Interest and penalty tax
When is interest and penalty tax applied?
Interest and penalty tax is applied to tax payers who commit a 'tax default' under various taxation and revenue laws we administer.
How is interest and penalty tax applied?
The rates of interest and penalty tax vary, depending on the circumstance of the 'tax default'. The level of interest and penalty tax applied should match the degree of culpability of the taxpayer. For example, taxpayers who exercise reasonable care and voluntarily disclose their tax liability, as soon as they know, will have less interest and/or penalty tax imposed than those who do not.
What is a ‘tax default'?
A taxpayer commits a ‘tax default' by failing to make a payment (in whole or part) or failing to submit a return in accordance with a taxation law. For example, the failure to pay an amount of tax or levy specified in a Notice of assessment, by the due date specified in the notice.
How is interest calculated?
Interest is calculated on a daily basis, from the end of the day on which an amount of tax should have been paid until the day on which the tax is paid. Interest is not calculated on unpaid interest.
What components of interest are imposed?
There are two components of interest imposed:
The market rate,which is not regarded as a penalty but reflects the revenue lost by the Government. The market rate is adjusted in line with the 90-day Bank Accepted Bill Rate published by the Reserve Bank of Australia in May, August, November and February immediately before the commencement of each quarter. Interest is not payable if the amount of interest is less than $20.
The premium rate, which is imposed to deter non-compliance an ensure that defaulting taxpayers are not advantaged when compared to other taxpayers who meet their obligations.
What are the rates of interest imposed?
The rate of interest imposed for the last 5 years is outlined in the table below.
|Period||Market rate||Premium rate||Total rate of interest|
|01/01/2017 - 31/03/2017||1.76%||8%||9.76%|
|01/10/2016 - 31/12/2016||1.76%||8%||9.76%|
|01/07/2016 - 30/09/2016||2.01%||8%||10.01%|
|01/04/2016 - 30/06/2016||2.28%||8%||10.28%|
|01/01/2016 - 31/03/2016||2.22%||8%||10.22%|
|01/10/2015 - 31/12/2015||2.14%||8%||10.14%|
|01/07/2015 - 30/09/2015||2.15%||8%||10.15%|
|01/04/2015 - 30/06/2015||2.36%||8%||10.36%|
|01/01/2015 - 31/03/2015||2.75%||8%||10.75%|
|01/10/2014 - 31/12/2014||2.63%||8%||10.63%|
|01/07/2014 - 30/09/2014||2.69%||8%||10.69%|
|01/04/2014 - 30/06/2014||2.63%||8%||10.63%|
|01/01/2014 - 31/03/2014||2.59%||8%||10.59%|
|01/10/2013 - 31/12/2013||2.60%||8%||10.60%|
|01/07/2013 - 30/09/2013||2.82%||8%||10.82%|
|01/04/2013 - 30/06/2013||2.95%||8%||10.95%|
|01/01/2013 - 31/03/2013||3.24%||8%||11.24%|
|01/10/2012 - 31/12/2012||3.62%||8%||11.62%|
|01/07/2012 - 30/09/2012||3.66%||8%||11.66%|
|01/04/2012 - 30/06/2012||4.37%||8%||12.37%|
|01/01/2012 - 31/03/2012||4.62%||8%||12.62%|
|01/10/2011 - 31/12/2011||4.86%||8%||12.86%|
|01/07/2011 - 30/09/2011||5.00%||8%||13.00%|
|01/04/2011 - 30/06/2011||4.92%||8%||12.92%|
|01/01/2011 - 31/03/2011||5.02%||8%||13.02%|
What is a remission of interest?
A remission of interest is the reduction of the amount of interest imposed.
Can interest be remitted?
Yes, the Chief Commissioner has a discretion to remit the interest imposed by any amount.
The only occasion where the Chief Commissioner will exercise the discretion to remit both the market and premium rate is where there is evidence that the tax default was caused outside the control of the taxpayer. For example, official postal and DX delays, natural disasters, and circumstances where it is impossible to submit a return or pay on time (excluding financial incapacity).
The premium rate of interest may be remitted if there is evidence that a taxpayer took reasonable care or a voluntary disclosure was made before the commencement of an investigation.
A request for remittance should be made in writing to the Chief Commissioner. All requests should detail the circumstances surrounding the default and reasons why the interest should be remitted.
What is reasonable care?
When determining whether reasonable care was taken, the Chief Commissioner takes into consideration whether the taxpayer, in appropriate circumstances:
kept complete and accurate records
made diligent effort to understand and comply with the law
sought expert advice on uncertain or complex matters
was honest in their dealings with us.
Other factors considered:
the taxpayers knowledge of the law
access to expert advice.
Note: the above are indicative only.
Meeting one or more of these criteria does not necessarily mean that reasonable care has been taken. All factors leading to the tax default are taken in to consideration when determining reasonable care.
Is penalty tax payable on a tax default?
If a tax default occurs, penalty tax may be payable. Penalty tax is not imposed on interest or on any other amount of penalty tax already imposed.
What is the amount of penalty tax imposed?
The amount of penalty tax imposed will be:
nil (zero per cent) where there is evidence that:
the tax default occurred because of circumstances outside the control of the taxpayer (or representative)
a taxpayer (or representative) took reasonable care to comply with the law
up to 30 per cent, depending on the circumstances, where taxpayers (or representative) failed to take reasonable care but there was no intentional disregard of the law
between 15 and 90 per cent, depending on the circumstances, where there is intentional disregard of the law by taxpayers (or representatives).
The table below outlines the penalty tax rates.
|Where reasonable care is not taken but no intentional disregard of the law|
|20%||if a voluntary disclosure is made in writing during an investigation|
|25%||if a voluntary disclosure is made after an investigation|
|30%||If you take steps to hinder the Chief Commissioner's investigation after being advised that an investigation is to be carried out|
|Where there is intentional disregard of the law|
|15%||if a voluntary disclosure is made in writing before an investigation has commenced|
|60%||if a voluntary disclosure is made during an investigation|
|75%||If a voluntary disclosure is not made|
|90%||If you take steps to hinder the Chief Commissioner's investigation after being advised that an investigation is to be carried out|
Note: Although the legislation provides for it, no penalty tax will be imposed where a voluntary disclosure is made in writing before he commencement of an investigation, unless there is intentional disregard of the law.
Can I get a reduction in penalty tax?
You are entitled to a reduction in penalty tax if you voluntarily make a written disclosure that enables the Chief Commissioner to determine the nature and extent of the tax default.
The rate of penalty tax is reduced by 80 per cent if the written disclosure is made before the Chief Commissioner commences an investigation. It is reduced by 20 per cent if the written disclosure is made after the Chief Commissioner commences an investigation.
Note: this does not apply to registered taxpayers if a voluntary disclosure is made after a failure to lodge a return or pay tax in accordance with the relevant legislation.
How do I apply to have the penalty tax remitted?
You must request a remission in writing to us and supply us with information surrounding the tax default and reasons why the penalty tax should be remitted.
What is intentional disregard of the law?
intentional disregard of the law, includes:
making false or misleading statements or keeping false records
concealing relevant facts
deliberate acts of non-compliance
failure to keep relevant records in English for the required period or making them easily accessible
ignoring a private ruling
failure to meet a tax liability after being advised of it.