• Default assessments for overdue lodgments

    This information explains why we issue default assessments and how they are calculated.

    Why we issue default assessments

    If a taxpayer has an overdue lodgment obligation, we can issue a default assessment.

    Our preferred approach is to work with taxpayers to help them meet their lodgment obligations. However, we may issue a default assessment if a cooperative approach is unsuccessful.

    A default assessment is an assessment of:

    • taxable income – for overdue tax returns
    • net amount or assessable amount – for overdue activity statements.

    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 and we can apply a penalty for failing to lodge on time.

    See also:

    Assessment warning letters

    Before we issue 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 then issue the default assessment.

    Default lodgments without notice

    We may issue a default assessment without giving advance notice if:

    • there is a risk of    
      • flight (for example, the taxpayer is likely to leave the country)
      • dilution of assets (for example, assets are likely to be transferred)
      • movement of funds outside Australia (for example, a non-resident is selling their sole Australian asset)
       
    • urgency (for example, to issue an amended assessment within the period of review).

    What you need to do

    If you receive a default assessment warning letter, you must 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    • remove the client from your client list through our Tax Agent Portal or electronic lodgment service (ELS) if you no longer represent the taxpayer
    • if known, provide new contact details of the client.

    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.

    How we calculate default assessments

    We are continually expanding our access to transactions and payments data. This, in turn, is continually increasing our ability to make reasonable default assessments if taxpayers have overdue lodgment obligations.

    To calculate a default assessment we consider 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 tax statistics
    • any other relevant information available to us.

    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.

    Tax statistics and small business benchmarks

    Tax statistics and small business benchmarks guide us to make reasonable default assessments when actual amounts are not available.

    See also:

      Last modified: 01 Jun 2016QC 25981