The initial results of the ATO's penalty relief initiative look positive. 

Alison Lendon, ATO Deputy Commissioner, Individuals and Intermediaries, has announced that in the first six months of the ATO's penalty relief initiative, shortfall penalties for "failure to take reasonable care" and "not having a reasonably arguable position" have been reduced by 89.2% for individuals and 83.8% for small businesses. She said thousands of small businesses and individuals have not been penalised for errors on their tax returns or activity statements. Instead, the ATO had shown them what the error was and how they can get it right next time.

The community and tax professionals had told the ATO that people should have a chance when they get their tax wrong, provided there wasn't a dishonest intent behind their error. Ms Lendon has said the ATO listened and designed "a fair and consistent approach" to certain penalties. With the ATO's new approach to penalty relief, if it finds an error on a tax return or activity statement during an audit or review, the taxpayer may be eligible for automatic penalty relief. This means the ATO will show the taxpayer where the error was made, won't apply a penalty and will educate the taxpayer on getting it right.

Examples of use of the initiative include the following:

  • An individual incorrectly claimed self-education expenses on their tax return. This error would have usually incurred a penalty of $788.55, but under the initiative, the penalty was not applied.
  • A small business owner made an error on their company tax return relating to deductions on motor vehicle and other work-related expenses. Thanks to penalty relief, a penalty of $1,090.13 was not applied by the ATO.

Further information on penalty relief is available on the ATO's website.