Warning: This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.
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 Tax Office 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 Tax Office 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 Tax Office, 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 Tax Office 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 four years (or two years for shorter period of review taxpayers) after tax became due and payable under the assessment. Where anti-avoidance provisions apply, the period is extended to six 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 Tax Office treats taxpayers as being honest in their tax affairs, but mistakes can occur.
The Tax Office checks the accuracy of the information in tax returns provided to us: for example, Tax Office 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 rebates.
Where errors are detected, we may issue an amended assessment disallowing deductions or rebates 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 Tax Office 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 Tax Office 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:
- TaxPack and associated publications, including e-tax, which enable you to prepare their own income tax returns each year
- a change in penalty provisions so that, if taxpayers take reasonable care with their tax affairs, they will not receive a penalty for honest mistakes (Note that interest on omitted income or over-claimed deductions and rebates could still be payable.)
- private rulings
- taxpayers’ entitlement to interest on early payment – or overpayment – of a tax debt
- the Taxpayers’ Charter
- help initiatives such as TaxHelp, Tax Office shopfronts and help lines
- the process for applying for an amendment if you have left something out of your tax return, and
- product rulings.
A fact sheet dealing with some of these initiatives is also available.
More information about private rulings can be found on the Tax Office website www.ato.gov.au, by calling us on 13 28 61 or by writing to the office where you lodged your last tax return.
Last Modified: Friday, 23 July 2004
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