If a taxpayer has an overdue obligation, the law allows the ATO to make an assessment of their taxable income. The assessment is known as a default assessment because it is made as a consequence of the taxpayer defaulting on their lodgement obligation.
More often than not, the ATO will issue a letter to the overdue taxpayer titled ‘Default assessment warning.’ If the overdue return or returns 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 assessment details included in the default assessment warning letter take into account various sources of information including:
• Previously lodged tax returns and activity statements;
• Income received from financial institutions and Government bodies;
Salary or wages reported by employers;
• Gross domestic product (GDP) growth rate;
• Small business benchmarks for similar businesses;
• Annual taxation statistics.
If the ATO issues a ‘default assessment,’ the recipient can be up for:
• Failure to lodge on time penalties ($550 per return);
• Administrative penalties of 75% of their estimate of the tax they owe (less PAYG tax or other tax credits);
• Administrative penalties may increase by 20% if they had a penalty previously applied for a Default Assessment.
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. Contact us on 02 9223 9166 or submit an online enquiry.