Taxation Ruling

IT 2372

INCOME TAX : ASSESSMENT UNDER SECTION 227 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 1177161

PREAMBLE

Section 222 of the Income Tax Assessment Act provides that where an income tax return is lodged late, the taxpayer shall be liable to pay, by way of penalty, additional tax equal to double the amount of tax payable or $20.00, whichever is the greater. A return is regarded as late if it is lodged after 31 August, or after any arrangement date granted. Differing rules for late lodgment apply to returns for substituted accounting periods - see paragraph 8 hereunder.

2. Sub-section 227(3) allows the Commissioner to remit the whole or any part of the additional tax. This may be done either before or after the assessment is made.

3. 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.

4. 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% per annum applies to periods prior to 14 February 1983). Rules for calculation of the additional tax to be imposed when an assessment is made are discussed later in this Ruling.

RULING

Definitions

5. For the purposes of calculation of additional tax for late lodgment, the following definitions apply:

(a)

'Tax Payable' means gross tax (including Medicare levy and health levy 1977-1979) less:

(i)

rebates;

(ii)

credits under sections 45, 160AF and double tax agreements;

(iii)

deductions under sub-sections 98A(2) and 100(2); and

(iv)

tax waived under the Audit Act.

(b)

'Net Amount Payable' means tax payable (as defined above) plus provisional tax debit less:

(i)

tax instalment deductions or, if applicable, company instalment credit (whether paid or otherwise);

(ii)

prescribed payment deductions; and

(iii)

provisional tax credits.

NOTE :

Additional tax for omission of assessable income (pursuant to sections 223-226 inclusive) is not included in net amount payable for the purposes of calculation of additional tax for late lodgment.

(c)

'Voluntary Lodgment' refers only to those cases where the voluntary disclosure of non-lodgment is:

(i)

not due, directly or indirectly, to departmental activities in connection with the affairs of the person concerned under any of the Acts administered by the Commissioner; and

(ii)

includes returns for at least two years of income prior to the year in which returns are currently being demanded.

NOTE :

Additional tax for late lodgment in voluntary lodgment cases is covered in detail in Ruling IT 2214

(d)

'Arrangement to Lodge' involves the deferment of legal action for lodgment of returns for a specified period. If the return is not lodged by the approved date, additional tax is calculated from 31 October, in the case of non-agent prepared returns, and 31 December for agent prepared returns.

(e)

'Extension of Time' allows a return to be lodged by a certain date. If the return is not lodged on time, additional tax is calculated from the extended due date.

(f)

'Late Lodger/Late Payer' refers to those taxpayers who either:-

(i)

failed to lodge a return by 31 March or such later time as was authorised and the tax outstanding at 30 June, or expected tax liability on the overdue return, exceeds $500 for individuals or $1500 for companies; or

(ii)

deferred until after 30 June, without approval, the payment of tax which exceeded $500 for individuals or $1500 for companies.

Calculation of Period Late

. Non Late Lodger/Late Payer

6. Prior to March 1986, the calculation of additional tax for late lodgment was dependent upon the assessor manually coding the number of months and days the return was late. In March 1986, automatic calculation of additional tax for late lodgment was introduced and this calculation is based on the number of weeks the return is lodged late. This has removed the necessity for manual coding for 1985 and subsequent year returns. Subject to the exceptions below, the period late using either method is calculated as follows:

(a)

from 31 October for non-agent prepared returns

(b)

from 31 December for agent prepared returns, since most agents have an arrangement to lodge until 31 December.

. Late Lodger/Late Payer

7. The calculation of period late for late lodgers and late payers differs from this general rule. In these cases, the period late is calculated from 31 August for non-agent prepared returns and 31 October for agent prepared returns.

. Substituted Accounting Period Cases.

8. Returns based on substituted accounting periods are considered 'late' as follows:

(a)

where the substituted accounting period is in lieu of the income year ending on the succeeding 30 June: when the return is lodged more than 9 months after the close of the substituted accounting period, or, for agent prepared returns, is lodged outside the normal requirements of the lodgment programme adopted, whichever is the earlier; or

(b)

where the substituted accounting period is in lieu of the income year ending on the preceding 30 June: when the return is lodged more than 60 days after the close of the substituted accounting period or, for agent prepared returns, is lodged outside the normal requirements of the lodgment programme adopted, whichever is the later.

9. For returns considered late as outlined in point (a) of the previous paragraph, additional tax for late lodgment will be calculated from 6 months after the close of the substituted accounting period. For returns considered 'late' as outlined in point (b) of the previous paragraph, additional tax for late lodgment will be calculated in accordance with normal procedures. The above rules vary in the case of taxpayers who are classified as late lodgers/late payers. Full details of lodgment guidelines for returns based on substituted accounting periods (including late lodgers/late payers) are contained in the tables at Attachment A and B to this Ruling.

10.

. Prosecution Instituted

11. Where a person is liable to pay an amount of additional tax by way of penalty under section 222 of the Income Tax Assessment Act for late lodgment of a return, and a prosecution is instituted against that person under section 8C of the Taxation Administration Act for that late lodgment, the amount of additional tax is not payable unless and until the prosecution is withdrawn (sub-section 8ZE(1), Taxation Administration Act).

Rate of Additional Tax

12. With effect from 14 February 1983, the rate of additional tax for late lodgment increased from 10% to 20% per annum. The transitional rules that apply in respect of 1982 and prior year returns are as follows:-

(i)

where the return is lodged late, but on or before 13 February 1983, additional tax will be calculated at the rate of 10% per annum.

(ii)

where the return is lodged after 13 February 1983, additional tax will be calculated at the rate of 10% per annum for the period late, up to and including 13 February 1983 and at 20% per annum for the period late thereafter.

. Exceptions

13. Additional tax for late lodgment generally is not calculated where the assessment results in a credit or refund, or the taxpayer is non-taxable.

14. In voluntary lodgment cases (as defined at paragraph 5) additional tax is calculated at half the standard rate - see Ruling IT 2214.

15. In original assessments raised under section 167 as a default assessment for non-lodgment of a return, the rate of additional tax is varied. Additional tax equal to 50% of the tax payable will be calculated, except where prosecution action has been instituted and not withdrawn, in which case the additional tax will not be payable, in accordance with sub-section 8ZE(1) of the Taxation Administration Act.

16. From time to time, assessments are raised under section 167 where the primary objective is not to enforce lodgment of the return but, rather, to absorb tax instalments or provisional tax on a taxpayer's account. In these circumstances, the 50% additional tax for late lodgment is inappropriate and additional tax is not calculated.

17. Prior to additional tax being calculated, any request for leniency that may be enclosed in the return must be taken into account and the decision must be attached as a folio to the return. The policy discussed in ruling IT 2371 should be applied when considering further remission of additional tax.

Calculation of Additional Tax For Late Lodgment

18. Additional tax is the lesser of:

(a) ((A-/52) * (B/100) * C)
OR (b) ((A-/52) * (B/100) * D)


Where: A is the number of weeks late (See 'Calculation of Period Late' - paragraphs 6-11) B* is the rate of additional tax (See' Rate of Additional Tax' - paragraphs 12-17) C is tax payable D is net amount payable.

19. For 1984 and prior year returns, the additional tax is calculated using the number of months and days late and should not exceed the tax payable (as defined at paragraph 5). If it does it will be reduced to the tax payable. For 1985 and subsequent year returns, the additional tax calculated as a result of the formula in paragraph 18 should not exceed double the amount of tax payable (as defined at paragraph 5). If it does it will be reduced to such an amount.

20. For 1985 and subsequent year returns, where the result of the additional tax calculated in paragraph 18 is an amount less than $20, then, by virtue of sub-section 222(2) of the Income Tax Assessment Act, the amount of additional tax shall be taken to be $20. The only exception to this is where the net amount payable on assessment is less than $20, in which case the amount of additional tax that equals the difference between the net amount payable and $20 is remitted. That is, the additional tax shall not exceed the net amount payable if net amount payable is less than $20. For 1984 and prior year returns, the $20 minimum rule does not apply.

21. Notwithstanding the previous paragraphs, any amount of additional tax which is less than $2 is to be wholly remitted, regardless of the year of the return.

22. It will be noted that the formula in paragraph 18 precludes imposition of additional tax in credit or nil tax payable cases.

Multiple Issues

23. Where the current year return is lodged with the immediate prior year, additional tax is calculated from 31 October of the relevant year for both the current and prior year assessments (except where the return is non-agent prepared and the taxpayer is classified as a late lodger or late payer - in those cases additional tax is calculated from 31 August). Consideration, however, must be given to voluntary lodgment cases or explanations for late lodgment contained in the returns.

24. Furthermore, irrespective of the year, where additional tax is being imposed in the first component of a multiple issue, the net amount payable figure will include a "notional" provisional tax debit for the purposes of additional tax calculation (provided that a provisional tax debit would have been raised if the return was lodged on time).

25. In some circumtances, the calculation may result in a large amount of additional tax being imposed. However, each return will be considered as being a late return in its own right and any reduction in the amount imposed is only considered if the circumstances warrant (according to the rules for further remission as set out in ruling IT 2371).

Payment-in-Advance Cases

26. In order to encourage early payment of tax due, some concessions are extended to taxpayers who forward a payment of estimated tax and provisional tax in advance of the issue of their assessment. Post-dated cheques will not satisfy these payment requirements. Rules for calculating additional tax for late lodgment in these cases are discussed below.

27. Where a payment-in-advance is made on a current year agent prepared return, additional tax will be calculated as follows:-

(a)

where the return is lodged by 31 March and the payment accompanies or precedes lodgment then:

(i)

where full payment is made, no additional tax is imposed;

(ii)

where a part payment is made the additional tax is calculated on the difference between the amount paid and the lesser of net amount payable or tax payable for the period from 31 December to the date of lodgment;

(b)

where the return is lodged after 31 March and before 30 June, and the payment accompanies or precedes lodgment then:

(i)

where a full payment is made, the additional tax for late lodgment is calculated on the lesser of net amount payable or tax payable for the period from 28/29 February to the date of lodgment;

(ii)

where a part payment is made, the additional tax for late lodgment is calculated on the lesser of net amount payable or tax payable for the period from 28/29 February to the date of lodgment plus a further amount on the difference between the amount paid and the lesser of net amount payable or tax payable for the period from 31 December to 28/29 February.

28. Where a payment-in-advance is reduced to cover an intended application for reduction in provisional tax, the rules applying to part payments as detailed in the previous paragraph will apply. Additional tax for late lodgment raised on assessment must ignore the possibility of a later variation of provisional tax. Where, however, a variation is subsequently processed additional tax will be adjusted accordingly (see Ruling IT 2241).

29. Note that in the case of company returns, the "net amount payable" figure is net of company instalment credit - regardless of whether the instalment has been paid.

30. For current year non-agent prepared returns, similar rules will apply except that the earliest dates to be used in the additional tax for late lodgment calculations will in each case be two months earlier than the dates specified in paragraph 27 above.

31. The concession for payment-in-advance cases does not apply to late lodgers, late payers, taxpayers for whom prior year returns are outstanding at 30 June and taxpayers who are clients of tax agents and who have received demands to lodge returns required for particular purposes by dates earlier than those permitted by their tax agent's lodgment programme.

32. This payment-in-advance concession does not preclude action being taken to enforce lodgment of returns after the expiration of the applicable arrangement dates.

33. Where a payment-in-advance of the estimated tax proves to be inadequate by virtue of a disallowed claim in the assessment, additional tax for late lodgment will be automatically calculated as specified for part payments in previous paragraphs. Where a taxpayer makes representation for remission of the additional tax for late lodgment and it is considered that the claim disallowed was made in good faith, the additional tax should be remitted.

VARIATIONS OF PROVISIONAL TAX

34. Where the provisional tax debit notified in an assessment is subsequently varied as a result of an application for variation of provisional tax lodged by the taxpayer, any additional tax which was imposed in the original assessment will be adjusted accordingly, whether or not the case is a payment-in-advance case (Ruling IT 2241 refers).

Amended Assessments

35. As indicated in Ruling IT 2034, any amendment to taxable income will also result in an amendment to the level of additional tax for late lodgment.

36. The amended additional tax is calculated as follows:

(Additional Tax in Original Assessment * ((Lesser of tax payable or net amount payable in amended assessment)/ (Lesser of tax payable or net amount payable in original assessment.))


. Section 167 Assessment Cases

37. As stated at paragraph 15, additional tax equal to 50% of the tax payable is calculated in original assessments raised under section 167 as a default assessment for non-lodgment of a return. When a return is eventually lodged and the assessment is amended accordingly, additional tax previously imposed is reduced to an amount calculated at the rate of 20% p.a. of the lesser of tax payable and net amount payable. Where the return in question is in respect of 1982 or a prior year, the transitional rules for calculation of additional tax as set out in paragraph 12 of this Ruling will apply. The period late for calculation of additional tax for late lodgment is described at paragraphs 6-11.

38. Where a return is lodged by a taxpayer as a result of an assessment being raised under section 167, the period late, for the purpose of calculation of additional tax for late lodgment, will extend up to the date of the lodgment of that return and not to the date that the section 167 assessment was raised.

COMMISSIONER OF TAXATION
21 October 1986

APPENDIX

The attachments to this Ruling can be obtained from your FOI section or library.

References

ATO references:
NO 85/2842-0

Date of effect:
Immediate

Related Rulings/Determinations:

IT 2214
IT 2241

Subject References:
ADDITIONAL (PENALTY) TAX FOR LATE LODGMENT

Legislative References:
222
227