Remission of interest and penalties: what circumstances the ATO considers
Interest charges are separate from the underlying tax
When a construction business falls behind on tax obligations such as activity statements, PAYG withholding or superannuation guarantee charge, the ATO applies general interest charge to the unpaid amount. Penalties may also be added for incorrect reporting or late lodgement.
These additional charges can accumulate quickly. The interest compounds daily until the debt is paid.
Remission is the process by which the ATO agrees to reduce or remove some of those interest or penalty charges. The underlying tax debt remains. The request addresses only the extra charges that have built up on top of it.
What the ATO looks at when deciding remission
The ATO considers whether the circumstances that caused the delayed payment were outside your control, whether you took reasonable steps to reduce the delay and your prior compliance and payment history.
Circumstances more likely to support remission include natural disaster, serious illness affecting you or key personnel, sudden collapse of a major debtor, theft of or damage to property critical to business operations, or family and domestic violence affecting your ability to meet obligations.
Circumstances that generally do not support remission include adverse business conditions affecting cash flow, general economic downturn, late payment of invoices by customers treated as ordinary business risk, using available funds to expand the business instead of paying tax, or missing a deadline because you did not allow your agent sufficient time.
The ATO considers remission more favourably when late payment is out of pattern with otherwise on-time lodgement and payment over recent years. When the general interest charge is relatively low, a positive compliance history will strongly influence the decision.
Early contact improves the outcome
Approaching the ATO before the due date or shortly after you realise payment will be late is treated differently from waiting until formal enforcement action begins.
If you contacted the ATO early, arranged a payment plan and then requested remission once the plan was complete, that demonstrates you took reasonable steps to reduce the delay. If you only reached out after a director penalty notice arrived, the case for remission becomes harder.
The ATO expects you to show how an event beyond your control affected your ability to pay, and that you would have paid on time except for that event. Supporting documents help establish both the cause and your response.
How to request remission
You can request remission at any time by lodging a form through ATO online services or, for smaller amounts, by telephone. Requests relating to interest or penalty amounts over two thousand five hundred dollars are escalated to a dedicated team, so you will not receive an immediate decision.
The request should explain the specific event or circumstances that caused the delayed payment, how this prevented you from paying by the due date, what steps you took to reduce the delay and any supporting evidence.
The onus is on you to satisfy the ATO that remission is warranted. Insufficient information will result in a decision not to remit.
Source: ATO , How to request a remission of interest and failure to lodge penalties
Get advice before the charges grow further
Interest and penalties continue to accrue while an account remains unpaid. Delaying a remission request does not stop the clock.
A well-prepared request, submitted at the right time with clear supporting information, gives you a realistic chance of having some or all of the additional charges removed. Professional help can ensure the application addresses the criteria the ATO applies and presents your circumstances clearly.
CRP works with construction businesses on tax debt, compliance and turnaround situations. Use the contact form below to explain your position. Tax advice and remission applications must be handled by your registered tax agent or an appropriately qualified professional engaged for that work.