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Small Gain For Taxpayers, But Confusion Still Reigns

Publication date: 22 Jun 01 | Source: THE TAX INSTITUTE

An initial response from the ATO on 31 May 2001 was to put a policy document on the ATO's website entitled "Issues arising from the overlap of PAYG annual instalments and lodgement of income tax returns". The document however, mainly served to highlight additional problems with the Running Balance Account system. The policy document was not mailed to the 80,000 affected taxpayers, or even to their tax agents and indeed is quite difficult to locate on the website.

Buried under the technical jargon in this policy document was an admission from the ATO that there are problems with the annual PAYG 2001 income tax instalments notices it is currently sending to thousands of small taxpayers. The problems arise when many of those taxpayers then receive a second notice recalculating their annual 2001 instalment, based on their recently lodged 2000 income tax return. The second notice is seeking payment of either more or less than the amount required by the first notice. No guidance has been given to taxpayers in the second letter about how they should respond to that letter, and the potential disadvantages of relying on it.

Following the most recent appeal by the Taxation Institute of Australia, the Commissioner published a media release on 20 June 2001 announcing that those people who recently received a letter updating the instalment amount previously advised on their annual PAYG income tax instalment notice, can simply pay the amount on their original annual PAYG tax instalment by the due date.

If as a result of taking the ATO's advice, taxpayers pay less than the amount legally required then Mr Carmody has announced that no penalty will apply. If there is any instance of an interest charge being imposed, then taxpayers can contact the ATO to have the charge remitted. Again, these important concessions have not been notified personally to affected taxpayers - a Media release is considered adequate notification by the ATO.

Where the amount specified in the second notice is lower than the amount specified in the original notice, the Commissioner's media release states that taxpayers who wish to pay the updated instalment amount need to call the ATO on 13 24 78 to see if they are "eligible".

Under the law, only those taxpayers who have been sent the second notice at least 30 days before the due date for payment under the original notice are "eligible". How are taxpayers who miss seeing the Media release to know about these important and complex intricacies of their obligations?

Why should taxpayers need to contact the ATO before simply following the law?

In contrast, the ATO's original policy document states that taxpayers sent a second notice less than 30 days before the due date "must pay the amount advised on their Annual Income Tax Instalment Notice." Taxpayers who are unaware of these subtleties of the law and who pay the lower amount specified in the second notice are liable to be penalised.

Has the official position of the ATO now changed as a result of the media release? Will the policy document be changed on the ATO's website? As of today, it has not been changed. Have all ATO staff been trained on the change in policy, so they can assist taxpayers in accordance with the media release?

As well, the ATO's media release completely fails to mention the high probability of people overpaying their instalment, as a direct result of reliance on the various ATO notices and letters to taxpayers. The ATO is not obliged to advise taxpayers of overpayments, and the Tax Insititute is aware of a number of cases where overpayments just "sit" in the taxpayer's Running Balance Account, without earning interest, for months on end and without any knowledge that an overpayment has been made.

Unfortunately, as most taxpayers will be unaware of the Commissioner's concession, it is likely that they will pay the amount specified in the second notice.

Given this confusion, and the uncertainty of posting dates, the President of the Tax Institute is calling on the Commissioner to write personally to the 80,000 affected taxpayers and explain specifically what their options are. Such correspondence should, of course, be in plain English.

"Action taken by the ATO to date (an incorrect policy document published on their website and an amending media release) has been an ineffective way of informing 80,000 taxpayers of their options. The Taxation Institute of Australia is urging the Commissioner to notify the 80,000 taxpayers by way of direct correspondence," said Ms McCleary.

Which notice should the taxpayer rely on?

Two criteria that all annual instalment taxpayers need to consider are:

  • Whether the ATO sent the second notice 30 days or more before the originally advised annual instalment is due for payment.
  • Whether the original instalment notice is higher or lower than the amount set out in the ATO's subsequent (second) notice.

    Under the law the taxpayer is obliged to follow the second notice if it is sent at least 30 days before the due date for payment specified in the original notice. In contrast, if it is sent less than 30 days before the due date for payment, the taxpayer is required to ignore the second notice and pay the amount specified in the first notice.

    The second notices sent out by the Commissioner do not advise the taxpayer which of the two alternatives they are supposed to follow. Further, depending upon whether the second notice requires payment of a greater or lesser amount than the first notice, taxpayers can either be advantaged or disadvantaged depending upon which alternative they are meant to follow.


    If the second notice is sent less than 30 days before the due date for payment, seeking payment of a lesser amount, and the taxpayer mistakenly follows the second notice and pays the lesser amount, under the current law the taxpayer will be fined the general interest charge of 13.86% pa.

    Alternatively, if the second notice is sent less than 30 days before the due date for payment, seeking payment of a greater amount, and the taxpayer mistakenly follows the second notice and pays the greater amount, the taxpayer will be regarded as having made a voluntary payment of tax.

    There is nothing in the law to require the Commissioner to notify the taxpayer that their Running Account Balance is in credit.