‘Reckless’ Victorians to gear up for 50% penalty tax

Recent amendments to the Victorian State Taxation Acts Amendment Bill 2025 have introduced a new 50 per cent penalty tax rate for “recklessness”, encouraging taxpayers to be vigilant in their state tax activities.

Part of the State Taxation Acts Amendment Act 2025 (Act) enactment, the new tax rate was set to sit between the existing 25 per cent general default and the 75 per cent intentional disregard rates, giving the Commissioner broad discretion to impose a higher penalty tax.

Pitcher Partners said the act was introduced following the State Taxation Acts Amendment Bill 2025 (Bill) having passed both houses and receiving royal assent after its introduction following the release of the 2025–26 Victorian state budget in May.

The act amended various state tax legislation, including the Duties Act 2000, the Commercial and Industrial Property Tax Reform Act 2024, the Land Tax Act 2005 and the Taxation Administration Act 1997.

Irina Tan and Craig Whatman, partners at Pitcher Partners, said the act sought to introduce the new tax rate of 50 per cent when the Commissioner was satisfied that the default was caused wholly or partly by a taxpayer’s recklessness.

“The imposition of the proposed new 50 per cent penalty tax rate is subject to the Commissioner’s satisfaction that a taxpayer’s “recklessness” has caused the default,” they said.

“This appears to give the Commissioner broad powers in determining whether there is the requisite “recklessness” to trigger the higher 50 per cent penalty tax rate.”

It was noted that the concept of “recklessness” also appeared in the context of income tax and GST, yet it was unclear as to what factors the Commissioner would consider and whether similar principles to income tax and GST would be adopted by the Commissioner from a state taxes perspective in determining if the “recklessness” test had been satisfied.

The State Revenue Office of Victoria (SRO) said the tax rate would be applied for notification defaults due to the recklessness of a taxpayer, or someone on the taxpayer’s behalf and would apply to tax defaults and notification defaults occurring from the day after royal assent.

The Office described recklessness as a “behaviour that showed disregard or indifference to the risk of a tax default or notification default, which would be foreseeable by a reasonable person in the taxpayer’s circumstances, with the same level of skill and knowledge as the taxpayer”.

“It is gross carelessness by the taxpayer or their representative but does not require a finding of dishonesty or an intentional disregard of the law.”

The 50 per cent tax rate will apply to taxpayers where reckless behaviour caused a tax default. However, the SRO said it could change the rate in the instances of:

· If a taxpayer told the SRO about a tax mistake before an investigation was started, the penalty could be reduced to 10 per cent.

· If a taxpayer told the SRO about a tax mistake during an investigation, the penalty could be reduced to 40 per cent.

· If a taxpayer hid information or obstructed an investigation, the penalty could be increased to 60 per cent.

To tackle the introduced tax, Tan and Whatman recommended that Victorian taxpayers take “reasonable care” in managing their state tax affairs and seek out advice if uncertain to minimise the risk of the ‘reckless’ penalty tax being imposed.