It is common for people to ignore lodging tax returns without regard to the consequences that may arise. We have previously written about outstanding ATO lodgements for businesses. But what if individuals don’t lodge their tax returns on time, or at all?
Failure to lodge tax returns may result in an audit from the ATO. If you had income in the years where tax returns weren’t lodged, the ATO will impose general interest charges (GIC) and penalties on top of the tax payable.
Throughout the years, we have assisted a number of individuals that were audited by the ATO, resulting in large tax debts including GIC and penalties. Below is an example of one of these cases:
Background – Failure to Lodge Tax Returns and ATO Audit
Our client was referred to us by her tax accountant. We were advised that:
- Our client was 52 years old and was not employed;
- Our client and her husband had three children, two of which were still dependents;
- Over the years, our client had received dividends from companies that her husband managed;
- Our client held no significant assets apart from a property that had an equity of approximately $212,000;
- Our client had a credit card debt of $43,000;
- Our client was reliant on her husband to manage her financial and tax affairs;
- Our client did not realise that her lodgements with the ATO were not up to date. In fact, the overdue lodgements ran back to more than a decade; and
- The ATO ultimately conducted an audit and assessed our client owed over $290,000. This included her core tax debt but also a significant amount of GIC and penalties.
When the client came to us:
- The ATO debt had been reduced to $232,000 as our client had been making payments towards the debt;
- An objection to the ATO debt had been lodged, and a request for a payment plan was provided to the ATO but both were rejected; and
- A Garnishee Notice had been issued by the ATO to our client’s bank.
Options Available to Our Client
Having considered out client’s circumstances, we advised her that the options available were:
- Bankruptcy which would release her from her ATO debt. The effects of bankruptcy are summarised here;
- Put forward a proposal for a Personal Insolvency Agreement pursuant to Part X of the Bankruptcy Act 1966 to avoid bankruptcy; or
- Seek to negotiate with the ATO to “settle” the debt.
After understanding the above options, or client instructed us to “settle” her ATO debt.
Successful Outcome – Proposal Accepted by the ATO
We summarised the financial position of our client to the ATO and explained to the ATO that the best outcome was to not bankrupt our client. We submitted the following proposal to the ATO which was accepted:
- Our client’s debt with the ATO was reduced by $113,800. This represented a significant portion of the GIC and penalties included in the debt and a 49% reduction in the debt; and
- Our client would pay the remaining debt in $5,000 monthly payments.
Contact Us for Assistance
If you have ATO debts and are concerned about bankruptcy, we can help. Get in touch on 1300 906 966 or send us an email to email@example.com to have a free, confidential initial discussion today.