Default assessments for overdue tax returns

Tax dodgers to get the Underbelly treatment

The ATO has sent a warning to tax agents about clients with overdue tax returns: hurry up and lodge, or we’ll lodge for you!

They are threatening to use a tactic you might have seen if you watched series one of Underbelly. (More on that below).

The ATO has a little known power under the tax law that allows them to make their own estimate of your taxable income based on the information they have about the taxpayer. So you can get a tax bill without even lodging a tax return.

Who does this affect?

The recent warning shows the tax office’s intention to use this power to send tax bills to people who have a track record of failing to lodge their tax returns.

If it’s been a while since you lodged a tax return then you could be on the hit list.

In my experience, you are a more likely target if:

  • You owed tax last time you lodged a return
  • You have an existing tax debt
  • You have unlodged BAS statements, as well as returns

How does the ATO know my income?

The ATO knows how much employment income you earn and the ATO knows how much interest income you earn because of data matching.

Employers, banks and other investment providers (such as companies you might hold shares in), have to report information to the ATO. Most investors give their tax file number to their bank or the companies they hold shares in. If you don’t provide your TFN you get taxed at 46.5% anyway, so you can’t win either way.

To put it simply, the probably ATO already know how much your employer paid you, how much PAYG tax you paid, your interest income, your share dividends, whether you had a HELP debt and your private health insurance cover.

According to the ATO, other ways the ATO might calculate your income are:

  • information provided by third parties
  • the income recorded on your BAS statements
  • internal and external data matching
  • measuring increases in your assets over the relevant period
  • looking at unexplained deposits in your bank account (yes, they can look at your bank accounts)
  • comparing your declared income to your level of lifestyle

The Underbelly example

If you’ve seen the first series of Underbelly you might remember a scene where ATO reps walk into the cafe of one of the “gangland figures”. The ATO staff member hands over a tax bill for millions of dollars, based on their estimate of the taxpayers income for the past decade.

Imagine you were the ATO stooge fronting up to one of the Melbourne crime world’s toughest characters! The result is that the guy is eventually put in jail over the unpaid tax debt.

Although Underbelly is a semi-fictitious TV show, it’s an illustration of the kind of power the ATO have. Let me repeat my earlier point: you don’t need to lodge a tax return to get a tax bill.

Case studies

But we are here to help you.

Case study #1: negotiating a large tax debt

Here are some real-life case studies about people we have helped catch up on old returns. Obviously there are no real names used.

Harry has not lodged his BAS or tax return for four years, and owed a six figure amount to the ATO. The ATO were days away from referring him to a debt collector, and were theatening to take legal action.

When we talked to Harry about his situation we discoverd that more than half of his debt was due to ATO penalties. Also, he didn’t even need to be lodging BAS statements or paying GST anymore because his employment situation had changed.

One month after contacting us, we had:

  • Cancelled Harry’s PAYG, GST and ABN registration
  • Lodged 13 BAS statements
  • Lodged 4 tax returns
  • Sucessfully requested a $50,000 remission of ATO penalties
  • Negotiated a payment plan for the remaining debt that suited both Harry and the ATO

And all this was done via online consultations as Harry lived in a different state to Beyond Accountancy. Harry was relieved to have the burden of the debt and ATO letters lifted from his shoulders. We even arranged a payment plan for our fee so he could pay us off while still meeting his ATO repayments.

Case study #2: standard employee

Charlie worked as an employee and always got tax refunds, but had not lodged a tax return for years. He was missing a few group certificates (PAYG Payment Summaries) which he thought might stop him from lodging returns.

We assisted Charlie in finding his missing documents through ATO records and lodged his outstanding returns, resulting in refunds of over $2,000.

In reviewing his affairs we also found unclaimed Centrelink entitlements he didn’t know he had. Not only was Charlie relieved to have the old returns up to date, but he finished up with quite a bit of money out of the process.

Take action today!

If you have read this far you can probably relate to the stress of having outstanding business with the ATO. Experience suggests that it’s probably not as hard to sort it out as you think.

And, who knows? You might end up with money in your pocket. Most employees get tax refunds, not tax bills.

You can contact us now on the number at the top of the screen. Alternatively, if you are ready to book an appointment you can start the process immediately by clicking on the button above.

Don’t let your location be an excuse. With our online consultations we can and do help clients all over Australia.

You will be surprised how easy it is to sort out your tax with the right professional advice. And you won’t regret putting the stress behind you.