Yep, death is inevitable but if you still believe you can evade the tax man, forget it. The ATO is hot on your heels.
As a general rule if you’re an Australian resident and you earn income you must pay tax, irrespective of whether the income is earned in Australia or overseas.
The good news is you don’t have to pay tax on every single cent of income you earn. There are offsets, rebates and deductions that can help you reduce your taxable income.
There are, however, rules about when you have to report your earnings to the tax man. If you’ve fallen behind with lodging your tax returns, if you’re worried about ending up with a bill or you’ve actually already got a bill, what should you do?
"Each year over 12 million individuals lodge tax returns. Tax agents lodge 72% of individual returns and for the 2011 tax year, nearly 2.6 million individuals have lodged using E-tax to date," an ATO spokesperson says.
"For the balance of the returns we use a variety of tools to identify those who need to lodge, including data matching of information from sources such as employers and banks.
"Now more than ever the ATO is better able to find those who are not meeting their lodgement obligations.
"Our message is that it is better to come forward and lodge before we catch up with you."
Behind with your returns?
If you don’t lodge an activity statement, income tax return, fringe benefits tax return, PAYG withholding tax annual report or an annual GST return or report within the given timeframes you may be hit with a Failure To Lodge (FTL) penalty. Ouch!
You’ll get a written or verbal warning before you’re hit with an FTL and the ATO says it’s reasonable and understands that there are always unexpected circumstances such as illness that make it impossible to meet deadlines.
If the taxman owes you money you won’t get slugged with a FTL. If the shoe is on the other foot and you would owe tax, expect a bill. And it can be substantial. If you’re considered to be a “small entity” you’ll be charged $110 for each 28 days (or part thereof) that your lodgement is overdue. For medium entities (annual turnover $1m to $20m), the penalty is $220 per 28 days and large entities (turnover or taxable income >$20m) get slugged $550 per 28 days.
There’s a maximum of five payment periods but that means ordinary individual tax payers who are 113 days late with lodgement could be penalised up to $550. Just not worth it.
So even if you think you’ll end up with a tax bill, the best thing to do is to always lodge your documents with the ATO on time.
Oh no, you’ve got a tax bill
OMG you’ve received a letter from the ATO and it says you owe thousands of dollars in tax. That’s thousands of dollars you just don’t have. What can you do?
The worst thing you can do in this situation is not act. Contact the ATO straight away or talk to your tax agent. There are many options available to assist you to pay a tax bill. If you ignore the bill you could end up paying steep penalty interest.
If your debt is less than $25,000 the ATO has an automated self-help service where you can apply to make late payments or pay your bill by instalments (ph 13 28 65).
For amounts greater than $25,000 or if you don’t think the self-help service is what you need, speak with an ATO representative to discuss your repayment options. You may need to provide written information about your financial circumstances including an assets and liabilities statement.
If you are given extra time to pay your tax there’s on final sting in the tail. You will usually have to pay what’s called a General Interest Charge (GIC) which is updated quarterly and currently sits at 11.62% pa.
With interest rates at their lowest for more than 50 years, there are some great rates available. The best thing to do is to compare rates from all the lenders. Let us help take the leg work out of doing this - Compare Home Loans now