Australian Taxation Office proposes to let off first-time offenders

COMMON tax time errors are set to be forgiven as the Australian Taxation Office looks to become more lenient for people who inadvertently mislead it.

NDA Law managing director Andrea Michaels says the tax proposals are positive. Picture: Mike Burton

PEOPLE who make careless mistakes on their tax return or lodge them late will be given a “one chance” reprieve under a new proposal by the Australian Taxation Office.

Rather than dish out penalties costing hundreds of dollars for first-time common errors, the ATO plans to allow individuals and small businesses one slip-up every three or four years.

A new ATO consultation paper says that tens of thousands of penalties were imposed last year. People who lodge late typically pay $180 for every 28 days overdue, while those who make a wrong claim can be fined 25 per cent of their shortfall amount, plus interest payments.

“For certain small business and individual clients, we will not apply penalties to false or misleading statements for failure to take reasonable care for errors made in income tax returns and activity statements,” the ATO paper says.

“We will not apply failure to lodge on time penalties for late lodgement of income tax returns and activity statements.”

Reckless and dishonest behaviour and second-time offenders would still be penalised.

H & R Block director of tax communications Mark Chapman said it was a positive development, and followed some criticism of the ATO about its penalties.

“A lot of taxpayers get penalised for making inadvertent mistakes,” he said.

“It has not been a level playing field. Large businesses are able to muster tax lawyers and accountants to get the penalties removed, but individuals usually don’t have the time and resources and have to cop the penalties on the chin.”

Mr Chapman said he did not expect any resistance to the proposals, which would not require a law change and could be implemented quickly.

“If you make one honest mistake you’re going to get let off.”

NDA Law managing director Andrea Michaels said the ATO proposal was a good idea, and could even help cut costs at the Tax Office.

“The cost of chasing small errors and omissions can outweigh the benefit to the taxpayer, who, of course, does fund the ATO,” she said.

“Most of the population does try to comply, but it can be complex so leniency can certainly be appropriate in most circumstances. Continuous noncompliance needs a firmer approach, though.”

The ATO’s consultation paper says the new rules would not be available to people who “demonstrated reckless or dishonest behaviour and those who disengage and cease communicating with us during an audit or review”.

“Clients who benefit from the one chance strategy will save time and money. After a defined period of time — a three or four year financial cycle — the opportunity would be reset.”

The ATO has asked for feedback on its consultation paper by October 23.