House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)

Chapter 4 - Penalties

Overview

4.1 This Chapter explains the penalty provisions in Division 4 of new Part VI . The penalties provided for under this Division are designed to encourage entities to comply voluntarily with their obligations under the GST law.

Summary of the legislation

4.2 Penalties will be imposed for:

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late payment of GST;

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paying GST in another form if you are required to make electronic payments;

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failing to apply for registration or for cancellation of registration when you are required to do so;

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failing to give GST returns or other information to the Commissioner when required;

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failing to issue tax invoices or adjustment notes when required; and

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making false statements to a tax officer, or to any other person if it is made in connection with the operation of the GST law.

4.3 The Commissioner will have the power to remit penalties if he or she is satisfied that it is fair and reasonable to do so and will be required to notify entities of the amount of the penalty (other than the penalty interest charge for late payment).

Explanation of the legislation

What if GST is not paid on time?

4.4 If you dont pay GST by the due date, a penalty interest charge will apply. The penalty will be calculated from the due date for payment at the rate of 16% per year on the unpaid amount. [New subsection 40(1)]

4.5 Ordinarily, the due date for payment is not affected by an extension of time to pay granted by the Commissioner under section 33-20 of the GST Act. However, in special cases, such as financial hardship as a result of a natural disaster, a later due date for payment may be used to calculate the penalty interest charge. [New subsection 40(2)]

4.6 The penalty charge accrues until the GST is paid. Although the Commissioner is not required to notify you of this penalty (see paragraph 4.22), penalty notices may be given in particular cases.

4.7 If judgment has been entered or given in a court for the payment of GST, this will not alter the fact that the tax has remained unpaid from the time it was originally required to be paid. [New subsection 40(3)]

4.8 If the judgment debt includes interest, a proportion of the interest will reduce the penalty interest charge as follows:

Interest on judgment debt * (GST component of judgment debt / Judgment debt)


[New subsection 40(4)]

Does it matter if you pay by cheque instead of by electronic payment?

4.9 There are costs associated with different payment methods. If you are required under subsection 33-10(2) of the GST Act to pay GST by electronic transmission but actually pay by other means you will be liable for a penalty of 5 penalty units. [New section 41]

4.10 The Commissioner may remit, or reduce, the penalty in special circumstances (see paragraph 4.23 about remission of penalty). This penalty may be remitted if the failure to pay by electronic transmission is beyond your control, for example, as a result of equipment breakdown.

Is there a penalty for failing to apply for registration?

4.11 If you fail to apply for registration when you are required to do so under the GST Act you will be liable to a penalty of 20 penalty units. The same penalty will apply if you fail to apply for cancellation of registration when you are required to do so under the GST Act. [New section 42]

What is the penalty if a GST return is not lodged on time?

4.12 If you fail to provide a GST return as required you will be liable to a penalty calculated at $10 per week or part thereof while the return is outstanding. The maximum penalty will be $200. [New subsection 43(1)]

4.13 You will be liable to a penalty if you fail to give information (other than information relating to a GST return) when required. The penalty will be 200% of the difference between the net amount for the relevant tax period, or the GST payable on a taxable importation, as assessed following the request for information and the net amount or GST as returned or assessed without the knowledge of that information. [New subsections 43(2) and (3)]

4.14 There will be no penalty under this provision if the failure to provide the return or information does not result in any underpayment of tax.

4.15 A person who fails to provide a return or other information required by the Commissioner could be guilty of an offence under section 8C of the Taxation Administration Act 1953 .

What is the penalty for failing to issue a tax invoice?

4.16 If you fail to issue a tax invoice, or an adjustment note, when you are required to do so under the GST Act you will be liable to a penalty of 20 penalty units. [New section 44]

Tax invoices issued by principals and their agents

4.17 If both the principal and their agent issue a tax invoice in relation to the same taxable supply the principal will be liable to a penalty of 20 penalty units. [New section 45]

What is the penalty for making false or misleading statements?

4.18 If you make a false or misleading statement either to a tax officer or to another person for a purpose connected to the GST law and, as a result of that statement, GST is underpaid or a refund to you is overpaid, the penalty will be 200% of the GST underpayment or refund overpayment (whichever applies). [New section 46]

4.19 It will not matter if the statement you made is false and you did not know that it is false. The penalty will apply if it is simply a false statement. However, the Commissioner will have the power to remit the penalty (see paragraph 4.23). The Commissioner may issue a public ruling that provides guidelines on remission of the penalty according to the degree of culpability in making a false or misleading statement.

4.20 A false statement is one that is false or misleading in a material particular or one where something is omitted which makes the statement misleading in a material particular. [New subsection 46(3)]

4.21 A person who makes a false or misleading statement could be guilty of an offence under Part III of the Taxation Administration Act 1953 .

Notifying the amount of the penalty and when it must be paid

4.22 The Commissioner must notify you of your obligation to pay a penalty imposed under Part VI, other than the penalty interest charge under section 40 which accrues until payment is made. The notice the Commissioner gives you must specify the amount of penalty payable and the day by which it must be paid. The penalty notice may be included in any other notice, such as a notice of assessment, that the Commissioner gives to you. [New section 47]

Remission of penalty by the Commissioner

4.23 The Commissioner will be able to remit, or reduce, some or all of the penalty that a person is liable for under Part VI. The remission can take place before, or after, the penalty is notified. [New section 48]

4.24 The Commissioner may publish guidelines for the remission of penalties imposed by Division 4.

4.25 A decision by the Commissioner not to remit penalties (other than the penalty interest charge under new section 40 ) in whole or in part will be reviewable if the penalty, after any remission, exceeds $200. [New subsection 62(3), item 3 of the table]

Relationship to offence provisions

4.26 If a penalty is imposed under this Division it does not mean that an offence has been committed. However, conduct that may result in a Division 4 penalty may also constitute an offence under Part III ofthe Taxation Administration Act 1953 . An entity that is convicted of an offence under Part III will not be subject to a Division 4 penalty in relation to the same conduct. [New section 49]