The ATO are giving a second chance to certain taxpayers who are generally compliant with their tax obligations but may have made an inadvertent error or taken a tax position which is not reasonably arguable.

On 2 July 2018, the Australian Taxation Office (ATO) released a new measure to automatically relieve a taxpayer of an ATO issued tax penalty, where the taxpayer has made an inadvertent error in their tax return or activity statement and either:

• failed to take reasonable care; or
• took a position on income tax that was not reasonably arguable.

This penalty relief applies to individuals and entities who meet the small business entity criteria of aggregated turnover of less than $10 million per annum and will only be applied, at most, to a taxpayer once every three years.

The application of the penalty relief is limited. It only applies to penalties relating to income tax and activity statements and does not apply to other taxes such as fringe benefits tax or the super guarantee. The relief also does not apply where a taxpayer has been reckless or intentionally disregarded the law.  

It will also not apply to taxpayers who, in the past three years, have been previously penalised for reckless or intentional disregard of the law, committed tax fraud, or engaged in illegal phoenix activity.

Further, the taxpayer cannot request the penalty relief. The ATO will have full discretion to exercise this penalty relief and will only exercise the relief if the ATO is conducting an audit against the taxpayer. The ATO will apply the penalty relief from 1 July 2018 but it will also apply the relief if there is an audit for earlier periods.

These measures are not legislated and no further guidance, aside from the information published on the ATO website, is currently available. It would certainly assist taxpayers if the ATO released additional guidance on the administration of the penalty relief but this is yet to be seen.

If you have any questions about the penalty relief or in relation to tax audits, disputes and resolution, please contact us.

Kelvin Yuen
Lawyer
Sladen Legal
T +61 3 9611 0177
Level 5, 707 Collins Street, Melbourne, 3008, Victoria, Australia
kyuen@sladen.com.au

Neil Brydges
Special Counsel | Accredited specialist in Tax Law
Sladen Legal
M +61 407 821 157 | T +61 3 9611 0176
Level 5, 707 Collins Street, Melbourne, 3008, Victoria, Australia  
nbrydges@sladen.com.au

Sam Campbell
Associate | Business Law
Sladen Legal
M +61 423 515 454 | T +61 3 9611 0135
Level 5, 707 Collins Street, Melbourne, 3008, Victoria, Australia
scampbell@sladen.com.au