It is common for small and medium-sized businesses in Perth to incur tax penalties and interest from the Australian Tax Office. The ATO will often waive or reduce tax penalties and interest charges when the right circumstances are put before the ATO in the correct way.
As Perth tax consultants, we also understand that simply because you are paying tax penalties and ATO tax interest does not make you “bad”. Many operators will make a cashflow decision and incur ATO interest because of that decision. And life will impact many successful families in business and, for a short time, not allow a business to monitor their tax law compliance or delay payment properly.
When does the ATO charge interest?
The Australian Taxation Office (ATO) charges interest to ensure ATO Tax compliance. And getting the ATO to waive your interest and tax penalties is a significant step forward in helping the cash flow for small to medium-sized businesses.
You will typically incur interest charges on the late payment of taxes and penalties, amendments to your assessment leading to an increased tax liability, or an increase in other tax liabilities such as goods and services tax (GST) or pay-as-you-go amounts.
Depending on the interest, you might enjoy a tax deduction for the interest charged by the ATO. So, getting your Perth tax accountant to claim a tax deduction on that interest is essential. However, it is fair to say that nobody wants to incur ATO interest penalties and fines in the first place. Or a person would instead enjoy a complete waiver of ATO interest penalties and fines.
General Interest Charge (GIC)
The ATO may apply the General Interest Charge (GIC) when an amount of tax or some other liability remains unpaid after the due date. This situation can occur in various instances, such as:
- A tax shortfall arises due to an amendment of an assessment or other correction.
- An instalment of tax is underestimated.
- A tax return is lodged late.
Just because your Perth tax accountant has made a payment arrangement with the ATO does not mean you won’t incur GIC. GIC will still accrue even though the tax payment arrangement is still in place.
Shortfall Interest Charge (SIC)
The Shortfall Interest Charge (SIC) has a lower rate than the GIC. This is because taxpayers are generally unaware of a shortfall amount until notified by the ATO. When the ATO informs you of a shortfall in your tax, they also include an interest charge on the shortfall amount.
The shortfall is determined by the difference between the amount of tax assessed initially (or refunds claimed) and the amount of tax eventually assessed (or credits entitled to). The due date for payment of the additional tax and SIC is 21 days after the ATO provides notice of the extra tax.
After the due date has passed, any unpaid tax and SIC will be subject to the higher GIC.
If you incur GIC or SIC, the story does not necessarily end with you paying it. You could apply for the GIC or SIC interest the Tax Office charges to be reduced or waived in full.
How to waive ATO general interest charges
To enjoy a waiver of ATO general interest charges, you will need to ask the ATO to waive that interest charge.
When assessing requests for GIC remission, the ATO considers various factors, including:
- Whether any extenuating circumstances caused the delay in payment.
- The steps taken to relieve the effects of those circumstances.
The ATO may request supporting documents for the remission request. For instance, they may examine whether the delay in payment was within your control or resulted from factors outside your control, such as natural disasters, industrial action, unforeseen collapse of a primary debtor, or sudden ill health of key staff.
In our experience as Perth tax accountants, providing the ATO with a complete and supported history of the unavoidable reasons upfront is vital in lodging a successful application. In particular, the carefully crafted and true story with clear support significantly influences the success of getting an interest waiver by the ATO.
If you were responsible for the delay, the ATO considers whether it had unforeseen consequences, such as the unexpected result of a soundly based decision.
Notably, the application to waive the GIC should not cite the only reason that you were “busy”.
Assessment of SIC Remission Requests
In assessing requests for SIC remission, the ATO utilises the information provided and other available data to consider the request. Based on the circumstances, they may remit all, some, or none of the interest charges.
Additionally, the ATO may initiate remission if:
- The ATO delays the start of an examination into your tax affairs, or the expected time to complete an examination is late due to ATO actions.
- The ATO caused periods of unreasonable delay during an examination.
- Either party experiences a delay in obtaining information from a third party during the examination, which is not otherwise available to you.
- The ATO delays processing your amendment request.
How to Request a Remission of ATO Penalties
When you find yourself facing penalties for failing to meet various tax obligations, you have the option to request a reduction (partial remission) or cancellation (full remission) of these penalties. This includes penalties for failing to lodge documents on time, withholding required amounts in the PAYG withholding system, or meeting other tax obligations. Here’s how you can make your request to the Australian Taxation Office (ATO):
- Online Services (for Businesses or Tax Agents): If you are a registered business or tax agent, utilize the ATO’s online services to submit your request.
- Phone (for Small Penalties and Simple Cases): Small penalties and straightforward cases can be addressed by phone.
- Mail (for Large Penalties or Complicated Cases): For larger penalties or cases with complexities, it is recommended to submit your request in writing to the Australian Taxation Office at the following address:
Disputing a Penalty through the Objection Process
If you or your tax consultant in Perth are disputing a penalty related to a tax shortfall, false or misleading statements, or failure to provide requested documents, you must lodge an objection. This includes disputes regarding tax returns, business activity statements, fuel scheme claim forms, super statements (including member contribution and lost member statements) and departing Australiau superannuation payment reports.
How the ATO Assesses a Request for Penalty Remission
In evaluating requests for remission, the ATO adheres to key principles ensuring fairness and equality among taxpayers. Factors considered include:
- Your ATO tax compliance history
- Whether the tax was deferred or avoided
- Reasons for the increased tax or reduced credits leading to penalties
- Awareness of the tax shortfall through voluntary disclosure or compliance efforts
- Your attitude towards complying with tax laws.
- The magnitude of the tax shortfall
Compliance History: If you have a good ATO tax compliance history, meaning timely lodgement of tax returns, payment of tax debts, and a lack of recent penalties, the ATO may treat you more leniently.
Tax Deferred or Avoided: For tax debts paid late (deferred) rather than permanently avoided, the ATO may consider remission based on the deferral period and the amount of tax avoided.
Example: If an error in GST accounting doesn’t result in an overall shortfall amount, the penalty may be fully remitted.
Reasons for the penalties: If the penalties arose because of circumstances beyond your control this is looked on favourably by the ATO. This can include circumstances where you relied on the poor tax advice by your former tax agent in Perth. In this instance, the tax law has “safe harbour” provisions.
At Westcourt, many small and medium-sized families in business approach us, having encountered the ATO with a review, and they have suffered a tax penalty due to the poor behaviour of their former Perth tax accountant. A carefully crafted storey to the ATO outlining the facts will significantly impact getting tax penalties waived in this instance.
Sometimes the tax penalties imposed by the ATO are also accompanied by an ATO directors penalty notice so managing both at the same time is an important planning discussion with your Perth tax accountant.
Awareness of the tax shortfall: If the penalties arose because you made a voluntary disclosure rather than an ATO tax audit you have a much higher chance of reducing ATO tax penalties.
Your attitude: If your approach and dealings with the ATO have been helpful and professional, you also have a much greater chance of reducing ATO tax penalties. The dealings with your Perth tax accountants’ support here are essential for a successful application.
The tax magnitude: If the facts around the tax penalties involve a large amount money you have less chance of enjoying a tax penalty reduction. As a guide, you are expected to invest more in tax advice and tax governance the higher the total tax paid – this is is particularly important for people who are subject to an ATO Next 5000 review.
How the ATO Advises You of Their Decision
If the ATO doesn’t remit the penalty in full, you will receive a written explanation for their decision.
Managing tax penalties, including general or shortfall interest charges, is essential to many Perth SMEs. Often, a business will go through a difficult time and is now on track for success, although the compounding effect of tax penalties or tax interest does not allow that to happen. At Westcourt, we are a focused firm on tax advice for families in business. So, we understand the impact tax penalties can have on a prosperous family in business that has undergone a restructure. Given our global network and proven technical excellence in tax advisory, we are well-placed to help your business move forward – so why not give us a call?
