Since 1936, the Australian Taxation Office (ATO) have had the power under section 167 of the Income Tax Assessment Act to issue an assessment where they are not in receipt a tax return. The ATO are now using this power to address non-lodgment.

The ATO have embraced technology to enhance their data collection from third party sources.  There are now many businesses, organisations and departments that submit information to the ATO on transactions and activites.  This information has been consolidated each year and varified by actual lodged returns.

Today the ATO have issued default assessment warnings letters to taxpayers who have failed to lodge their tax return or risk a Default Assessment.

Why avoid a Default Assessment?

A default assessment consolidates the information known to the ATO.  However, unlike when you prepare your Tax Return with an Accountant, the ATO do not take into consideration expenses and claims that you may have that are deductible.  This results in more tax being paid than you may have otherwise been liable for due to forfeiting any entitled deductions.

Furthermore, additional penalties can be levied of at least 75% of the net tax payable from the Default Assessment after taking into account any PAYG and any other tax credits available.

How can I avoid a Default Assessment?

Keep your tax compliance current.  If you receive a letter for one of more years then ensure you prepare and lodge your tax return by 13 January 2011.