Cheryl, a single resident taxpayer, is employed as an elite full-time soccer referee and claims that she plays video games for 'practice in making decisions'. In her 2017/18 income tax return, Cheryl disclosed taxable income of $153,000 after claiming video game expenses of $1,500.

Cheryl is also subject to the Medicare Levy Surcharge (Tier 3). Cheryl has been penalised previously following an audit of her 2014/15 income tax return.

Required:

Calculate the likely penalties that would be imposed on Cheryl if the resulting shortfall were uncovered during ATO audit activity and it was considered that she had no reasonably arguable position.

Tip: The increased penalty is calculated on the base penalty amount.

Cheryl Disclosed Taxable Income Amended Taxable Income

Taxable Income $153,000 $154,500

Tax on Income $44,242 $44,797

Medicare Levy 2% $3,060 $3,090

Medicare Levy

Surcharge 1.5% $2,295 $2,317.50

Total $49,597 $50,204.50

Total Shortfall of Tax Payable $607.50

ANSWER 1 I gave (was told this was incorrect and to review total penalty)

Penalties Calculation Details Amount $

Base Penalty Amount 75% of shortfall amount $455.63

Increase for Previous Offences 20% of shortfall amount $121.50

Total Penalty $577.13

ANSWER 2 I gave (was told this was also incorrect and to review the rates for both parts of the penalty)

Penalties Calculation Details Amount $

Base Penalty Amount 75% of shortfall amount $455.63

Increase for Previous Offences 25% of base penalty amount $113.91

Total Penalty $569.54

What is the correct answer for the penalties?