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Other remedial matters

Cap on shortfall penalties

(Clause 84)

Summary of proposed amendment

Section 141JAA of the Tax Administration Act 1994 (the TAA) which caps some shortfall penalties is being clarified so that it does not apply if the taxpayer makes a disclosure at the time the tax position is taken (under section 141H). If the cap applied to disclosures made at the time of filing taxpayers could take tax positions that did not meet the standard of being “about as likely as not to be correct” knowing the maximum penalty they would face would be a penalty of $50,000.

Application date

The amendment will apply from the date of enactment.

Background

Shortfall penalties can be reduced for different reasons. Under section 141G of the TAA a shortfall penalty is reduced by between 40% and 100% if it is voluntarily disclosed before the beginning of an audit. Under section 141H of the TAA a shortfall penalty for an unacceptable tax position or an abusive tax position is reduced by 75% if the taxpayer makes adequate disclosure of their tax position at the time they take their tax position.

Under section 141JAA of the TAA a shortfall penalty for not taking reasonable care or an unacceptable tax position can be limited to $50,000 if the taxpayer voluntarily discloses their tax position or the Commissioner determines the shortfall, no later than the date that is the later of –

  • the date that is three months after the due date of the return to which the shortfall relates; and
  • the date that follows the due date of the return to which the shortfall relates by the lesser of –
    • one return period; and
    • six months.

It is not clear that the limit in section 141JAA applies only to voluntary disclosures under section 141G and not to disclosures made under section 141H. It was never intended that section 141JAA apply to disclosures made at the time the tax position is taken (under section 141H), because if it applied to these disclosures taxpayers could take tax positions that did not meet the standard of being “about as likely as not to be correct” knowing the maximum penalty they would face would be a penalty of $50,000.