The ATO says its base tax penalty amount may be increased or reduced. The base penalty amount may be increased where the taxpayer hinders the ATO, but it also may be reduced in the following circumstances.

Voluntary disclosure

The voluntary disclosure to the Commissioner of a tax shortfall will result in a reduction of the base penalty amount applicable to the shortfall.

Any voluntary disclosure that is made by a taxpayer before being told that an audit is to be conducted will reduce the base penalty amount by 80% if the shortfall is greater than $1,000 or is a scheme shortfall amount or to nil if the shortfall is less than $1,000.

The taxpayer will generally be taken to have made an honest mistake unless there is information to indicate that the taxpayer did not make an honest mistake. The voluntary disclosure must be made in writing, be signed with the appropriate taxpayer or agent declaration and posted to the ATO.

Any voluntary disclosure that is made after being told that an audit is to be commenced and the Commissioner has been saved significant time or resources by the disclosure, the base penalty amount is reduced by 20%. The Commissioner has the discretion to treat this disclosure as having been made prior to being told about the audit.

However repeated voluntary disclosures by taxpayers or their tax agents will not be automatically entitled to the concession if there is an indication the taxpayer has not made an honest mistake or that the agent has been careless.

The ATO undertakes many different types of reviews and audits under its compliance program. A “tax audit” is defined to mean an examination by the Commissioner of an entity’s financial affairs for the purposes of a taxation law.

Non-material amounts

Penalties will not apply to non material shortfalls that result from a lack of reasonable care where it is evident that the taxpayer and agent (if any) have made a genuine attempt to comply with the taxpayer’s obligations and the taxpayer’s overall level of compliance is satisfactory.

Consideration as to a “material” amount will be based on the size of the shortfall relative to the taxpayer’s turnover and the effect of the shortfall on the taxpayer’s overall liability. The shortfall amount will continue to be payable.

Correcting GST mistakes

In certain circumstances taxpayers can correct GST mistakes on a subsequent activity statement without incurring any penalty.

In addition, where a registered tax agent prepares an income tax return and cannot reconcile the GST details in BASs prepared by the client of a bookkeeper, the GST may be corrected by including an adjustment (regardless of the amount) in the next BAS to be lodged following the lodgment of the income tax return. Different correction limits apply, depending on the entity’s turnover. The agent must inform the client or bookkeeper of the mistake and initiate action to prevent future occurrences.

Timing adjustments

Penalties will not apply where income amounts or a supply is accidentally or unintentionally included in a period later than the period in which the amount should have been included. Penalties will apply where it is clear the taxpayer was aware of the proper treatment and sought to gain an advantage.

Amounts in another person’s return

Where there has been no overall tax avoided then penalties will usually not apply if income, deductions, a credit or a supply is included in the wrong person’s return. If some tax has been avoided then the penalty will be based on the net tax avoided.