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The Tax penalty trap no escape from running balance debt

Publication date: 01 Sep 99 | Source: THE TAX INSTITUTE

In response to frustration from tax professionals, the Taxation Institute of Australia has called for an urgent review of the running balance system introduced from 1 July 1999 for PAYE and PPS remittances. According to the Taxation Institute's Tax Director, Mr Michael Dirkis, the system is creating a nightmare for advisors and their clients, adding to their work load and compliance costs. "Under the new system, where remittances are as little as a day late, the Tax Office is issuing notices for minor interest penalty amounts. Unfortunately the interest is compounding, thus it is difficult for taxpayers to ever clear the balance on the running balance accounts," Mr Dirkis said. "For example, statements may be issued on 19 August for a $2 or $3 amount stating that they represent interest debt as at 13 August and interest will accrue on that debt at the rate of 12.72% per annum. By the time a taxpayer reacts and pays the amount a further interest liability will have arisen. It is an ongoing process," he said. This contrasts dramatically with the previous system where the Tax Office had the discretion to remove such paltry penalties that impose relatively high compliance costs on taxpayers. This tax penalty trap was raised on Tuesday 31 August in the House of Representatives by a Member of Parliament pointing out that it cost in the order of $100 to $200 for a body like the Tax Office to send out correspondence of this kind and check these payments. "Taxpayers have enough change to cope with the introduction of GST and other tax reform measures without creating additional compliance issues over the payment of very small interest penalties," Mr Dirkis said. "Where remittances are a day late, sensible administrative practice would demand some latitude or the introduction of an system where interest is calculated to a due date and a notice issued."