Why do you need a good compliance history with the ATO?
When you are dealing with the Australian Tax Office (ATO), your compliance history is very important.
If you have a good compliance history with the ATO, the ATO is likely to be more lenient in dealing with you. If you have a poor compliance history with the ATO, the ATO is more likely to penalise you heavily for failing to meet you tax obligations.
The ATO will consider your compliance history in determining whether it is fair and reasonable to remit penalties and interest charges that may be imposed on you under the tax laws.
To keep a good compliance history with the ATO, you need to:
- Lodge all of your tax documents with the ATO on time (including activity statements and tax returns)
- Pay your non-disputed tax debt to the ATO on time (or enter into a formal payment arrangement with the ATO for the payment of your tax debts)
- Have not been recently audited and penalised by the ATO for failing to meet your tax obligations
The ATO’s compliance approach is to support taxpayers who engage with the ATO and want to get things right. However, the ATO will take firmer legal action against taxpayers who are reckless in dealing with their tax affairs or are intentionally not meeting their tax obligations.
How can you keep a good compliance history with the ATO?
This article provides 5 helpful tips on keeping a good compliance history with the ATO.
1. Get legal advice from an experienced tax lawyer
The Australian tax system is based on self-assessment. The self-assessment system places the responsibility on taxpayers to ensure they correctly comply with their tax obligations under the law.
The tax laws in Australia are complex and they change often. Therefore, it is important that you get legal advice from an experienced tax lawyer on how the tax laws apply to your specific circumstances.
The tax lawyer that you engage for your tax matter must be highly competent and experienced in dealing with the ATO. A good tax lawyer must know how the ATO thinks and operates. A tax lawyer can give you helpful advice to ensure that you correctly meet your tax obligations and get the best result when you are dealing with the ATO.
An experienced tax lawyer can also help you with the following:
- Tax audits
- Tax disputes
- Tax objections
- Tax appeals
- Tax debts
Generally, the sooner you get legal advice from a tax lawyer, the better it will be for you and the more likely the tax lawyer can help you.
By hiring a good tax lawyer, you can keep a good compliance history with the ATO.
The legal fees paid to a tax lawyer for managing your income tax affairs are generally tax deductible in Australia.
2. Engage a good tax accountant and registered tax agent
There are many benefits in hiring a good tax accountant to help you with managing your tax affairs. These benefits include:
- Saving you time
- Saving you money
- Helping you manage your finances and grow
- Reducing your stress
Before you hire an accountant, you should check the accountant’s training, qualifications and experience. If you need any advice on this issue, you can consult with your tax lawyer.
It is also important to ensure that your accountant is a registered tax agent with the Tax Practitioners Board.
By hiring a good tax accountant and registered tax agent, you can keep a good compliance history with the ATO.
The accounting fees paid to a tax accountant and registered tax agent for managing your income tax affairs are generally tax deductible in Australia.
3. Lodge your tax documents with the ATO on time
It is important that you know the due dates for the lodgement of your tax documents with the ATO.
Income tax returns in Australia cover the financial year from 1 July to 30 June. If you are lodging your own tax return, it is due by 31 October. If you are lodging through a registered tax agent, you may get an extension until 15 May of the following year. You will need to check and confirm this with your accountant.
Business activity statements are due as follows:
- Monthly activity statements – due on the 21st of each month
- Quarter activity statements lodged electronically:
- Quarter 1 (July–September) – due 11 November
- Quarter 2 (October–December) – due 28 February
- Quarter 3 (January–March) – due 12 May
- Quarter 4 (April–June) – due 11 August
- All other Quarter activity statements:
- Quarter 1 (July–September) – due 28 October
- Quarter 2 (October–December) – due 28 February
- Quarter 3 (January–March) – due 28 April
- Quarter 4 (April–June) – due 28 July
By lodging your tax documents with the ATO on time, you can keep a good compliance history with the ATO.
4. Pay your tax debts to the ATO on time
If you have a tax debt with the ATO, it is important that you engage with the ATO and pay the tax debt to the ATO in full by the required deadline. If you fail to do so, very high interest charges will apply for the late payment.
If you are unable to pay your tax debt to the ATO in full by the required deadline, you must contact the ATO before the deadline and negotiate a payment arrangement to pay the debt over a reasonable period of time (usually 1-2 years). If the ATO approves a payment arrangement, you will be charged on the balance of the tax debt until it is paid to the ATO in full.
For complex tax matters or significant tax debts, you can engage a tax lawyer to negotiate a suitable payment arrangement with the ATO.
If you disagree with the tax debt, you should get legal advice from a tax lawyer on your chances of success in disputing and reducing the tax debt. You should contact a tax lawyer as soon as you have received notification of the tax debt from the ATO.
By paying your tax debts to the ATO on time, you can keep a good compliance history with the ATO.
5. Keep good tax records for a minimum period of 5 years
Under the tax laws in Australia, taxpayers are required to keep good records to prove that they have correctly reported their tax information to the ATO.
Tax records must be in English and in a format that is accessible to the ATO.
There are heavy penalties under the law for failing to keep sufficient tax records.
It is a good idea to set aside some time each week to maintain your tax and business records.
To meet your income tax and GST obligations under the law, some records that you must keep include (but are not limited to):
- income and sales records (e.g. sales invoices, receipts, cash register tapes and cash sales)
- purchase and expense records (e.g. tax invoices, cheque book records and receipts)
- year-end records (e.g. list of debtors and creditors, stocktake records and depreciation schedules)
- bank records (e.g. bank statements, credit card statements and loan records)
Generally, you should keep your tax records for a minimum period of 5 years from the date of lodgement of your tax documents with the ATO. Ideally, you should keep your tax records indefinitely and keep an external back-up in case your original documents are lost or destroyed.
By keeping good records to substantiate your income and expenses, you can keep a good compliance history with the ATO.
Legal advice from experienced tax lawyers for managing your tax affairs and dealing with the ATO
This content of this article is offered as general information only and should not be relied on as specific legal advice.
To get legal advice from King Lawyers on your specific circumstances, please contact us to arrange an initial consultation with our experienced tax lawyers.