on behalf of a number of clients, where the agent has failed to meet his lodgment programme. Although the taxpayer is liable to pay the additional tax, in practice and at law (section 251M) the tax agent is often ultimately responsible for payment of the additional tax.
. When to Remit Additional Tax for Late Lodgment- Bulk Requests
21. Consideration will be given to a request for further remission where the delay in lodgment was caused by circumstances not being circumstances which may reasonably be regarded as occurring in the normal course of business. As an indication of nature, but not the range, of factors they include the occurrence of natural disasters and serious ill health of a practitioner, particularly in a one man practice.
22. Reasons for delay such as staffing problems (including a lack of qualified staff), remote locality, computer breakdown or installation, expansion of the business (takeover or amalagamation) and difficulties with client groups who are subject to seasonal fluctuations in work load (e.g. primary producers) are not normally regarded as exceptional circumstances which could not be anticipated. Whilst there may be circumstances where such events could not have been anticipated, there are arguments against accepting such explanations. For instance, staff shortages may well depend on the salary offered. Likewise, installation of a computer system or the expansion of a practice are conscious decisions made by an agent in the normal course of business. It is unlikely that some difficulties in undertaking such ventures would not be expected.
23. The view indicated in the preceding paragraph is taken primarily because factors such as computer "down" time, staffing problems and the like are normal incidents of operating a practice which should be allowed for in planning. However, a balanced view must be taken, and there will be some cases where, for example, extraordinarily lengthy "down" time of a computer or malfunction leading to loss of stored information may warrant further remission of additional tax for late lodgment. Similarly, there may be instances where an abnormal incidence of illness or absence of key personnel, particularly in small or remote practices, can neither be avoided nor quickly overcome, so that further remission may be appropriate.
. Extent of Remission - Bulk Requests
24. In considering the extent of the further remission a number of factors are taken into account. These include :
- (i)
- the level of the tax agent's performance in immediately preceding years;
- (ii)
- the level of the tax agent's performance during the current year;
- (iii)
- action taken by the tax agent to mitigate the effects of the delay.
. Tax Agents' Actions
25. The action taken by the tax agent to reduce the extent of a delay resulting from unforeseen circumstances is an important factor in determining the amount of any further remission. The Commissioner's annual circular to tax agents stresses that agents with lodgment problems should approach the Taxation Office as soon as those problems become evident, so Tax Agent Liaison Centre officers can assist in salvaging the situation. In the absence of extraordinary circumstances remissions will not be granted to agents who have received warning letters as a result of October and November monitoring and who do not approach the Taxation Office until after additional tax has been levied.
26. In addition to the requirement that the agent advises the Taxation Office of lodgment problems as they arise, any action taken by the agent to mitigate the delay is taken into account.
. Previous Years' Performance
27. The tax agent's lodgment performance in the immediately preceding lodgment seasons is also taken into account. The granting of further remissions to consistently poorly performing agents is not within the spirit nor the intention of the policies outlined in the Circular to Tax Agents. Therefore, notwithstanding that extenuating circumstances may exist, further remissions will not be granted where the agent has performed poorly in the immediately preceding years.
. Current Year Performance
28. The agent's lodgment performance during the current lodgment season is also examined. In particular, where the tax agent was suspended from the lodgment programme, applications for further remission will not be granted. The overall objective is to reach a situation where all agents achieve 31 December requirements. Obviously, remission of additional tax imposed on clients of tax agents suspended from the lodgment programme defeats the purpose of this strategy.
. Tax Agent's Financial Hardship
29. Many tax agents pay additional tax imposed on their clients where the delay in lodgment was the tax agent's fault. From time to time agents may argue that additional tax should be remitted on the grounds that payment may result in financial hardship to their practice. On the other hand, the delay in lodgment has resulted in a delay in collection of tax, with a consequent loss to the Revenue. Further, the whole thrust of the tax agent lodgment guidelines would be defeated were additional tax for late lodgment to be remitted simply on the grounds of the financial difficulties this may cause the tax agent. Accordingly, in the absence of the kind of extenuating circumstances discussed at paragraph 21 above, requests for further remission on the basis of financial hardship will be rejected.
VARIATIONS OF PROVISIONAL TAX
30. Additional tax for late lodgment raised on assessment must ignore the possibility of a later variation reducing provisional tax. Once such a variation occurs, however, whether or not the case is a payment-in-advance case, additional tax for late lodgment must be adjusted accordingly.
COMMISSIONER OF TAXATION
21 October 1986