This article outlines how the ATO has significantly hardened its stance on penalties and interest, making it much more challenging to obtain remissions.
A Shift in the ATO’s Approach
For many years, the Australian Taxation Office (ATO) has applied a relatively measured approach when dealing with overdue tax obligations, penalties, and interest. While late lodgements and tax debts have never been ignored, there was often some leniency when it came to penalty remissions and payment arrangements. However, this approach appears to have changed dramatically.
We are seeing first-hand that the ATO is taking a much firmer stance—one that, in their own words, is leaving "no prisoners" when it comes to unpaid tax, late lodgements, and penalties. Even cases with genuine mitigating circumstances are facing significant challenges in having penalties reversed or interest remitted.
Case Study: $181,000 in Backdated BAS Penalties
A recent case highlights the extent of the ATO’s tougher stance. A strata management company we partner with took over a building and, in reviewing its ATO compliance history at handover, we discovered that multiple years of BAS lodgements had been missed. The new management engaged us to rectify the situation, expecting that, as in the past, the ATO might allow a reasonable remission of penalties and interest given the circumstances.
However, upon contacting the ATO, we were informed that general interest charges dating back to 2002 had been applied in full, bringing the total payable in penalties and interest alone to a staggering $181,000! Despite multiple discussions and formal requests, the ATO has remained unwilling to reduce the debt. Their position is clear: penalties and interest must be paid unless exceptional circumstances can be proven.
A Bureaucratic Nightmare for Even Minor Issues
Even relatively small compliance issues are being met with resistance from the ATO. In another case, a client was issued a $313 late lodgement penalty because the ATO mistakenly believed they were registered for monthly GST reporting rather than quarterly. Although we pointed out the error and provided evidence that the lodgement was on time, the ATO’s response has been inconsistent, citing a due date that doesn’t align with their own published deadlines for tax agents.
Despite five written submissions and numerous calls, the penalty has yet to be overturned, and the latest response from the ATO suggests that the only further avenue for appeal is at the Federal Court level—an extreme measure for a $313 penalty. This is a clear indication that once penalties are applied, having them reversed is becoming increasingly difficult, even in cases where the facts support remission.
Ensuring Compliance to Avoid Costly Penalties
We don't like to be alarmist but, given the ATO’s hardened stance, we are strongly encouraging all strata managers to be more diligent than ever in ensuring that all tax obligations are met on time. This means:
- Reviewing all new managements upon acquisition to identify any outstanding tax obligations.
- Lodging all required BAS and tax returns by their due dates to avoid automatic penalties.
- Submitting a Return Not Necessary (RNN) statement annually for entities with no assessable income—many managers are unaware that failing to do so can still result in penalties.
- Providing requested financial information to accountants in a timely manner to ensure lodgements are not delayed.
At Ascend, we conduct thorough ATO compliance reviews for all new managements to help our partners avoid these issues. Given the unregulated nature of the strata industry, it’s not uncommon to uncover significant compliance gaps left unaddressed by previous managers and the honeymoon period of a new management can be the perfect opportunity for a manager to showcase their dilligence in this regard from the outset.
Quick Takes:
- The ATO is applying penalties and interest far more aggressively than in previous years.
- Even small compliance issues can result in significant administrative hurdles to resolve.
- Strata managers should ensure all tax obligations are up to date to avoid unnecessary penalties.
- Proactive compliance reviews when taking on new managements can prevent costly surprises down the track.
If you have any concerns about the ATO status of your portfolio, feel free to Contact Us to discuss your options.
The above content is of a general nature and should not be relied upon as professional advice. Ascend encourages readers to seek advice from suitably qualified professionals in relation to their specific circumstances and not to rely solely on the information provided above. Please contact our office for more information.
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