During December 2011, the ATO issued default assessment warning letters to a number of taxpayers with overdue income tax returns. These have been sent where the ATO has evidence that these taxpayers have received taxable income in years that taxation returns have not been lodged.

These letters are titled ‘default assessment warning’ and are part of an ongoing plan by the ATO to address non-lodgment.

The ATO has indicated that if the overdue returns are not lodged by the date specified, it will proceed by issuing default assessments to these taxpayers. The assessments will be based on the estimated taxable income included in the letter.

It is important that prompt action be taken by anyone receiving a default assessment as the penalties can be severe. Taxpayers can incur ‘failure to lodge on time’ penalties, and administrative penalties of 75% of the tax related liability from the default assessment.

This is calculated after taking into account any pay as you go (PAYG) credit and other available tax credits.