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Pilot for the referral of overdue lodgments to collection agencies

Thursday 9 May, 2013

The Tax Office has announced that it is commencing a pilot where the details of taxpayers with overdue income tax return and activity statement lodgment obligations will be referred to external collection agencies, using the same processes that it currently uses for referring taxpayers with overdue debts.

The Tax Office will be targeting those taxpayers who, despite previous requests, have failed to lodge their overdue documents.

At the end of April 2013, letters were sent to affected taxpayers to warn that overdue documents that are not lodged by the specified date will be referred to a collection agency to pursue the overdue lodgments. Once referred, the taxpayer or their agent will only be able to negotiate with the collection agency on these matters.

What needs to be done

If an agent receives a pre-referral letter for their client, they should ensure that their client knows: that they need to lodge their overdue documents by the specified date the impending referral to a collection agency, and the penalties that may be imposed if lodgment is not made.

If the client has lodged their overdue documents recently, the agent does not need to take any further action.

Delete former clients

The Tax Office advises that if a client no longer uses the services of an agent, the agent should delete them from their client list and, if possible, provide their last known address, using the:

Tax Agent Portal, BAS Agent Portal, or the electronic lodgment service.  The agent would not need to take any further action for these clients.

RECORD RETENTION

A frequently asked question relates to the keeping of receipts, invoices, cheque butts, deposit slips etc, (generically known as vouchers to accountants), for inspection by the Australian Taxation Office (ATO).
As in so many things in tax, there is no simple answer. Let’s start with the law. Section 262A of the 1936 Income Tax Assessment Act requires ‘a person carrying on a business to keep records that record and explain all transactions and other acts … that are relevant for any purpose of the Act’. A later subsection requires that these records be kept in English, or in a way that can be readily accessed and converted to English (probably allows for electronic storage). Another sub-section has a requirement to keep the records for 5 years.
The ATO interprets all this in the following ways, and spreads this detail all over TaxPack.
Work Related Expenditure (WRE):
The records need to be kept for 5 years from 31 October or the date of assessment of the tax return, whichever is the later.
Depreciation While depreciation is often part of WRE, there is a special rule. The receipt for any asset being depreciated must be kept for 5 years after the date of assessment (or October 31) of the last return in which any depreciation is claimed on that asset. So the receipt for an asset bought 5 September 2004 and claimed over 5 years straight line will need to be kept until October 31 2015. Assets on diminishing value depreciation will have a longer, almost infinite, retention period.

Capital Gains:

There are two parts to this rule. For a Capital Gain the rule is simple, keep the documents for 5 years from October 31 or date of assessment.
For a Capital Loss the rule is more complex. The documents evidencing the loss must be kept for 5 years after October 31 or date of assessment of the return in which the loss is offset against another gain. So all documents used to calculate a capital loss in 1992 will need to be kept for a long time, perhaps as long as 25 or 30 years, especially if the loss were large and slowly being extinguished by small Capital Gains distributed out of a managed fund.

Period of Review for Tax Returns:

From 2005 the period of review for most personaltax returns is only 2 years. That is, barring fraud, the ATO can only issue an amended assessment within 2 years of the date of assessment. This rule also applies to small business returns which elected to be in the Simplified Tax System (STS). The ATO reserves the right to exclude some STS taxpayers from the 2 year period of review, eg where the taxpayer has a history of lodging ‘interesting’ returns. Why you have to keep the vouchers for three years longer than the ATO can review the return is beyond my understanding.

Shorter Period of Review (SPOR)

A very limited group of taxpayers can dispose of all records after just 2 years. These are separately notified in the Notice of Assessment. Typically these returns contain a Payment Summary, some interest, and a claim for tax agent fees, ie extremely simple returns.

Recipients of an ETP:

In 2007 the ATO permits a taxpayer over 55 on 1 July 1988 who has not received the benefit of the Low Rate Threshold to apply to the ATO for re-assessment, enclosing copies of all ETP Payment Summaries (or Group Certificates) for every year since 1988… The ATO obviously thinks everyone keeps all tax papers for a long time.
For most taxpayers it seems that the cost of a filing cabinet to store tax records should be claimed at D 10.
I strongly recommend that you keep the assessment notice and the printed copy of every tax return, including any payment summaries of your tax return forever. This set is relatively thin, and won’t take much space – it’s the receipts which are bulky!

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