As part of the ATO’s push on bringing compliance activities of the “large end of town” up to date, there has been a change to how the penalty regime applies to Significant Global Entities (“SGE”) in respect of the late or non-lodgement of tax forms.
The changes in the application of the penalty regime result in subsidiary members of tax consolidated and / or multiple entry consolidated groups becoming liable for penalties at the SGE rates. The changes to the legislation commenced on 1 July 2020 but are effective from 5 December 2019 (ie they have retrospective effect in application).
An SGE is, broadly, an entity that has an annual global income of A$1 billion or more or is a member of a group of entities, consolidated for accounting purposes, that has an annual global income of A$1 billion or more. Importantly, a very small company in Australia can be classified as an SGE if it is owned by a large multi-national. As such, its not just the big end of town in Australian terms that these changes can impact.
The penalties for SGE’s are significantly larger than other taxpayers as outlined in the tables below for false or misleading statements or Failure to Lodge (“FTL”) penalties. The penalty levels can be summarised as follows:
- False or misleading Statements
|Increases for false or misleading statements that do not result in a shortfall amount|
|Penalty Units||Rate from 1 July 2020|
|No Reasonable Care||40 penalty units ($8,880)|
|Recklessness||80 penalty units ($17,760)|
|Intentional Disregard||120 penalty units ($26,640)|
- Failure to lodge (FTL)
|Failure To Lodge penalties|
|Days late||SGE penalties|
|28 or less||$111,000|
|29 to 56||$222,000|
|57 to 84||$333,000|
|85 to 112||$444,000|
|More than 112||$555,000|
FTL penalties not only apply to income tax returns but can also apply to
- Business and Instalment Activity Statements
- Income Tax Returns
- FBT returns
- CbC reporting statements
- Single Touch Payroll
- General Purpose Financial Statements (GPFS)
It needs to be remembered that if there are multiple lodgements that are overdue or lodged late then multiple penalties will be applied by the ATO. For example, lodging two BAS’s less than 1 month late will result in a $222,000 penalty. The penalties are sizeable and are imposed without consideration for the size of the Australian operation.
Given the increased scope of the penalty regime to subsidiaries of groups and the wide potential application of a form (e.g. GPFS), ensuring not only accuracy, but also timeliness is fundamental in managing the taxation affairs of the entity.
Ensuring compliance and reporting activities are dealt with on a timely and accurate basis are a fundamental building block of the activities of a company and should be encapsulated within the company’s tax governance policy. Deployment of the governance policy should be supplemented by way of external cyclical reviews in respect of the various activities undertaken.
If you have any questions about reviewing the processes or policies adopted in respect of the completion of the lodgements required, tax positions taken or the development and implementation of a tax governance policy including cyclical reviews please contact your ESV engagement partner.