Another financial year has ended and it is that time of year again when taxpayers start turning their minds to lodgement of income tax returns. For taxpayers that don’t have a tax agent, the deadline for lodgement is 31 October. If a tax agent has been appointed, this date may be extended until March or, in some cases, May of the next calendar year.
While lodgement of income tax returns is a necessary evil, it is common for taxpayers, and in particular self-employed persons, to fall behind in their obligations. This can be for many reasons. In some cases, the task of organising all of the relevant records is too daunting. While in others, the everyday duties and responsibilities of running a business, or just dealing with other life events, take priority. Before you know it, taxpayers can easily find themselves behind in their tax obligations.
It is generally understood, appreciated and perhaps even accepted by taxpayer’s that a consequence of non-lodgement of their return is the imposition of an interest liability on any tax payable as well as a fixed ‘failure to lodge on time’ penalty. However, from a legal perspective what taxpayers in our experience fail to fully appreciate is that a failure by a taxpayer when required to give to the tax office an income tax or GST return is a taxation offence, and the tax office can prosecute the taxpayer before the Magistrates or District Court.
Failure to lodge tax returns is a strict liability offence. That is, liability does not depend on actual negligence or an intent by the taxpayer, and circumstances such as health, wellbeing and other personal circumstances which might have impacted on a taxpayer’s ability to lodge their return will not constitute a satisfactory defence. It might, however, mitigate any Court imposed sanction.
In the last six months, we have seen an increasing trend with the tax office heavily targeting taxpayers who have consistently failed to lodge their income tax returns and/or their Business Activity Statements. Further, it is our understanding that the Commissioner is planning to further increase the number of actions in the next calendar year.
There is no statute of limitations for these offences, meaning that the tax office can prosecute taxpayers for non-lodgement of returns going back any number of years. For example, in recent times we have seen the tax office target individuals who have returns outstanding from as far back at 2007.
For individuals, prosecution can mean a maximum penalty available to the Court per offence of $9,000 and/or 12 months imprisonment.
Further, even if the penalty is reduced by reason of mitigating circumstances, prosecution can result in the taxpayer having a criminal offence recorded against their name. Consequently, this can have a real impact in circumstances where a criminal history check is ever later required for that taxpayer (for example, by a prospective employer, bank or foreign travel official).
That all being said, a custodial sentence and the imposition of the maximum penalty is unlikely if there are bona fide reasons in mitigation of such penalty, and there may indeed be an opportunity to have the offence not recorded against your name.
If you find yourself in a position where you have fallen behind in your tax obligations, the best course of action is to take immediate steps to lodge the relevant returns. If you have received a court attendance notice or correspondence to indicate that the ATO is seeking to prosecute you, it is important for you to seek legal advice and representation.
