Pay your taxes on time! An Introduction to ATO interest and Penalties
There are 3 main classes of additional amounts the ATO can add to a taxpayer’s tax liability. These are normally issued when a tax return, BAS or other ATO obligation has not been filed on time or incorrectly.
1. General Interest Charge (GIC)
This is the most common due to its frequency and is applied on a regular basis onto your account if you have an amount of tax payable which is late. The GIC rate is calculated on the daily compounded amount outstanding on your account.
You are able to claim a tax deduction for any GIC paid during an income year at D10 of the tax return. However, don't take this to mean that this is an effective tax strategy.
In certain situations, the ATO has the discretion to remit amounts of GIC (either on their volition or your request).
2. Shortfall Interest Charge (SIC)
If you amend a tax return for a period and this amendment increases the amount of tax liability, the ATO can issue SIC.
This is calculated on the shortfall amount (amended tax liability less original tax liability). As the taxpayer may be unaware of a shortfall situation until the return is amended, the ATO uses a reduced rate of interest than the General Interest Charge rate.
There are several penalties which the ATO has the discretion to apply to a taxpayer. Penalties are designed to ensure tax obligations are prepared on time and accurately.
Penalties may be applied if you:
Give false or misleading information to the ATO (whether there is a shortfall amount payable or not)
Taking a position which is not reasonably arguable
Fail to make a statement (late lodgement)
The amount of a penalty depends on several factors, including (but not limited to) why the penalty is applied, the compliance history of the taxpayer and the amount of tax liability shortfall or length of time between the lodgement due date and lodgement occurring.
You cannot claim any ATO penalty as a deduction. This is because you are not meant to get benefit from a penalty.
It is possible to make a request to the ATO to remit the full amount or partial amount of applied ATO interest or penalties. You will need a legitimate reason as to why the amounts should be remitted (i.e. an error made by the ATO). Whether the ATO remits any interest or penalties is ultimately up to the ATO.
This information is not to be relied upon without speaking to your accountant, tax agent or financial adviser depending on the advice