Record-keeping school if you don’t keep proper business tax records
Late last year, the Treasury Laws Amendment (2022 Measures No. 2) Act 2022 was enacted. Among other things, it allows the Commissioner of Taxation to issue a “tax-records education direction” requiring an individual to complete an approved record-keeping course. A direction may be issued where the Commissioner reasonably believes there has been a failure to comply with one or more specified record-keeping obligations under a taxation law. A direction may be issued instead of imposing a penalty for failing to comply with record-keeping obligations.
Failure to comply with the direction can be penalised, together with the addition of the original penalty for not keeping records.
This measure came into effect on 1 January 2023 and as a result, PS LA 2005/2 relating to the penalty for failing to keep or retain records has recently been updated. In addition to providing general principles for administration of the penalty for failing to meet record keeping obligations, it contains guidance on eligibility for the tax-records education direction, factors the ATO will consider in deciding whether to issue a direction and how to comply with such a direction.
Education direction
A “tax-records education direction” cannot be made in relation to a failure to comply with FBT record-keeping or the substantiation rules. A power to issue a tax-records education direction already exists in relation to superannuation guarantee record-keeping obligations.
According to the ATO, the purpose of a direction to educate is to help educate businesses about their tax-related record-keeping obligations, is only issued to entities that are carrying on a business and is best suited to small business entities. A direction to educate will most likely be issued in cases where the ATO believes an entity has made a reasonable and genuine attempt to comply with, or had mistakenly believed they were complying with. their tax record-keeping obligations.
Factors the ATO will consider when deciding whether an education direction is appropriate include:
- knowledge gaps within the business which may benefit from the completion of a course;
- inappropriate records kept due to unintentional mistakes or digital illiteracy;
- whether genuine attempts have been made to comply with tax obligations;
- the entity has not been issued an education direction previously;
- the entity is new to business (i.e. trading less than 2 years); and
- the entity has cooperated with the ATO regarding information requests.
The ATO notes that entities that have been or are disengaged from the tax system or deliberately avoiding obligations to keep records will not be eligible. Factors that point to disengagement or deliberate avoidance include:
- poor compliance history
- poor engagement with the ATO regarding information requests
- deliberate loss or destruction of documents
- fabrication of documents.
Variation & extension of education directions
Once an education direction has been issued, the Commissioner can vary its terms if certain circumstances arise (e.g. course unavailable, natural disaster etc.). The individual given the direction may also request a variation, such as an extension of time in which to complete the required record-keeping course. To help businesses understand record-keeping obligations, the ATO states that all reasonable extension requests received before the end of the specified period should be granted.
To comply with the education direction, a relevant individual of the entity (e.g. director, public officer, partner etc.), must be able to show evidence that they have completed the ATO approved record-keeping course by the end of the period specified in the direction. Successful completion of the course by the due date means the entity will no longer be liable to a penalty. Conversely, if the course is not completed by the due date, the entity will be liable to a penalty of up to $5,500.
There are rights of objection against a decision to issue an education direction or a refusal to vary one.
Want to find out more?
If you would like to find out more about tax-records education directions, we can help clarify how they may apply to you and your business.
We can also assist with penalties issued by the ATO.
Contact us today for tax advice and assistance.
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Disclaimer: The information on this page is for general information purposes only and is not specific to any particular person or situation. There are many factors that may affect your particular circumstances. We advise that you contact Mathews Tax Lawyers before making any decisions.