A9.1 As outlined in Chapter 4, the ATO recently provided its staff with a number of A3 information sheets to outline key points to consider in making penalty decisions. These are reproduced below.

Figure 3: A3 information sheet — False or misleading statement penalty — three step process

Image of an information sheet showing the three step process for false or misleading statement penalties. Step 1 is to determine if a penalty is imposed by law, document the reasons a penalty is imposed by law, and record the appropriate ATO record-keeping system. Step 2 is to assess the amount of the penalty, document the reasons for decisions that result in the assessment of the penalty, and record the details of each step in the assessment. Step 3 is to advise the taxpayer of the liability and the reasons for the decision, and ensure that the reasons for the decision and proof that it was provided to the taxpayer are documented in the relevant ATO record-keeping system.

Source: Australian Taxation Office.

Figure 4: A3 information sheet — Shortfall penalty for making a false or misleading statement — behaviours

Image of an information sheet showing shortfall penalties for making a false or misleading statement, by behaviours. The behaviours shown are: reasonable care (no penalty), failure to take reasonable care (25% of shortfall amount), recklessness (50% of shortfall amount), and intentional disregard (75% of shortfall amount).

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Source: Australian Taxation Office.

Figure 5: A3 information sheet — Reasonably arguable position

Image of an information sheet explaining 'reasonably arguable position'. The introductory text reads: "A taxpayer is liable to a penalty if they treated the income tax law or minerals resource rent tax law as applying in a particular way that was not reasonably arguable. That is, taxpayers are expected to have a reasonably arguable position (RAP). If they do not, the penalty of 25% of the shortfall amount will apply under section 284-75(2) of schedule 1 to the TAA 53. RAP applies only to statements where the shortfall amount exceeds certain reasonably arguable position thresholds. 'Reasonably arguable' is the standard applied to the position taken by a person on a question of interpretation, including a conclusion of fact. It requires the treatment of a tax law to be about as likely to be correct as it is incorrect. The RAP test does not require the taxpayer's position to be the 'better view'. The taxpayer's argument should be cogent, well-grounded and considered in its persuasiveness. The reasonably arguable position is an objective standard involving an analysis and application of the law to the relevant facts. All authorities relevant to the tax treatment of an item, including the authorities contrary to the treatment, are taken into account in determining whether an entity has a reasonably arguable position. Authorities for reasonably arguable position include: a taxation law; material not forming part of the Act but which may help to determine the meaning of the law, such as explanatory memoranda and second reading speeches; a decision of a court (whether or not an Australian court), the Administrative Appeals Tribunal (AAT) or a Taxation Board of Review; a public ruling. An opinion expressed by an accountant, lawyer or advisor is not a relevant authority. However, the authorities used in the opinion may support the position taken by the taxpayer. For there to be a RAP, the position must be on a contentious area of the law where the relevant law is unsettled or where the principles of the law are settled, but there is a serious question about the application of those principles to the circumstances of the particular case. Generally, where the shortfall amount was caused by a primary error of fact or error of calculation, penalty for not having a RAP will not apply. Such errors may be a failure to take reasonable care. Conclusions of fact may be subject to penalty for not having a RAP."

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Source: Australian Taxation Office.

Figure 6: A3 information sheet — Administrative penalties — voluntary disclosure — useful information

Image of an information sheet showing useful information for administrative penalties – voluntary disclosure. The introductory text describing purpose reads: "The purpose of the voluntary disclosure provision to encourage entities to make voluntary disclosures by giving a reduction in the penalty that would otherwise be imposed. It provides substantial incentives for entities to review their affairs and make a voluntary disclosure prior to notification of an examination. It allows for the same reduction in some circumstances after notification of an examination in some cases. Otherwise, a lower reduction may apply for disclosures made after notification of an examination. Voluntary disclosures help with tax administration as they can save the ATO time and resources."

Source: Australian Taxation Office.

Figure 7: A3 information sheet — Reasonable care in making statements

Image of an information sheet giving an introduction to reasonable care in making statements. The introductory text describing the situation reads: "A taxpayer makes a false or misleading statement when they or their agent provide us with incorrect information or omits information when making a statement. It does not matter whether the false or misleading statement is an inadvertent mistake or a deliberate error. Where the statement is in a tax return, activity statement or other document, it can result in a shortfall amount. Where a false or misleading statement in a material particular is made, the taxpayer is liable to an administrative penalty unless an exception applies. One exception is where reasonable care is taken. The taxpayer is not liable to this penalty if the taxpayer, and their agent (if relevant), took reasonable care in connection with the making of the statement."

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Source: Australian Taxation Office.

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Image of an information sheet giving an overview of reasonable care in making statements.

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Source: Australian Taxation Office.

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Image of an information sheet showing quality frameworks for reasonable care in making frameworks. The introductory text about 'checks and balances' reads: "Our quality frameworks review our administrative penalty decisions and identify issues for improvement."

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Source: Australian Taxation Office.