BEWARE: Default assessments for overdue tax returns
Most individual tax payers need to lodge a tax return each year. Individual tax payers have from 1 July to 31 October to lodge their tax return for the previous income year. If you use a registered tax agent to prepare and lodge you tax return, you may be able to lodge later than 31 October.
If a taxpayer has an overdue lodgement obligation, the Australian Taxation Office (ATO) can issue a default assessment. A default assessment is an assessment of taxable income for overdue tax returns. An administrative penalty of 75% of the tax-related liability will be applied when the ATO issues a default assessment. This penalty is increased by 20% for taxpayers who have a pattern of non-compliance and the ATO can apply a penalty for failing to lodge on time.
Before the ATO issues a default assessment, it will send a default assessment warning letter to the taxpayer. If you receive a default assessment warning letter, you must ensure all overdue obligations are lodged by the date advised in the default assessment warning letter.
If the overdue return(s) are not lodged by the date specified in the warning letter, the ATO will go ahead and issue a default assessment for the outstanding returns based on the estimated taxable income that was disclosed in the warning letter.
The Commissioner may make a default assessment of a taxpayer’s taxable income upon any basis that is reasonable and takes into account their particular circumstances using, for example, the asset betterment method or industry benchmark approach.
If a default assessment is issued the taxpayer has the burden of proving that an assessment is excessive. For assessments made on or after 1 July 2013 in relation to the 2013-14 or later income years, the taxpayer has the burden of proving that the assessment is excessive or where the taxpayer contends that the assessment should be higher, that the assessment is incorrect. In all cases, the taxpayer must also prove what the correct amount of the assessment is.
If you have overdue returns that need lodging or have received a default assessment warning letter from the ATO, you need to take action immediately so that you are not issued with a default tax assessment. The Tax Accountants at The Quinn Group can lodge your outstanding returns and get you up-to-date with your tax obligations.
Please contact one of our payroll experts on (02) 9223 9166 to discuss or you can submit an online enquiry form.