This information explains:
- why we issue default assessments
- how they are calculated
- what you should do it you receive a warning letter or actual default assessment.
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 may be applied for each default assessment we issue. This penalty may be increased to 95% of the tax-related liability in certain circumstances for taxpayers who have a pattern of non-compliance. We can also apply another penalty for failing to lodge on time.
Before we issue a default assessment, we will send a warning letter to the taxpayer or their registered agent. The letter includes:
- details of the default assessment
- the date the overdue obligation needs to be lodged by to avoid us issuing 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 with the applicable administrative penalties.
We may issue a default assessment without giving a warning letter 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)
- it is urgent (for example, to issue an amended assessment within the period of review).
If you receive a warning letter, you must ensure all overdue obligations are lodged by the date advised in the letter.
If you are a tax agent, you should notify your client immediately of the impending default assessment and advise them to lodge.
If you no longer represent the taxpayer, remove the client from your client list and, if known, provide us with their new contact details.
If you agree with the default assessment then you should pay the amounts notified or contact us to make a payment plan.
If you don't agree with the default assessment, you must lodge an objection to it.
You may also consider objecting to the associated assessment of penalty.
You must state in detail why you are dissatisfied with the assessment and be able to provide evidence to support your claims.
Our ability to make reasonable default assessments is improving through increased access to data on transactions and payments.
In calculating a default assessment we consider:
- 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.
The GDP growth rate means the percentage that the Australian economy grew or contracted in a period.
The rate may be applied to previously lodged information to help work out the income and expenses for the overdue obligation.
Tax statistics and small business benchmarks
We use tax statistics and small business benchmarks to guide us in making reasonable default assessments when actual amounts are not available.
See also:Information about how and why we issue default assessments for overdue lodgments, and what you should do if you receive one.