The Ostrich Principle – or burying your head in the sand. It is not an option when the Tax Office comes knocking on your door.
So, you’ve received a letter from the Australian Taxation Office. Whatever you do, DO NOT PANIC. The letter will usually be a request for you to provide the Tax Office with information, a request to furnish a document, a demand that you pay a debt, or to simply put you on notice that you are about to be the subject of an audit.
Burying your head in the sand is not an option. The Tax Office has vast powers that allow it to compel taxpayers to comply with its request and demands.
Today we will look at what you ought to do in the event that you receive a communication with the words ‘Final Notice to Lodge’ or such similar words. Ordinarily a notice of this nature request a taxpayer to lodge Income Tax returns or Business Activity Statements by a particular date. Whatever you do, DO NOT IGNORE SUCH A NOTICE. It is an offence under the Taxation Administration Act to fail to comply with a ‘Final Notice to Lodge’.
Failure to comply with a ‘Final Notice to Lodge’ will invariably result in the taxpayer being prosecuted. If you are in South Australia, that means you’ll find yourself facing criminal prosecution in the Magistrates’ Court. The maximum penalty for each failure to lodge for an individual taxpayer is $5,500 and/or imprisonment. Corporate taxpayers (companies) cannot be imprisoned, but the maximum penalties are 3 times greater for companies than the maximum penalties for individuals. If the taxpayer is being prosecuted for a second time, the penalties are significantly greater.
The primary goal for the Tax Office appears to be to ensure that all taxpayers are compliant with reporting obligations. Collecting tax debts appears to take a back seat to ensuring lodgement.
What should I do if I receive a ‘Final Notice’? In short, immediately speak with your solicitor and accountant. From a strategic perspective, you must ensure that the outstanding returns are at least prepared in a draft format. If your solicitor is experience with matters of this nature, he or she ought to be able to provide you with a strategy with respect to which returns to lodge first. In doing so he or she will consider general interest charge and failure to lodge penalty consequences; whether an application for remission of general interest charge and or failure to lodge penalties is appropriate; and of course, whether the taxpayer is entitled to a refund from the Tax Office.
Once a strategy is agreed between the taxpayer and his or her solicitor, the taxpayer ought to lodge (if that is the solicitor’s advice). Once lodged, the threat of prosecution evaporates, provided lodgement occurs before the Tax Office files and serves its Complaint and Summons (out of the relevant Court).
What should a taxpayer do if he, she or it receives a Complaint and Summons but didn’t receive a ‘Final Notice’? The answer is to immediately speak with a solicitor that specialises in matters of this nature. Remember, the offence is the failure to comply with the terms of the ‘Final Notice’, not failure to lodge by itself. If the taxpayer hasn’t been served with the ‘Final Notice’, a not guilty plea ought to be made at the earliest opportunity and the matter set down for pre-trial conference. Remember, it is a defence to a complaint alleging fail to comply with a ‘Final Notice’ if the notice was never served on the taxpayer. Just because the Tax Office avers that the notice was properly served, doesn’t mean that it was. Don’t forget, the Tax Office bears the burden of proof to the criminal standard, beyond reasonable doubt, that all elements of the offence are proved.
From experience, the Tax Office isn’t overly keen to take matters of this nature to trial. Remember, an adverse finding against the Tax Office may have far reaching consequence. Not just to the taxpayer being prosecuted but to all taxpayers. Simply put, the Tax Office doesn’t want to lose a matter if the precedent that maybe set ultimately creates a ‘rod for its own back’.
There are many facets to properly dealing with the threat of prosecution or actual prosecution by the Tax Office. The vast powers that the Tax Office has includes legislative provisions for it to request a court of appropriate jurisdiction to order the taxpayer to lodge. Failure to comply with orders of a Court is a very serious matter indeed.
Aside from the fines that may (likely) be imposed if a taxpayer is successfully prosecuted, other consequences potentially arise depending on the taxpayer’s individual circumstances. Generally speaking, taxpayers that have been prosecuted must lodge their future tax returns earlier than those taxpayers who have a good compliance record. Taxpayers employed by the Australian Public Services may be in breach of the APS Code of Conduct. The ability of a taxpayer to travel of Australia may be compromised if the taxpayer has a criminal conviction.
Having problems with the Tax Office? Contact Adrian Bambrick on 8362 5269 or 0439 981 969. Adrian is an experienced solicitor specialising in tax controversy matters. Adrian’s tax practice covers criminal prosecutions; applications for remission of general interest charge and failure to lodge penalties; responding to Tax Office Position Papers; defending attempts by the Tax Office to windup or bankrupt taxpayers; Part IV C disputes; and defending claims made by the Tax Office in State and Federal Court jurisdictions.