Commissioner's practice note: Remission of penalty tax applied to new payroll tax customers

Cooperation During an Audit – Taxation Administration Act 1996, s.33

Aim

This Commissioner’s Practice Note explains the circumstances in which unregistered Payroll Tax customers may be entitled to a remission of 50% of the penalty tax assessed when tax defaults are discovered during an investigation.

This concession will encourage unregistered customers to act quickly to provide all relevant information and documentation requested by the Chief Commissioner when they are advised that a payroll tax audit has commenced.

Note: Failure by customers to register for payroll tax when they become liable may result in a tax default, and could result in interest and penalty tax being charged.

Commissioner’s practice note

Current application of interest and penalty tax

A payroll tax default occurs when a customer fails to register and pay tax in accordance with the Payroll Tax Act 2007. The Taxation Administration 1996 (TAA) provides for interest and penalty tax to be applied when a tax default is committed. Revenue Ruling PTA 036v3 explains the TAA provisions and also explains if and when the Chief Commissioner may increase, decrease or remit interest and penalty tax.

Tax defaults voluntarily disclosed by a customer prior to an investigation commencing do not incur penalty tax. Instead, both the market and premium interest rates are applied, from the date when the tax should have been paid until payment is made.

Voluntary disclosures of tax defaults after an audit has commenced attract penalty tax of 20%, plus the market rate of interest. These voluntary disclosure concessions apply to unregistered as well as registered customers.

Additional concession rates for unregistered customers

Commencing immediately, new payroll tax customers who, upon receipt of written advice of commencement of an audit, voluntarily disclose a payroll tax default because they failed to take reasonable care, will be offered a 50% reduction in the 25% penalty tax rate that normally applies. To qualify for the reduction, customers must fully cooperate during the audit. Customers must comply with requests for information and documents requested by auditors and must disclose in writing sufficient information to enable the nature and extent of the tax default to be determined. Customers must also pay the resulting assessment by the due date specified in the Notice. Interest at the market rate will be applied to the primary tax.

This concession is not available to customers who intentionally disregard the obligation to register or who take steps to conceal their payroll tax liability.

Example

Jake’s Panel Beaters (JPB) is not registered for payroll tax, and receives a notice from the Chief Commissioner that a payroll tax audit has commenced. JPB fully cooperates during the audit by providing information that enabled the auditor to determine the nature and extent of the tax default. The audit determines JPB is liable for payroll tax of $10,000 for the 2017-18 tax year, plus 25% penalty tax because JPB failed to take reasonable care.

JPB will be entitled to have the penalty tax reduced from 25% to 12.5% ($1,250) provided the tax of $10,000, as well as the reduced penalty of $1,250, and interest at the market rate are paid in full by the due date specified in the notice of assessment.