Tax disputes aren’t always about whether you have paid the right amount of tax. Some disputes involve the possibility of a criminal conviction.
In the 2019 financial year, there were 38 convictions of ‘serious tax crimes’ and 1,094 convictions of summary tax offences within Australia.
Failure to lodge tax returns
The most common tax related crime is the summary criminal offence of not lodging an income tax return, or a business activity statement (BAS), when it is due. This is an offence under section 8C of the Taxation Administration Act 1953.
What not to do
Don’t fall into the trap of not lodging a tax return or BAS because you can’t afford to pay the tax debt. Doing this does not ultimately avoid the tax. Instead, it can make things much worse, as you can end up with:
- a criminal conviction for not lodging
- an order to pay a fine to the court
- a large tax debt that has accumulated interest from the day the original returns were due
Facing charges for not lodging returns?
Find out the maximum potential penalty that you face under the tax law by using the Hartigan Law Section 8C Penalty Calculator.
Types of charges
The way the ATO initiates these convictions is different for unlodged income tax returns and unlodged BAS.
Income tax returns
For income tax returns, the ATO usually issues you with a formal notice requiring you to lodge your outstanding returns by a particular date. You generally get between six to eight weeks from the date of the notice to lodge the returns.
If you don’t lodge by the nominated date, or renegotiate a new date, the ATO will usually issue you a summons within the next few months. Under the summons, you are required to go to court and face criminal charges under section 8C for not lodging your income tax returns as required in the ATO’s formal notice.
If you receive a notice from the ATO telling you to lodge, ‘or else’, then you need to take it seriously. Find an accountant who can help you to get your returns up to date. Do this quickly, as it can take time to put everything together. Call the ATO and ask for more time if you need it – or, better yet, have your accountant lodge this request using the Tax Agent Portal.
Charges for not lodging your BAS are different to charges for not lodging your income tax returns. For BAS, you do not usually receive a formal notice from the ATO requiring you to lodge your BAS or face criminal charges. That is, if you haven’t lodged the BAS by its ordinary due date, then it is possible that you will be charged with a criminal offence.
That said, a criminal charge is not automatic. This means that if you have not lodged your BAS when it is due, you should lodge it as soon as possible rather than leave it outstanding and risking prosecution.
Can you avoid conviction for not lodging your returns?
Charges under 8C of the Taxation Administration Act 1953 are serious. Most charges that are prosecuted will result in a criminal conviction. In the 2019 financial year, 95% of all summary charges finalised in that year resulted in a conviction.
Withdrawal or dismissal of charges
Though most charges result in a conviction, a small percentage of cases are either dismissed or withdrawn.
There’s a difference between a withdrawal of the charge and a dismissal of the charge.
A withdrawal is where the ATO agrees to ask the court to allow it to withdraw the charge. This can happen where you are able to convince the ATO that:
- there are extenuating circumstances based on the merits of your case, or
- you have a defence that the court is likely to accept and therefore it would be better for all involved if the ATO withdrew from the proceedings.
If the ATO asks the court to withdraw the charges, then the court will usually do so.
After giving Catriona all the relevant information, Catriona managed to lodge a submission to the ATO within 3 working days providing legal arguments as to why extenuating circumstances warranted the charges being withdrawn. This meant the ATO postponed the court date so they could properly consider the submission.
Eight working days after lodging the submission Catriona followed up the ATO to receive the welcome news that the ATO accepted the arguments put forward in the submission and would withdraw the charges.
I also appreciated that Catriona was able to give me a fixed cost to provide her services to me so there were no surprises about her fees. Even though I was in WA and Catriona was in SA she was always available on the phone and kept me up to date with what was going on. I can’t thank her enough.
A dismissal is where the court decides that, even though the ATO has proved the charges, it would be inexpedient to inflict any punishment, given your circumstances. The court can dismiss charges under section 19B of the Commonwealth Crimes Act, in which case, you don’t end up with a conviction.
It is unlikely that the court will dismiss the charges without you first making a very convincing argument about why this should be done. This can be quite technical, so it is best to speak to a specialist lawyer about this.
Is there any defence?
A failure to lodge offence is an “absolute liability” offence. This means the ATO does not have to show that you intended not to lodge your returns. All that matters is that you didn’t lodge your returns, regardless of your intentions. This makes it very straight forward for the ATO to prove its case against you.
You may have a defence to a charge under section 8C if you can show that you were incapable of lodging your returns. This can be very difficult to prove – particularly for multiple charges relating to BAS returns, where each offence happens at the time the BAS was due.
If you think you have a good defence, then the first thing you should do is make an application to the ATO to withdraw your charges, on the basis that you couldn’t lodge your returns. If you can show the ATO that the court is likely to accept your defence, then the ATO may ask the court to withdraw the charges, rather than forcing both parties to go through the process of a formal court hearing.
If the ATO doesn’t withdraw the charges and you still wish to claim a defence, then you will need to plead ‘not guilty’ in court. You then go through the process of presenting evidence to the court, so it can make a decision whether it accepts your defence.
Being convicted under section 8C
In most cases, if you are charged under section 8C then you will likely end up with both a conviction and a fine that you must pay to the court.
You may also be sentenced to time in prison, if the ATO has elected to treat your offence as ‘otherwise than as a prescribed offence’ (also known as a ‘section 8F election’). The ATO will usually only make this election if you have a history of convictions for not lodging your returns.
If you haven’t lodged your income tax returns or BAS by the time you are convicted, then you can also expect the court to order you to lodge them within 90 days. The court can make this order under section 8G of the Taxation Administration Act 1953.
If you don’t comply with this court order, then you are likely to be charged with an offence under section 8H of the Taxation Administration Act 1953. This offence has a maximum penalty of up to one year in prison for each offence. For example, if you have not lodged 10 returns, then there are 10 offences and a maximum combined sentence of 10 years.
How I can help
I have helped several clients who have been charged with failure to lodge their tax returns and BAS under section 8C or failure to comply with a court order under section 8H. I have helped to make their case to the court to help to keep their fine as low as possible. If you’d like to learn about what potential maximum penalty you face, then you can use my penalty calculator here.
In many cases, I have been successful in having charges withdrawn by the ATO. I can also provide advice on whether the charges are likely to be dismissed and can make this application to the court for you.
I have also represented clients charged under section 8H (not complying with a court order to lodge returns), and been successful in keeping them out of prison.
- Have you been issued a summons to attend Court for not lodging tax returns?
- 16 tips for going to Court for not lodging your tax returns
- [calculator] Criminal Charges Penalty Calculator
Other tax related crimes
While failure to lodge offences are the most common tax related crimes, there are many other kinds of offences. For example:
- not attending an interview with the ATO, or not providing information to the ATO, when required to do so under Division 353 of Schedule 1 of the Taxation Administration Act 1953. You could face charges under section 8C for this failure.
- making a false or misleading statement to an ATO officer (section 8K of the Taxation Administration Act 1953). This is punishable with a fine, or up to one year in prison if the statements are made recklessly and it is your second offence.
- tax fraud – for example, creating false invoices to claim tax deductions or lodging a false BAS to claim higher GST refunds (section 134 and 135 of the Criminal Code). Tax fraud offences can carry a penalty of up to 10 years in prison.
These charges are much less common than failure to lodge charges. If you’re facing any tax related criminal charge, then you should get legal advice. It’s best to get this advice from a tax lawyer, who knows and understands what your obligations are under the tax law. This can put you in the best position to have charges withdrawn or dismissed, or to receive the lowest penalty possible.