If a taxpayer has an overdue lodgment obligation, the law allows us to make an assessment of their:
- taxable income in the case of an overdue income tax return
- net amount or assessable amount in the case of an overdue business activity statement.
We refer to this type of assessment as a default assessment because it is made as a consequence of the taxpayer defaulting on their lodgment obligation. Our preferred approach is to work with taxpayers to help them meet their lodgment obligations. However, we may issue a default assessment when the cooperative approach is unsuccessful.
An administrative penalty of 75% of the tax-related liability will be applied when we issue a default assessment. This penalty is increased by 20% for taxpayers who have a pattern of non-compliance. We may also apply a penalty for failing to lodge on time.
We are continually expanding our access to transactions and payments data. This, in turn, is continually increasing our capability to make reasonable default assessments if taxpayers have overdue lodgment obligations.
Before issuing a default assessment, we will send a default assessment warning letter to the taxpayer, or their registered agent, that includes:
- details of the default assessment
- the date the overdue obligation needs to be lodged by to avoid being issued a default assessment.
If the overdue obligation is not lodged by the date stated in the default assessment warning letter, we will issue the default assessment.
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There will be circumstances where it may be appropriate to issue a default assessment without giving advance notice to the taxpayer, such as:
- if there is a risk of
- flight (for example, the taxpayer is likely to leave the country)
- dilution of assets (for example, where assets are likely to be transferred)
- movement of funds outside Australia (for example, where a non-resident is selling their sole Australian asset)
- other cases involving urgency (for example, to issue an amended assessment within the period of review).
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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
- any other relevant information available to us.
Gross domestic product (GDP)
The GDP growth rate is the percentage that the Australian economy grew or contracted in a period.
The rate may be applied to previously lodged information to help determine the income and expenses for the overdue obligation.
The default assessment warning letter will advise if we have used GDP growth rates in our calculation.
Taxation statistics and small business benchmarks
Taxation statistics and small business benchmarks enable us to make reasonable default assessments when details of actual amounts are not available.
What you need to do
If you receive a default assessment warning letter, you need to ensure all overdue obligations are lodged by the date advised in the default assessment warning letter.
If you are a tax agent:
- notify your client immediately of the impending default assessment and influence them to lodge
- remove the client from your client list through our Tax Agent Portal or electronic lodgment service (ELS) if you no longer represent the taxpayer's account
- if known, provide new contact details of the client.
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If the relevant obligations were lodged on or around the date of the default assessment warning letter, you do not need to take any further action.
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Last Modified: Wednesday, 19 June 2013