A new law was recently passed that requires businesses to complete an approved record-keeping course if they fail to meet their tax record-keeping obligations. This measure, called the “tax-records education direction,” is an alternative to imposing a penalty. It is intended to educate businesses about their tax-related record-keeping obligations. This new power came into effect on March 13, 2023.

The Australian Taxation Office (ATO) will issue the tax-records education direction only to entities that are carrying on a business, and it is best suited for small businesses. The ATO will assess whether an education direction is appropriate based on various factors, such as whether the business has made genuine attempts to comply with tax obligations, whether there are knowledge gaps within the business that may benefit from the completion of a course, and whether the entity is new to business.

Once the ATO issues an education direction, a relevant individual to the entity (such as a director or partner) must complete an ATO-approved online record-keeping course by the end of the specified period. If the course is completed by the due date, the business will no longer be liable for a penalty. However, if the appropriate course is not completed by the due date, the entity will be liable for a penalty of up to $5,500.

It is important to note that the tax-records education direction does not apply to certain tax laws, such as Part X of the Fringe Benefits Tax Assessment Act 1986 or Div 900 of the ITAA 1997. Additionally, businesses that have been or are disengaged from the tax system or deliberately avoiding obligations to keep records will not be eligible for the education direction.

Overall, the new law aims to educate businesses about their tax record-keeping obligations and encourage compliance. If you are a business owner, it is important to ensure that you are meeting your tax obligations and keeping accurate records to avoid penalties.