An amended assessment may include three separate amounts: the additional tax, an administrative penalty and interest. They arise for different reasons and may require different responses. Understanding that separation is the starting point for deciding whether to object, seek remission or address payment.
Tax, penalty and interest are different
The tax shortfall is the extra tax the ATO says should originally have been paid. An administrative penalty can reflect the conduct that produced a false or misleading statement. Interest compensates for the time an amount remained unpaid.
A successful argument about one component does not automatically remove the others. Read the calculation pages of the notice so you know precisely which amounts are in dispute.
The 25%, 50% and 75% behaviour categories
For a false or misleading statement that produces a shortfall, the base penalty percentage depends on how the ATO characterises the behaviour:
- 25% for failure to take reasonable care. The question is whether reasonable care was taken in the taxpayer's circumstances. The expected care can vary with the person's knowledge, experience and the complexity of the issue.
- 50% for recklessness. This concerns a serious departure from reasonable care where there was a real and obvious risk that the statement was wrong.
- 75% for intentional disregard. This is the most serious of these administrative categories and involves knowingly disregarding a tax law requirement.
Those percentages are base penalty amounts, not a complete calculation. Other rules can increase or reduce the result. Different penalty regimes also apply to matters such as late lodgment, schemes and positions that are not reasonably arguable.
Why the characterisation matters
The difference between reasonable care, recklessness and intentional disregard is a judgment about what happened at the time. Relevant evidence can include systems used, questions asked, advice obtained, records available, the complexity of the transaction and what the taxpayer understood.
Later assertions are less persuasive than contemporaneous material. Advice emails, checklists, working papers and records of enquiries can show the steps actually taken. Reliance on an adviser is relevant but is not a universal answer; the accuracy of information given to the adviser also matters.
Objection and remission are not the same
If you say the legal or factual basis of a reviewable penalty decision is wrong, an objection may be available. For example, the evidence may support reasonable care rather than recklessness.
Remission asks the ATO to reduce or cancel a penalty through its discretion, taking account of the circumstances. The ATO's guidance says remission is considered against the purpose of the penalty and whether the outcome is fair and reasonable. A request should identify the relevant circumstances and support them with evidence.
These arguments can overlap, but they should be expressed clearly. “The penalty was not correctly imposed” and “even if imposed correctly, it should be remitted” are different propositions.
Voluntary disclosure can affect the calculation
Telling the ATO about an error can reduce some shortfall penalties. The timing matters: the rules distinguish disclosures made before the ATO tells you of an examination from disclosures made after notification. The precise reduction depends on the circumstances and penalty regime.
A voluntary disclosure should be accurate and complete. Before lodging one, reconcile the affected years and entities so that correcting one item does not create an avoidable second correction.
GIC and SIC
The general interest charge (GIC) commonly applies to unpaid tax liabilities. The shortfall interest charge (SIC) can apply to an assessment shortfall for the period before the additional tax becomes due. Notices and account statements show which charge has been applied.
Interest remission is a discretionary process with its own considerations. A request should explain the delay, the circumstances relied on and what the taxpayer did to resolve the matter. Disagreeing with the underlying assessment does not, by itself, stop interest from accruing.
ATO interest incurred from 1 July 2025
GIC and SIC incurred on or after 1 July 2025 are not deductible. The ATO explains that this applies regardless of whether the underlying tax debt arose before that date. Interest incurred before 1 July 2025 may be treated under the earlier rules.
This change increases the after-tax cost of carrying an ATO debt. It makes it especially important to separate the dispute strategy from the plan for dealing with the balance while that dispute continues.
What to review on the notice
- Check the underlying shortfall and the tax periods involved.
- Identify the conduct category and base penalty percentage.
- Check every increase, reduction and voluntary-disclosure adjustment.
- Separate GIC from SIC and verify the periods used.
- Note the objection or remission pathway and its deadline.
Where the underlying tax is correct, the penalty characterisation or a remission request may still deserve separate attention. Where the ATO's position is supportable, a realistic assessment can prevent the cost of pursuing the wrong argument.
Sources
Frequently asked questions
Why did the ATO apply a 50% penalty rather than 25%?
A 50% base penalty generally means the ATO characterised the conduct as reckless rather than a failure to take reasonable care. The notice should explain the facts and reasoning relied on.
Can an ATO penalty be reduced or cancelled?
Depending on the penalty and circumstances, you may be able to object to its basis, request remission, or both through the appropriate processes. Evidence supporting the argument is important.
Does voluntary disclosure reduce an ATO penalty?
It can reduce certain shortfall penalties. Timing and completeness matter, and the treatment differs depending on whether disclosure occurs before or after the ATO notifies you of an examination.
Is ATO interest tax deductible?
GIC and SIC incurred on or after 1 July 2025 are not deductible. The treatment of interest incurred before that date can differ.