Coming up to Federal Budget time, the expectation among many taxpayers, tax practitioners and their clients is that the tax landscape may be in for a lot of changes.
While there is no sure way to be certain what tax reforms are on the way, it is not unusual for “announcements” (not officially made, but more in the form of well-informed rumours or straight-out leaks) to start to make their way into tax planning conversations.
While naturally the best advice for most taxpayers would be to not act on an anticipated change to the rules until the official stamp has dried, it is not entirely unheard of for a client to be enthused enough about an expected change in tax law that they jump in feet first.
But what are the consequences if a change doesn’t go through, and your client has already requested certain transactions be made or arrangements put in place anticipating a certain tax outcome that simply does not eventuate?
The ATO in its wisdom has already thought about these scenarios, and has set out a response in case they come to pass.
If a taxpayer self-assesses by anticipating an announced law change
If a client lodges a return or activity statement, anticipating an announced law change, and the retrospective law changes are:
- as anticipated — the self assessment will not be affected
- not as anticipated (for instance, because amendments were made to the relevant legislation during the parliamentary process), an amendment or revision will be required.
If an amendment or revision is made and it:
- reduces their liability, the ATO will pay appropriate interest on any overpayment
- increases their liability,
- no tax shortfall penalties will apply, on the basis that it is reasonable for a taxpayer to follow an announced government proposal to change the law and that the existence of such an announcement represents special circumstances
- any interest accrued will be remitted to the base interest rate up to the date of enactment of the relevant law change
- any interest in excess of the base rate accruing after the date of enactment will be remitted if the taxpayer actively seeks to amend assessments or revise activity statements within a reasonable time after enactment of the law change (the ATO says “a reasonable time” is to be determined on a case-by-case basis).
If the announced law change is not enacted
On rare occasions an announced law change may not be enacted – for example, because it is rejected altogether by the parliament. Some taxpayers may have lodged returns or activity statements anticipating the announced law change. Other taxpayers may have lodged and self-assessed under the existing law but delayed payment of a liability in anticipation that it would be removed by the announced law change.
In these cases the ATO says it will publicly advise tax agents and their clients that the law has not been enacted, explaining the relevant circumstances and the need for affected taxpayers to seek amendments to their assessments or lodge revised activity statements as necessary and make any consequent tax payments.
If a taxpayer needs to make an amendment or revision, the ATO says the interest and penalty consequences will be as outlined above, depending on whether they self-assessed by anticipating the announced change or not. The interest consequences for delayed payments will be similar, although the ATO says it won’t apply penalties.