What this Practice Statement is about
This Practice Statement provides guidance on how the Commissioner administers the penalty [1] for making a false or misleading statement that does not result in a shortfall amount, including: • when an entity is liable to a penalty in the situation where the statement does not result in a shortfall amount, and • how the penalty is assessed, including factors to consider when making a remission decision.
This Practice Statement applies to statements made on or after 4 June 2010.
Where the statement results in a shortfall amount, guidance is provided in Law Administration Practice Statement PS LA 2012/5 Administration of the false or misleading statement penalty – where there is a shortfall amount.
Remission guidelines in this Practice Statement are provided to assist you to exercise the discretion and ensure that entities in like situations receive like treatment. The guidelines do not lay down conditions that may restrict the exercise of the discretion.
Administering the penalty
There are 3 steps in administering the false or misleading statement penalty: • Step 1 – determine if a penalty is imposed by law • Step 2 – assess the amount of the penalty [2] • Step 3 – notify the entity of the liability to pay the penalty.
General principles
The following general principles should be considered when making decisions: • A primary purpose of this penalty regime is to encourage entities to take reasonable care to comply with their tax obligations. Generally, an entity will not be penalised - where they have made a reasonable and genuine attempt to comply - because of the reasonable care or safe harbour exceptions - because the law was applied in an accepted way, or - because we have remitted any remaining penalty. [3] • The penalty regime aims to achieve a level playing field, ensuring fairness and equity for all entities and for there to be consequences for failing to take reasonable care. • The compliance model requires us to be fair to entities wanting to do the right thing, but firm with those who are choosing to avoid their tax obligations. • The ATO Charter requires us to treat an entity to have been honest, unless we have reason to think otherwise. • We must consider the individual circumstances of each case, including the background and experience of the entity. • Decisions must be supported by the available facts and evidence. Conclusions about an entity's behaviour should only be made where they are supported by, or can be reasonably inferred from, the facts. • The entity should be contacted and given the opportunity to explain their actions before a penalty decision is made. Exceptions to this general principle might include fully automated data-matching cases or where the facts of the case clearly show deliberate disengagement from the taxation system.
Our approach to administering the penalty
We take a risk-based approach to administering the penalty provisions.
The provisions have broad application and could apply to a wide variety of activities, including compliance, audit, advice, debt, lodgment and registration activities. However, it is not administratively appropriate, nor is it necessary, to consider applying the penalty to every potentially false or misleading statement.
Statements that do not result in a shortfall amount will normally only be examined where we take action to investigate or mitigate a risk. This includes, but is not limited to: • audits of regulatory statements made by trustees of a self-managed super fund (SMSF) • audits of Australian Prudential Regulation Authority (APRA)-regulated funds for the accuracy and completeness of their reporting • audits which result in reduced carry-forward losses for an income year (including losses carried forward to future income years) [4] • reviews of registration applications or registration records (or both), or • project-based work where tax or super-related statements are being reviewed.
These examinations will result in the making of a penalty decision, which may involve assessment of a penalty.
You should not usually seek to examine statements that do not result in a shortfall amount where the statements made are of little importance or relevance to the ATO's activities.
If the statement is not the focus of the examination or activity, we will only consider the statement if there is a risk to the integrity of the tax system or a need to be firm with non-compliant entities (for example, where it appears that the statement was made recklessly or with intentional disregard of the law). [5]
In addition, there should be exceptional situations in order to consider assessing a penalty for the following types of statements: • an incorrect application of the law to correct facts (although statements of mixed fact and law will be considered) • a statement made regarding future intentions, unless subsequent actions make it doubtful the statement was genuine at the time, or • where information is omitted on a questionnaire or document that was simply to gather generic information from an entity.
We would not normally consider imposing penalties where amended assessments result in increased credits or an increase in losses carried forward.
Additionally, for examinations that are ongoing from 1 July 2018, we will not apply false or misleading statement penalty where an entity or their agent failed to take reasonable care in certain circumstances. This is called 'penalty relief' and will apply in limited situations to individuals, small businesses, super funds and trusts. Certain entities are excluded from penalty relief and the actions of other entities can also mean that penalty relief is not applied. For further details of the grounds for inclusion and exclusion for penalty relief see Appendix B to PS LA 2012/5.
What a false or misleading statement penalty is
Subsection 284-75(1) imposes a penalty where an entity (or their agent) makes a statement to the Commissioner, or to another entity who is exercising powers or performing functions under a taxation law, and the statement: • is about a tax-related matter • is false or misleading in a material particular, and • does not result in a shortfall amount.
Subsection 284-75(4) imposes a penalty where an entity (or their agent): • makes a statement to another entity (other than the Commissioner, or to another entity who is exercising powers or performing functions under a taxation law) and the statement - is, or purports to be one, that is required or permitted under a taxation law - might reasonably be expected to be used in determining, for the purposes of goods and services tax (GST) law, whether the entity is an Australian consumer, and [6] - is false or misleading in a material particular.
What a statement is
A statement is anything that is disclosed for a purpose connected with a taxation law orally or in writing (and includes those made electronically).
Statements may be made in correspondence, a registration form, an activity statement, an amendment request or any other communication.
Where an entity lodges a form, the form itself is not the statement that is made. The statement is the information at the individual labels or questions. This means more than one statement can be made on a form.
Statements may also be made by omission, if an entity fails to include material information in a document that requires that information to be supplied.
A combined form is one where we allow lodgment of a single form to fulfil multiple reporting obligations. [7] In these cases, where one discrete form within the combined form is not completed, the omission is a failure to give a return, notice or other document on time [8] , for which a separate penalty applies. It is not a statement by omission.
For example, if a super fund lodged a member contributions statement (MCS) [9] for all of its contributing members and: • the MCS did not report personal contributions for some members, but all other information was provided for those members – these omissions would be statements for penalty purposes • for other members, no member or contribution information was provided by the due date in this (or any other) MCS – these omissions would be failures to lodge statements for each member. A penalty for failing to give a return, notice or other document on time may apply for each statement.
Where the entity provides information in support of a previously made statement, and this is consistent with the information in the initial statement, generally we will not consider this subsequent statement to be a separate statement for the purposes of this penalty. Exceptions would only apply where the statement was made intentionally disregarding the law.
Additionally, where an error is made in a statement and further false or misleading statements are made relying on that error (such as sub-totals, totals or amounts being carried into new documents), only the original statement will be considered for the purposes of this penalty.
However, where the second statement results in a shortfall amount (such as a later tax return which utilises losses disallowed in a prior year), it will be more appropriate to consider shortfall penalties for the second statement, and not impose penalties for the statement which did not result in a shortfall amount.
Whether the statement concerns a tax-related matter
The penalty only applies to statements made for a purpose connected with a taxation law. [10] A taxation law includes: • an Act, or part of an Act, of which the Commissioner has the general administration, and • any legislative instruments made under such an Act.
A statement will be about a tax-related matter if a taxation law provides for the statement to be made. This includes: • where there is a legislative requirement to make the statement, or • where the statement is made for a purpose connected with a taxation law – for example, because it is relevant to a decision, or the exercise of a power.
If the statement does not directly affect or concern an entity's tax or super affairs and is not otherwise provided for under the legislation, there needs to be a connection to: • an express explanation about the purpose of the statement, which was available before the entity made the statement, or • an objective inference about the purpose and manner in which the information will be used.
Whether the statement is false or misleading in a material particular
A statement is false if it is contrary to fact or wrong.
It may be false because of something contained in the statement or because something is omitted from the statement.
If a statement was correct at the time it was made but is subsequently made incorrect because of a retrospective amendment to the law, it is not later considered false (or misleading). It is the nature of the statement at the time that it was made that is relevant.
It does not matter if the person who made the statement did not know that it was false.
A statement is misleading if it creates a false impression, even if it is literally true.
It may be misleading because of something contained in the statement or because of something omitted from the statement.
The reason it is misleading may be because it is uninformative, unclear or deceptive.
For a particular to be 'material' it must have a connection to the purpose for which the statement is made, but it does not have to be something that must or actually will be taken into account in making a decision.
Materiality is determined at the time the statement is made – a statement cannot be made material because of subsequent events.
However, materiality may be unknown until a subsequent event occurs (such as when an assessment is made) or further evidence comes to light which reveals that the statement was false or misleading in a material particular at the time it was made (such as during an examination).
Examples 1 to 9 in the Appendix to this Practice Statement provide guidance on what would constitute a material particular.
Who the statement is made to
The statement must have been made in any of the following ways.
Where the statement is made to the Commissioner or to another entity who is exercising powers or performing functions under a tax law [11] , the term 'another entity who is exercising powers or performing functions under a tax law' is interpreted narrowly. This will include a statement made to the Commissioner [12] , tax officers or other staff authorised to perform functions under taxation laws. [13]
Where a statement is made to another entity, if the statement is required or purports to be required under a taxation law [14] , there is an obligation to make the statement. For example, the Superannuation Industry (Supervision) Act 1993 (SISA) requires an SMSF trustee to give certain information to an approved SMSF auditor if they request it. This would be a statement required by law.
In certain situations, taxation laws make it clear a statement is permitted to be made. For example, under the Income Tax Assessment Act 1936, someone may give a tax file number (TFN) declaration to their prospective employer.
In each case, if the statement is purported to be required or permitted by a taxation law, then it must state, or imply, that the statement is one that is required or permitted by taxation law.
For example, if the law requires that a statement be made by a trustee in an approved form and the trustee makes a statement which appears to be the one required but does so in a manner which fails to meet the approved form requirements, the statement is one that purports to be the statement as required by law.
This differs from a statement held out to be required by a taxation law, when in fact no such requirement exists.
For GST, an offshore supplier of low-value goods, digital products and other services imported by consumers is required to take reasonable steps to obtain information about whether or not the recipient is an Australian consumer of the supply, for the purposes of determining the tax treatment of the supply. [16]
The law does not require that the recipient of the supply make a statement.
Where a consumer supplies false information to the supplier, which might reasonably be expected to be used in determining whether the entity is an Australian consumer for GST purposes [17] , a penalty may apply.
For example, if an individual consumer made misrepresentations to a supplier as to their location in Australia, or falsely claimed they were registered for GST and acquiring the supply for the purpose of their enterprise they carry on in Australia, the consumer will have made a false or misleading statement for penalty purposes as outlined in paragraph 5B of this Practice Statement.
For minimum tax law [18] purposes, an entity in scope of the minimum tax law is taken to give the Globe Information Return (GIR) to the Commissioner at the time the ultimate parent entity (UPE) or designated filing entity (DFE) gives the GIR to the foreign government agency. [19]
Who is liable for the penalty
An entity will be liable for the penalty for a statement they or their authorised representatives (including tax agents, business activity statement (BAS) agents, authorised employees or other agents) make on their behalf. [20]
Under commercial law, an agent is a person who is either expressly or impliedly authorised by a principal to act for that principal so as to create or effect legal relations between the principal and third parties. [21] An act done by the agent on behalf of the principal is considered an act of that principal.
For super, an authorised agent also includes an administrator or super supplier.
If an agent exceeds the scope of their authority when making a statement and the entity can prove that responsibility for that statement lies with the agent, the penalty may be imposed on the agent.
Exceptions to the penalty
An entity will not be liable to a penalty where: • the entity and their agent (if relevant) took reasonable care in connection with making the statement [22] , or • a 'safe harbour' applies to the statement. [23]
There is also a reduced liability to a penalty where the entity followed our advice or guidance, or general administrative practice. This is a reduction of the base penalty amount (BPA) and is covered in paragraphs 15M to 15Q of this Practice Statement.
Reasonable care
Reasonable care is explained in Miscellaneous tax MT 2008/1 Penalty relating to statements: meaning of reasonable care, recklessness and intentional disregard.
The 'reasonable care test' requires an entity to make a reasonable and genuine attempt to comply with obligations imposed under a taxation law. This means taking into account all actions leading up to the making of the statement.
Making a genuine attempt means that the entity was actively engaged with the tax system and actively attempting to comply with their tax obligations. When considering if a genuine attempt has been made, we compare the entity's attempt with that of other entities in similar circumstances.
The fact that a false or misleading statement was made does not automatically mean there was a failure to take reasonable care. There must be evidence that the entity's attempt to comply has fallen short of the standard of care that would reasonably be expected in the circumstances.
The effort required is one commensurate with the entity's circumstances, including their knowledge, education, experience and skill. [24] A higher standard of care is expected of an entity dealing with a matter that involves a substantial amount of tax or involves a large proportion of the overall tax payable. [25] In borderline cases, it can be more readily accepted that an entity has exercised reasonable care where the entity has a good compliance history.
The following factors are also relevant when assessing reasonable care: • if there was an inadvertent mistake • if reasonable enquiries were made, including whether - the entity conducted a level of enquiry commensurate with the risk of the decision and their resources, or - the entity just assumed the statement was correct • whether the entity was aware, or should have been aware, of the correct treatment of the law or of the facts, noting - an entity should not rely on advice they have received where a reasonable person would be expected to know or strongly suspect the advice is not worthy of such reliance [26] , and - an entity is not obliged or entitled to blithely accept assurance by their professional adviser especially where those statements appear flawed or questionable • whether any factors prevented the entity from seeking advice, understanding the requirements of the tax law or reporting correctly, and • whether the entity's level of knowledge, understanding of the tax system or personal circumstances impacted their compliance, considering - whether a registered tax agent or BAS agent was used - the entity's level of sophistication relating to tax matters - the level of knowledge, education, experience and skills of relevant persons involved with the entity, and - the personal circumstances of relevant persons involved, including age, health and background.
Even if an entity uses a registered tax agent or BAS agent, they are still expected to take a prudent attitude to their tax affairs. Engaging an agent does not, by itself, mean that reasonable care has automatically been taken, and entities are still required to set up appropriate reporting and recording systems, provide all relevant taxation information to their agent and answer questions or provide information to their agent.
An entity will generally be found not to be making a genuine attempt to comply with their obligations where they do not query advice that: • is obviously incorrect or does not apply to their circumstances • produces an odd or irregular outcome, or • seems an extraordinary treatment of tax matters, which a comparable, ordinarily prudent person would investigate further.
The more complex the area of tax law involved, the greater the monetary amount involved or the more 'sophisticated' the entity, the greater the level of enquiry that is expected.
Before signing documents lodged on their behalf, an entity is also expected to confirm, to an appropriate extent, that the document reflects the information they provided to their tax agent.
A registered agent will be subject to a higher standard of care that reflects the level of knowledge and experience a reasonable person in their circumstances will possess. The appropriate benchmark is the level of care that would be expected of an ordinary and competent practitioner practising in that field and having the same level of expertise.
Registered agents are not required to extensively audit or review books, records or other source documents to independently verify the entity's information. It will not be possible or practical for an agent to scrutinise every item of information supplied. What is appropriate will depend on the individual circumstances of the entity and the registered agent. However, reasonable enquiries must be made if the information appears to be incorrect or incomplete.
The 'safe harbour' exception
Safe harbour [27] provides that an entity will not be subject to a penalty as a result of certain actions (or omissions) of their registered tax or BAS agent, as long as: • they gave all the relevant tax information necessary for the statement to be correctly prepared to the agent, and • the agent did not act recklessly or with intentional disregard of the law. [28]
This means the safe harbour exception applies only where the agent has failed to take reasonable care.
Each statement has to be considered separately.
The safe harbour exception will only apply if the entity provides their registered agent with all the relevant taxation information about a particular matter.
Whether or not 'all the relevant taxation information' was provided needs to be considered objectively. It does not matter if the entity genuinely believed they provided all relevant information. The exception will not apply if the entity omitted or did not supply any part of the relevant information, or gave incorrect or conflicting information.
An entity may provide some information to their registered agent in a summary and the registered agent may reasonably rely on that for preparation of the statement. However, a summary which is incorrect or incomplete in a material particular will not meet the requirement to provide all relevant taxation information, even if reasonable care for a registered agent would have involved querying the information. Registered agents are not required to view all source documents, and it is often impractical for them to do so.
The entity has the burden of proof to establish that they provided all relevant taxation information. The standard of proof required is 'on the balance of probability' or 'more likely than not'. If the probability either way is equal, then the standard is not satisfied.
You would usually need to contact the registered agent if the entity is claiming the safe harbour exception to the penalty. Without doing so, it would be difficult to assess their actions and whether they exercised reasonable care, or know what information they requested from their client.
However, contact with the registered agent is not mandatory. If you have been unable to contact the registered agent, a decision should be made on the information available.
Safe harbour can be considered even if the entity or agent do not explicitly request it, as it may be clear from the statement that all relevant taxation information was provided but the registered agent did not exercise reasonable care. In these cases, it is still generally appropriate to contact the registered agent to discuss safe harbour, but you are not required to do so in order to apply safe harbour.
Working out the penalty amount
To assess the penalty amount: • determine the BPA • increase or reduce the BPA, and • consider remission of the calculated penalty amount.
Working out the base penalty amount
The BPA is calculated by: • assessing the entity's behaviour in making the statement, then • reducing the BPA to the extent that the entity applied a taxation law in an accepted way.
Where a shortfall amount does not occur, subsection 284-90(1) provides the initial penalty units [29] as follows: Table 1: BPA penalty units Situation BPA intentional disregard of a taxation law by the entity or their agent 60 penalty units recklessness by the entity or their agent as to the operation of a taxation law 40 penalty units failure by the entity or their agent to take reasonable care to comply with a taxation law 20 penalty units
The entity's behaviours or attributes to consider are those exhibited at the time of and in connection with making the statement. Actions which occur after making the statement do not affect the determination of the BPA.
The behaviours considered are those exhibited at the time of, or in connection to the making of the statement. The guidelines for determining the behaviour are in MT 2008/1. They are described briefly in the following sections of this Practice Statement but you must use the ATO view found in MT 2008/1.
Each statement needs to be considered separately.
For statements made on or after 1 July 2017, if an entity is a significant global entity (SGE) [30] and a BPA in an item of the table in subsection 284-90(1) applies, the BPA is taken to be doubled. [31]
An entity's status as an SGE must be worked out on the day the statement was made and is based upon the most recent income year for which an income tax assessment has been made for the entity [32] or a determination by the us that the entity is an SGE at the date of the statement (see Example 15 of this Practice Statement).
Failure to take reasonable care occurs where reasonable care has not been taken in connection with making the statement, but neither the entity nor their agent has been reckless or intentionally disregarded the law.
Recklessness is behaviour which falls significantly short of the standard of care expected of a reasonable person in the same circumstances as the entity. It is gross carelessness.
Recklessness assumes that the behaviour in question shows a disregard of the risk or indifference to the consequences that are foreseeable by a reasonable person. However, the entity does not need to actually realise the likelihood of the risk for it to be reckless.
Intentional disregard of the law is something more than reckless disregard of, or indifference to, a taxation law.
Intention of the entity is a critical element – there must be actual knowledge that the statement made is false. The entity must understand the effect of the relevant legislation and how it operates in respect of their affairs and make a deliberate choice to ignore the law.
The BPA is reduced [34] to the extent that the entity treated a taxation law in a particular way that agreed with: • advice given to them by, or on behalf of, us • general administrative practice under that law, or • a statement in a publication approved in writing by us.
Where an entity has treated a taxation law as applying in a particular way, and that way agrees with advice we provided (in writing or orally) or a statement in a document we have published, then they may be protected from application of a penalty. [35]
The BPA is also reduced to the extent that an entity's behaviour aligns with our general administrative practice.
A general administrative practice under a taxation law is a practice which is applied by us generally as a matter of administration. It is the usual course of conduct that we apply, rather than any particular document, that is relevant in determining whether or not there is a general administrative practice. [36]
Publications and other documents produced by us may also provide evidence of a general administrative practice. If we frequently provide advice to different taxpayers which consistently adopts a particular practice, that will tend to support that a general administrative practice exists.
Increasing or reducing the base penalty amount
In certain instances, the BPA is increased or reduced, using the following formula [37] : BPA + [BPA × (increase % − reduction %)]
The BPA is increased by 20% where the entity [38] : • prevents or obstructs us from finding out about the false or misleading nature of the statement • becomes aware of the false or misleading nature of the statement after the statement is made and does not tell us about it within a reasonable time, or • had a BPA worked out for this type of penalty previously, even if the penalty was remitted.
The increase is a maximum of 20%, even if more than one of the criteria in paragraph 16B of this Practice Statement applies.
Examples of what would constitute preventing or obstructing us would include where the entity, without an acceptable reason: • repeatedly defers or fails to keep appointments • repeatedly fails to supply information • repeatedly fails to respond adequately to reasonable requests for information, such as - by not replying to the request for information - giving information that is not relevant - not addressing all the issues in the request, or - supplying inadequate information • fails to respond to formal information-gathering notices • provides incorrect information or fraudulently prepared documents in support of statements (although these may also be further false or misleading statements), or • destroys records.
You should also note the use of the term 'repeatedly' when considering increases for prevention or obstruction. Simply not replying to a letter or not returning a call does not indicate the entity is taking steps to prevent or obstruct us. [39] It will also not be obstruction where the incorrect information or the failure to provide information was the result of the taxpayer not understanding the request.
We expect that where legal professional privilege (LPP) claims are made, they are made properly. [40] Claims of LPP will not generally be considered to be obstructive. However, if you discover that claims were unjustified, you should consider if they were made to obstruct us.
The BPA is increased by 20% where the entity has a previous penalty of the same type as the penalty being assessed. For false or misleading statements which do not result in a shortfall amount, the previous penalty must also have been for a false or misleading statement which did not result in a shortfall amount.
The increase will apply regardless of whether the previous penalty was assessed during a previous interaction, or whether it occurs on the same day. This means that, where you assess multiple penalties of the same type at the same time, the increase will apply to the second and subsequent statements.
The order of the statements is determined by the date on which they were made, not the period to which they relate.
The BPA can be reduced in certain circumstances where an entity voluntarily discloses the false or misleading statement, if they do so in 'the approved form'. [41]
You must refer to Miscellaneous Taxation Ruling MT 2012/3 Administrative penalties: voluntary disclosures when making any decision regarding voluntary disclosure and the rates of penalty reduction applicable in certain situations. [42]
A voluntary disclosure must meet the requirements of the approved form.
The approved form sets out a list of the information required for the entity to make that disclosure. This includes an identification of the statement and an explanation of its false or misleading nature.
Generally, the actual form and structure used is irrelevant, as long as the entity provides the required information through an acceptable mechanism. You can find full details of the information required and the methods or mechanisms available to make a voluntary disclosure at How to make a voluntary disclosure .
In working out if a voluntary disclosure has been made, it is important to recognise that an entity making a genuine attempt to inform us of a mistake may not be fully aware of all the information we require.
If the disclosure fails to meet the strict requirements of the approved form, but substantially complies with the requirements, and you can accurately determine the nature of the false or misleading statement from the information provided, the disclosure should be treated as meeting the requirements of the approved form.
If additional information is sought on an incomplete disclosure and it is provided within a reasonable time, the original incomplete disclosure should be treated as sufficiently complete.
The entity's original disclosure would not be regarded as constituting a voluntary disclosure if the facts or reasonable inferences indicate that the entity supplied incomplete information in an attempt to obstruct or hinder us from identifying the correct information (that is, the false or misleading nature of the statement), particularly where the degree of incompleteness is significant. [43]
In more complex, low-volume reviews and audits, you should: • tell the taxpayer as soon as practicable after they make a voluntary disclosure that we have received it, and • advise of the rate of penalty reduction at the same time, if it is possible and appropriate to do so.
Considering whether to remit the penalty
We have the discretion to remit all or part of the penalty. [44] This discretion is 'unfettered', meaning that there is no legal restriction on when we can and cannot remit. Remission provides the administrative flexibility to ensure the penalty imposed is aligned with the observed behaviour.
This Practice Statement sets out guidance that must be used in exercising this discretion. However, remission is not limited to the reasons listed here and you should consider remission in any situation where the final penalty is not a just and reasonable outcome.
You must make a remission decision whenever penalties are imposed. You may decide that there are no grounds for remission or that there are grounds to remit in full or in part.
You need to consider each case on its own merits, looking at all of the relevant facts and circumstances.
The final penalty you apply must be defensible, proper and have regard to the overall circumstances of the entity.
Relevant matters to consider in making a remission decision include: • the purpose of the penalty regime is to encourage entities to take reasonable care in complying with their tax obligations • the penalty regime also aims to promote consistent treatment with specified rates of penalty; this objective would be compromised if penalties imposed at the rates specified in the law were remitted without just cause, arbitrarily or as a matter of course, and • that the amount of the penalty rate alone, in the absence of specific reasons why it would be unjust in the taxpayer's particular circumstances, is not considered to be unjust.
Matters that you should not usually consider include: • behaviour or situations unrelated to the relevant statement, such as the entity or registered agent becoming ill at the time of examination, well after the statement was made, and • whether there is a capacity to pay the penalty, except in exceptional circumstances. [45]
If imposition of the penalty provides an unintended or unjust result, we may remit the penalty in whole or in part.
Four examples of where an unjust result could arise are outlined in paragraph 17J to 17S of this Practice Statement. You should also consider remission in other instances where the result is unjust, having regard to the particular circumstances.
In some instances, the mechanical process of the law could result in an unintended or unjust result. This can include where a BPA is increased because 2 or more penalties were assessed at the same time, the entity has not been advised of a previous penalty and the behaviour is not intentional disregard of the law.
Because of the nature of this penalty, multiple instances of the same penalty can apply. Because a penalty is assessed in respect of each false or misleading statement, multiple penalties may arise in relation to a single form.
It may not be appropriate for multiple penalties to be maintained if the errors resulted from an administrative oversight which through repetition affected a large number of statements. However, this would depend on the assessment of the particular facts and circumstances. [46]
Additionally, remission may be appropriate because the ultimate penalty amounts are not commensurate with a reasonable outcome considering the statements made or are disproportionate to the errors made.
The following factors should be taken into account: • the circumstances in which the errors which caused the false or misleading statements occurred, such as - whether the errors were properly distinct or arose out of the one course of conduct - the efforts the entity took to avoid or reduce the potential for making a false or misleading statement, considering whether there have been previous incorrect statements, or whether they were aware or should have been aware of the potential for error - governance processes the entity had in place, and - the seriousness of the issues which led to the false or misleading statements • the nature and degree of impact the false or misleading statement had on third parties • whether the entity gained a real (or perceived) benefit as a result of the false or misleading statement • what remedial action, if any, the entity took before being notified of an examination by us, to avoid a recurrence • the need for specific and general deterrence • the entity's compliance history, particularly giving consideration to any previous false or misleading statements, especially of the same or similar nature, and • any other factors which may be relevant.
Because penalties for false or misleading statements that do not result in a shortfall amount are based on a fixed number of penalty units, situations may arise where relatively small errors receive penalties which are disproportionate to the size of the misstatement.
This commonly occurs when a small adjustment is made to an entity in a loss situation and the penalty is larger than the shortfall penalty which would have applied if the entity were not in a loss situation.
Where this occurs, it is appropriate to consider remitting the penalty in part, to an amount which is proportionate to the size of the misstatement.
An unjust result may also occur where the entity has made a genuine attempt to comply (they have taken reasonable care), but because of the actions of their registered agent, the entity is liable to a penalty and safe harbour does not apply (for example, because the agent was reckless in their application of the law or some information was not provided to the agent).
While remission is possible in this situation, it would be unusual for full remission to be given, because entities are responsible for the actions of their agent. Remission is also less likely or may be for a lesser amount where the tax agent intentionally disregarded the law.
An entity (which is not an SGE at the time they make a false or misleading statement) may be treated as an SGE on the basis of their last lodged return, default assessment or a determination by us, and have a penalty multiplier (double penalty) used to assess their penalties.
When the entity lodges a return for the period which includes the date of the false or misleading statement, and which shows that they were not an SGE at the time of the statement, the penalty will be recalculated on the basis that they were not an SGE.
However, if the entity requests remission of the penalty multiplier prior to that return being lodged, and is able to provide sufficient evidence that they were no longer or likely not an SGE at the time of the statement, remission of the additional penalty would be appropriate.
For example, a change in SGE status may have occurred as a result of the Australian entity being sold to a new owner, or the SGE may have divided its group, sold off some parts of its business, demerged, restructured, had their turnover drop significantly or go through some other change which affects their SGE status after the period covered by their last return or default assessment.
Notifying the entity
We must give a written notice to the entity [47] telling them of: • their liability to pay the penalty, after any reductions or remissions (or both) • why they are liable to the penalty, and • where a penalty has not been remitted in full, why the penalty has not been remitted in full.
Where there is a liability to a penalty assessed, we are required to provide reasons for the decisions made that set out the findings on material questions of fact and refer to the evidence or other material that those findings were based on.
The law does not require us to give reasons for the penalty decision where the penalty has been reduced or remitted to nil. However, it is still prudent to advise the entity of a summary of our reasons or alternately advise the entity of the penalty outcome and ensure the entity is aware of why the error occurred and has been provided with sufficient information or education to potentially avoid the same error in future. [48]
These reasons for decision should be provided to the entity at the same time as or before they have been given the notice of assessment. If that is not possible it should occur as soon as possible after they have been notified of the penalty.
You must also record complete reasons for the penalty decisions on the relevant ATO system (but this could be the same document as the reasons for decision sent to the taxpayer).
The reasons for decision and notice of liability (the notice of assessment for the penalty) are separate documents and may be sent to the taxpayer either separately or together.
Right of review
An entity that is dissatisfied with any element of the penalty assessment may object to the penalty assessment as long as there is a liability. [49]
If a remission decision is made after an assessment of the penalty, the entity may also object to the separate remission decision if the amount remaining after remission is more than 2 penalty units.
Where there is no liability to a penalty because the penalty has been reduced in full or to 2 penalty units or less for a separate remission decision because of an exception, reduction, voluntary disclosure or remission, there is no objection right.
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