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How Much Trouble You Can Really Get in Around Tax Time?

When it comes to completing a tax return, aside from the occasional late submission or mistake on the form, most people want to do the right thing and follow the rules.

But have you ever stopped to wonder just what would happen if you did get in serious hot water with the ATO? Let’s take a look at the most common kind of tax mistakes and the penalties you can face.

False or Misleading Statements

This occurs when the recipient – either by accident or on purpose – puts false information in their tax return, activity statement or amendment request. Usually the ATO will spot the fault because the false or misleading statement resulted in a shortfall amount. What’s that? It is the difference between the tax liability the ATO calculated, and the tax liability that was calculated with the information you gave.

If caught, you can expect to pay a base penalty of around 25 to 75 percent of the shortfall amount. To calculate the penalty amount, the ATO will decide if the behaviour that led to the shortfall was due to: failure to take reasonable care, recklessness, or intentional disregard for the tax laws.

However, you can avoid paying a penalty (or at least get a penalty relief) if you can prove you took reasonable steps to prepare the statement. Or that the mistake was caused by an accountant who was given the correct information.

Failure to Lodge on Time

No matter what kind of tax document you fail to submit on time – whether it’s a tax return, activity statement, PAYG withholding annual report, annual GST return or taxable payment annual report – you can expect to be penalised by the ATO.

Generally speaking, before the ATO issues a fine you will be given a warning over the phone or in writing. If you don’t respond within 14 days of receiving the warning, you will accumulate a ‘penalty point’ for every 28 days the document is overdue. Each ‘penalty point’ represents a certain dollar value, which is calculated based on when the infringement took place. For example, if the infringement occurred from 31 July 2015 to 30 June 2017, each penalty unit would equal to $180. But if the infringement took place on or after 1 July 2017, each penalty unit would equal to $210.

For medium to large entities, the number of penalty units incurred every 28 days is multiplied by two to five.

Serious Tax Crimes

Tax-related fraud is a major focus for the ATO. Not only do they impose harsh penalties on those convicted of tax crimes, they also take a systematic approach to monitor potential repeat offenders and prevent criminal activity from slipping under the radar.

Common examples of tax crime include hiding cash wages to avoid paying tax, hiding money in offshore accounts, underreporting income, and making false claims for refunds or benefits you’re not entitled to receive.

If caught by the ATO you will be prosecuted by the courts, and depending on the severity of the act, you may either:

  • Pay a security bond
  • Do community service
  • Pay other fines and penalties
  • Spend time in prison

For the most serious tax crimes the ATO appoints its own department called the Serious Financial Crime Taskforce. By combining a high level of strategic and operational intelligence, the taskforce handles complex cases that involve large-scale tax evasion, money laundering and fraud.

The taskforce has been so successful, since launching in 1 July 2015 they have carried out 7 convictions and recouped $232.16 million for the Australian economy.[i]

Do the Right Thing

Can you afford to wait until the last-minute to rush your tax return?

Whether you choose to complete your tax return by yourself or get help from an accountant, now is the perfect chance to get your documents in order and be compliant with the latest ATO guidelines.

Not only will you save yourself time and hassle, but you’ll also avoid a headache-inducing fine… or even a criminal conviction.


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