ATO, Compliance & Regulation

Two penalty unit rises in 2023

penalty units increase

The planned increase in penalty units in the budget is aimed at offsetting bad debts and will be one of two rises planned for next year.

The increase in penalty units announced in the federal budget will be one of two rises scheduled for 2023 as the government seeks to recoup costs due to remitted penalties and bad debts.

The government announced in its recent budget that it would increase penalty units, including those charged against SMSF trustees for breaching superannuation laws, from $222 to $275 from 1 January 2023, but further rises due to indexation would take place at the start of the next financial year.

The Labor Party flagged the changes in the lead-up to the election in a 2022 Election Commitments Report (ECR), which indicated the penalty unit increase would raise an estimated $44.1 million for the ATO by the 2026 financial year.

“This proposal [increasing penalty units] would increase the value of the penalty unit from its current amount of $222 to $275,” ECR 107 stated.

“Penalty unit values would continue to be indexed by inflation on the current three-year indexation cycle, with the next indexation year being 2023/24.”

The report also noted the two penalty unit increases in 2023 would raise around an estimated fiscal balance of $88.1 million, but the underlying cash balance generated by the rise would only be $30.7 million.

“The fiscal balance and underlying cash balance differ for this proposal because of the timing of collections and the write-off of penalties that are issued against an individual or entity, but are ultimately assessed as being unlikely to be paid (bad debt write-offs),” it stated.

SMSF Association policy manager Tracey Scotchbrook said during a recent budget briefing that ECR 107 showed the government, prior to the election “were looking at the level of bad debts, the level of penalties that were remitted, the cash-flow impacts of those and that has been the main driver around the increase of the penalty unit”.

“We are getting the increase on 1 January 2023, but we will also get the normal indexation that happens with penalty rates which will happen on 1 July 2023, so it’s possible we will see two bumps in this,” Scotchbrook said.


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