PAYG withholding: penalty for failure to withhold - objection rights

Does an entity have a right to object in the manner set out in Part IVC of the Taxation Administration Act 1953 (TAA) against a decision made after 22 June 2006 not to remit to any extent a penalty imposed between 1 July 2000 and 22 June 2006 by section 16-30 of Schedule 1 to the TAA?

Yes. An entity dissatisfied with a decision made after 22 June 2006 not to remit a penalty imposed by section 16-30 between 1 July 2000 and 22 June 2006 may object against that decision in the manner set out in Part IVC of the TAA in accordance with subsection 298-20(3) of Schedule 1 to the TAA.

The entity made a payment to a non-resident company after 1 July 2000 but before 22 June 2006. Note: the relevance of this period relates to amendments affecting penalties, remission and objection rights relating to failure to withhold made by A New Tax System (Tax Administration) Act (No. 2) 2000 which repealed item 15 in the table in section 20-80 of Schedule 1 to the TAA, and by Tax Laws Amendment (2006 Measures No 2) Act 2006 which made amendments to Division 16 and Subdivision 298-A of Schedule 1 to the TAA.

The payment was in the nature of a royalty and was subject to pay as you go (PAYG) withholding under section 12-280 of Schedule 1 to the TAA.

The entity did not withhold an amount from the royalty it paid to the non-resident company.

After 22 June 2006, the Tax Office commenced an audit of the entity's affairs. The Commissioner identified that the entity had failed to withhold from this payment and notified the taxpayer of their liability for a penalty imposed at the time of the failure to withhold under section 16-30 of Schedule 1 to the TAA. The penalty exceeded 2 penalty units. Note: at the time of publishing this ATO ID, a penalty unit was $110: see section 4AA of the Crimes Act 1914 .

The Commissioner also decided not to remit any part of the penalty imposed.

The entity sought to object against the decision of the Commissioner not to remit the penalty.

The scope of the general machinery provisions for administrative penalties in Subdivision 298-A of Schedule 1 to the TAA was amended by item 168 in Part 1 of Schedule 7 to the Tax Laws Amendment (2006 Measures No. 2) Act 2006. With effect from 22 June 2006, this item includes within the scope of Subdivision 298-A, penalties imposed on an entity by a provision of Division 16 of Schedule 1 to the TAA.

With effect from 22 June 2006, subsection 298-20(3) of Schedule 1 to the TAA provides for the right to object to the Commissioner's refusal to any extent to remit an amount of penalty imposed by Division 16 of Schedule 1 to the TAA.

Under subsection 298-20(3) of Schedule 1 to the TAA, the entity had a right to object in the manner set out in Part IVC of the TAA to the Commissioner's decision (which was made after 22 June 2006) not to remit the penalty. This is because the conditions in subsection 298-20(3) were satisfied and the decision was objected against after 22 June 2006, that is, after the amendment to Subdivision 298-A of Schedule 1 to the TAA commenced. Note: Item 139 of Tax Laws Amendment (2006 Measures No. 2) Act 2006 also provides for objection rights to a decision by the Commissioner under section 16-45 of Schedule 1 to the TAA to refuse to remit a penalty imposed on or before 22 June 2006. An objection under this transitional provision had to be made before the end of 60 days after Royal Assent of that amending Act (that is, on or before 21 August 2006). This transitional provision also provides that purported objections made earlier are taken to have been made on 22 June 2006. This objection right has no practical effect for remission decisions made since 22 June 2006. It is our view that this transitional provision does not have the effect of limiting the application of the objection right in subsection 298-20(3) to remission decisions in respect of penalties imposed after 22 June 2006.