Australia’s tax system works on self-assessment. This means that taxpayers must show all their assessable income and claim only the deductions and offsets (formerly called rebates) to which they are entitled, on their annual income tax return.
Major changes to the way tax was assessed for individuals were introduced in Australia through the Taxation Laws (Self Assessment) Act 1992. The changes were designed to give taxpayers greater equity and fairness, increased certainty, and simplicity.
The changes also placed a greater responsibility on the taxpayer to assess their own tax debt or refund. Previously, taxpayers lodged an income tax return containing information from which the Australian Taxation Office (the ATO) prepared an assessment of the taxpayer’s taxable income and tax payable. The assessment was made by making any necessary adjustments to the taxpayer’s calculation of taxable income. A notice of assessment was issued indicating the tax refund or the amount payable and due date for payment.
Under the changes, the ATO moved from processing forms to providing services to taxpayers to help them understand the application of the tax law to their circumstances, such as private rulings.
Under the self-assessment system, the claims a taxpayer makes in their tax return are accepted by the ATO, usually without adjustment, and an assessment notice is issued. Even though we may initially accept the tax return, the return may still be subject to further review.
To ensure the integrity of the tax system, the law provides the ATO with a period where it may review a return (and make sure all income has been included) and may increase or decrease the amount of tax payable. We may amend an assessment up to two years (or four years for taxpayers with more complex tax affairs) after tax became due and payable under the assessment. Where anti-avoidance provisions apply, the period is four years. Where the avoidance is due to fraud or evasion, there is no time limit on amending the assessment.
As described in the Taxpayers’ Charter, the ATO treats taxpayers as being honest in their tax affairs, but mistakes can occur.
The ATO checks the accuracy of the information in tax returns provided to us: for example, our computers routinely check for missing or wrong information. The audit program is aimed at detecting where taxpayers have not declared all of their assessable income or where, for example, they have incorrectly claimed deductions or tax offsets.
Where errors are detected, we may issue an amended assessment disallowing deductions or tax offsets on tax returns. The taxpayer is obliged to repay any tax owing, together with interest and/or penalties as prescribed by law. If taxpayers are found to have overpaid their tax, they will receive interest from the ATO on that amount.
As part of our commitment to you, a taxpayer will not be subject to penalties if it is demonstrated that a tax claim is based on wrong information contained in a Tax Office publication. However, interest could be payable depending on the circumstances of the case.
When you sign your tax return, you are taking responsibility for the claims you are making. We assume you have completed your tax return in good faith. If you become aware that your tax return is incorrect, you must contact the ATO as soon as possible to correct the error.
Remember, even if someone else – including a registered tax agent – helps you to prepare your tax return, you are still legally responsible for the accuracy of the information.
There are a number of initiatives administered by the Tax Office which complement self-assessment. Examples include:
Last Modified: Thursday, 24 December 2009
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