Think of this situation. You visit a tax agent, give them all your information, and he or she prepares your tax return. You have faith in your tax agent because, after all, he or she is the expert. You get a nice refund and you think that this tax agent is really good at his or her work.
Then, later, you discover that your tax agent made a mistake when lodging the return and you shouldn’t have got that refund. Worse still, the Australian Taxation Office (“ATO”) blames you for the error and you have to pay back the tax. Also, you are penalised at a rate of 25% of the tax avoided for a “lack of reasonable care”. On top of that, you have to pay the General Interest Charge for the time that the ATO was out of pocket. Doesn’t sound fair, does it? Well, this is the way the Australian taxation law operates. The taxpayer has the responsibility to ensure that their tax return is correct, no matter what tax expertise you possess.
But there has been a recent change to the tax laws regarding the penalties that can arise in the above situation.
On 1 March 2010, the new Tax Agent Services regime commenced. Most of the law only affects tax agents. However, there has been an amendment made to the Taxation Administration Act 1953 (“TAA”) that will be of some cheer to the taxpaying community. This involves what has become known as a “safe harbour” from penalties.
Penalties for false or misleading statements are imposed under the TAA. Broadly, penalties are imposed in the following manner:
- 25% of the tax shortfall for a lack of reasonable care
- 50% of the tax shortfall for recklessness
- 75% of the tax shortfall for intentional disregard of the law
The rates of penalty can be adjusted upwards for aggravating factors and adjusted downwards for mitigating factors.
The new provision regarding penalties ensures that taxpayers who engage a registered tax agent or BAS agent and provide them with all of the relevant information are no longer subject to a penalty for making a false or misleading statement that was caused by their tax agent’s failure to take reasonable care.
Exactly how this provision is going to be administered in practice by the ATO is unclear. The way it is administered will determine how “safe” the harbour really is.
Wishing you easier business.
John M. Jeffreys