The following explains penalty tax and interest if a taxpayer fails to lodge the Annual Reconciliation return and/or pay all or any part of the payroll tax payable for a financial year by the due date.
Annual reconciliation (AR) process
At the end of each financial year, each registered employer is required to lodge an AR return to reconcile their tax liability for the financial year with the tax previously paid for that year. To ascertain the taxable wages for the year, an employer needs to finalise the wage components (e.g. fringe benefits and contractor payments) which are estimated for the calculation of tax paid each month.
If an employer finds that further tax is payable for the financial year, the AR return should be lodged by the due date together with payment of the outstanding tax. For an employer who has overpaid payroll tax for the financial year, lodging the AR return constitutes a request for us to refund the overpayment.
Due date for lodging the AR return
The due date for lodging the AR return is the 21 July each year (or the next business day if 21 July falls on the weekend or a public holiday) immediately following the financial year to which the AR return relates (the AR period).
There is no tax default if the employer lodges the AR return and pays any outstanding tax by the due date. A tax default occurs when the correct amount of tax owing for the financial year has not been paid or where the AR return has not been lodged by the due date.
Treatment of tax defaults related to the AR process
If an employer fails to pay the correct tax owing or fails to lodge the AR return by the due date, this tax default is regarded as a tax shortfall and will attract penalty tax and interest.
If the employer pays tax without lodging an AR return, the Commissioner is unable to determine whether the total tax paid is the correct tax payable for the year. Therefore, even though a payment of tax was made, if no AR return is lodged, the Commissioner will issue an assessment for any estimated tax owing as though a tax default has occurred.
AR tax shortfall - market and premium interest
If an employer lodges an AR return or pays the tax owing after the due date but before the Commissioner issues an assessment for the tax owing for the AR period, the tax shortfall attracts interest at the market rate plus premium interest at 8 per cent.
AR tax shortfall - penalty tax of 25 per cent
If an employer fails to lodge an AR return or pay the tax owing before the Commissioner issues an assessment for the tax owing for the AR period, the tax shortfall attract penalty tax of 25 per cent and interest charged at the market rate.
Penalty and interest is applied to the amount of tax outstanding at the due date. Interest is calculated from the due date until the date of payment. If several payments of tax are made, interest will be calculated based on each payment date.
If the AR return is subsequently lodged, the penalty tax and interest is adjusted accordingly to apply to the wages stated on the return. If the AR return subsequently lodged shows that no tax was outstanding at the due date, the interest and penalty tax will be fully remitted. However, the taxpayer's failure to lodge the AR return on time may attract penalty units in accordance with section 59 of the Taxation Administration Act 1997.
Refer to Revenue Ruling PTA-036v5.
Assistance
If you need more information on this topic, contact our payroll tax enquiry service on 13 21 61.