If you run a small business and are found by the ATO to have made unintentional record-keeping mistakes, you could be liable to an administrative penalty. However, this could soon change under new proposed laws to give ATO the power to issue a direction to complete an approved record-keeping education course in lieu of imposing financial penalties. This excludes personal tax substantiation, FBT and super guarantee obligations.Legislation to implement this measure has been introduced into Parliament but not yet passed. Due to the upcoming Federal Election and limited sitting days, there’s uncertainty as to the passage of this measure.

The ATO could soon have the power to issue a direction to complete an approved-record keeping course in instances where it believes an entity has failed to comply with tax-related record-keeping obligations in lieu of financial penalties. Legislation has been introduced into Parliament, but not yet passed.

This proposed change originated as a part of the Black Economy Taskforce’s final report, which found that tax-related record-keeping obligations should be made clearer for businesses, and that the ATO should have a range of administrative sanctions available at its discretion for breaches of the rules.

Currently, in instances where a business is required to keep or retain records under tax law but fails to do so, it will be liable to an administrative penalty. However, this penalty does not apply to record-keeping obligations related to retention of statutory evidentiary documents under Fringe Benefits Tax. Nor does it apply to record-keeping obligations related to keeping and retaining documents required to substantiate expenses. In addition, the Commissioner also has the power to remit all or part of the administrative penalty imposed.

Under the proposed new laws, the Commissioner may issue a tax-records education direction in appropriate situations which will require the appropriate person within a business to take an approved course of education specified by the ATO and provide it with evidence of completion. This will be applied in circumstances where the record-keeping mistakes were unintentional, due to knowledge gaps, variations in levels of digital literacy, or where the Commissioner reasonably believes that the entity has made a genuine attempt to comply with their obligations.

The tax-records education direction will not be available to those businesses that deliberately avoid record-keeping obligations. In those cases, financial penalties will be applied, and if there is evidence of serious non-compliance, criminal sanctions may also be considered by the ATO.

Appropriate persons within a business include any individuals that make or participate in making decisions that affect the whole or a substantial part of the business. In the case of sole traders, the individual acting as the sole trader would be the appropriate person to complete any course of education. Businesses that are issued a written tax-records education direction must either complete or arrange for the completion of an approved course before the end of the period specified in the direction.

Businesses that fail to comply with a tax-records written education direction either by not completing the course, or not completing the course by the set date will be liable for the original administrative penalty. It should be noted that since some record-keeping obligations under fringe benefits tax and substantiation provisions do not give rise to an administrative penalty, the Commissioner will not be able to issue an education direction in those cases.

Similarly, a tax-records education direction will not be able to be issued to an entity that has failed to comply with its record-keeping obligations under the Super Guarantee Act. This is dealt with separately and covered by the super guarantee education direction. The main difference being failure to comply with a super guarantee education direction is an absolute liability offence and results in an administrative liability of 5 penalty units, whereas failure to comply with tax-records education direction attracts no additional penalty.

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