How can you shield yourself against ATO penalty?

Hi,

I know hiring a good accountant would minimize the chances of penalties should there be an ATO audit.

But only the tax payer is responsible of their tax returns so I can't get away by saying look my tax return is filed by a "good" accountant so it's not my fault.

I know I can get a audit insurance but that covers only the accountant cost in an audit event.

I trust my accountant but his actions are limited/driven by his knowledge as a tax professional.

I also know it's not accountant job to verify invoices and if I provide fake receipt I will be held accountable. However, there are other scenarios where I act according to the advise of my accountant.

For example: A complex scenario where deductibility of interest is calculated according to accountant's advise. If ATO finds a fault in the calculation and imposes a penalty can I get away with 0 penalty?
If you think from a tax payer's perspective I hired a good tax professional paying hefty fee and acted on his advise. Why should I pay even $1 penalty. What else could a tax payer do to ensure no penalty?

I don't want to depend on my luck and hope that my accountant did the right thing. I want some kind of security that guarantees $0 penalty. I wish there was something equivalent to "Penalty Insurance".

Also, I would apply for a private ruling only if my accountant advises me to do so. If my accountant is confident of his actions that should be good enough for me to ensure $0 penalty.

From my past experience dealing with 4 different accountants I learned that high accountancy fee does not guarantee a high quality advise.

 

It comes down to how reckless or not you were when making the claim. If it was a genuine mistake there would often be no or low penalty. If it was deliberate it could be up around 75% penalty.

You might also have an argument which is logical and backed up by research but just incorrect, that shows, perhaps, that it may not have been outright fraud on your part. If you have relied on advice from a tax advisor this will help minimise penalties. You might also be able to recover tax penalties from them if they were negligent.

 

Penalties are often largely remitted when competent advice is obtained as this supports the view the taxpayer did not act recklessly. However, the ATO has concerns not all advisers are competent and some are even dishonest and tend to promote certain matters which the ATO dont accept as good advice. In such cases the client may be thrown under the bus with their adviser. Then it may progress to a PI claim.

At the end of the day always understand the contentious issue in your tax affairs and its perfectly OK to ask that they confirm their opinion and instructions in writing or to seek a second independent opinion. There is a specific requirement to report these issues to the ATO in the return for some large entities. For smaller entities it would be wise to consider these same issues as if the ATO wanted to know more so that the public officer can ensure they personally understand and accept each issue and its treatment in the correct manner. That is what tax advice should do.

The tax adviser may also be reliant on the taxpayer to provide diligent and honest records. Poor client records or information doesnt mean the tax adviser pre-audits the client to reduce or eliminate risk. Its also wise for the client to directly raise issues with the tax adviser