The importance of lodging tax returns on time

A recent decision by a Western Australian court to sentence a Doctor to seven months in prison for failing to comply with court orders to lodge 18 outstanding tax returns and activity statements is a timely reminder of the importance of properly managing your tax affairs.

Case background

The Doctor had not lodged Income Tax Returns for 2013 to 2017 and Business Activity Statements (BAS) for 13 months between May 2017 and June 2018.

The Doctor had previously appeared at the Perth Magistrates Court in February 2020 and was fined $50,000 for failing to lodge these documents. The court ordered the Doctor to lodge the documents within two months. The Doctor still did not lodge the outstanding documents so was then charged with 18 counts of failing to comply with court orders, resulting in his prison sentence.

What Happens If You Don’t Lodge A Tax Return?

When you don’t lodge a tax return on time the Australian Taxation Office (ATO) will issue a FTL or ‘Failure to lodge’ penalty. This penalty is calculated based on penalty units where for each 28-day period that the return or activity statement is overdue a penalty unit is charged. This will increase up to the maximum of 5 penalty units. Since July 2020 the value of a penalty unit is $222. As such the highest penalty that the ATO can apply to an individual is $1,110. In special circumstances such as natural disaster or serious sickness, the ATO will remit the penalty only when it is ‘fair and reasonable to do so’.

For taxpayers who ignore the penalties, the ATO can issue default assessments. This is where the ATO will estimate a taxpayer’s income based on information they currently hold. However, these estimates are rarely correct and will more often than not result in a higher tax liability than a taxpayer would owe if they had submitted their return on time. These assessments can be appealed but this requires the taxpayer to substantiate what their actual tax liability is.

The ATO can also prosecute a range of offences, including failing to lodge returns.

However, the ATO will always make multiple attempts to work with taxpayers or their registered tax agent to help get their affairs up to date before taking the above steps.

What does this mean for me?

While this case may be an extreme example, it serves as a helpful reminder for medical professionals of the importance in staying up to date with their tax obligations. The Doctor’s poor compliance history was a factor in the decision to convict. A poor compliance history can also affect other dealings with the ATO, as well as leading to an increased likelihood of audits and reviews. As high-income earners, the ATO will often target medical professionals.

Learn more

If you need assistance with staying up to date in your tax affairs, please contact Kristy Baxter from our medical services team or your Pilot advisor on 07 3023 1300.