9 years without tax return....

I have got a friend who bought a house in 2007 with cash.
The house is under his and his wife's names.
Then he and his wife went overseas.
During 9 years, he was getting around 20k ($450/week x 52 weeks) rental income per year.
Surprisingly, he did not do any tax return at all for past 9 years.
His accountant told him that he will be liable for penalty about $950/year for 9 years.

I am wondering:
1. Is there a way to minimise the penalty? Is the penalty really $950 x 9?
2. Is it better to do tax return as resident or non-resident? (both he and his wife are citizens)

Any suggestion to get him out of this mess?

Thanks in advance.

 

Once the returns are lodged you can make an application to have the penalties waived. If you have a legitimate reason, and you submit the application properly, you stand a reasonable chance of a reduction.

Being "really busy" is not a good reason.

The question of residency is based on the facts of your mate. It is not a choice.

 

Give me a break. He makes income in Australia, fails to declare it, and this tax cheat has the nerve to complain he got a fine.
Maybe that why he can pay "cash" for a property. Previous tax dodging, maybe cash in hand stuff.
The ATO has this one correct. Your tax cheat friend should pay the fine.

What mess is he in? The ATO legitimately fined a tax cheat. Pay up.

 

On a tax return you declare local income and foreign income. I take it your friend overseas (if doing a local tax return in the other country) also did not declare the Australian rental income there either, not just the fact the ATO are chasing him for money for not lodging an Australia tax return, and paying the tax owed.

 

I know someone who has been doing the same thing for about 18 years. The ATO has no way of detecting foreign owners, even when the property is rented out through local real estate agents and the rent is paid into Australian bank accounts. Sucks really, ATO is a bit useless.

That penalty 9x$950 seems extremely low, I would expect it to be more like 50K-100K with interest and surcharges, don´t know though.

 

I think the ATO are gradually improving with data matching across entities, to catch tax cheats like this guy.
Agree, the fine of $950/yr is too small. This guys friend should pay up, shut up, and be thankful he did not get slugged a more substantial fine.

 

Haha, was thinking maybe this guy came on the property forum to complain about the ATO fine, as he thought his friend might get sympaphy from us "greedy, tax dodging, scum of the earth, property investors".
Sorry mate. We actually pay our fair share. If your friend failed to declare income, then the ATO has rightly fined him. Lucky its only $950/yr.

 

Isn't that the sort of question he has the accountant for?. Suppose it depends where overseas he went. If it was Singapore for example at 15% tax and he earned more there, then maybe better to take the top tax bracket hit on the Aussie income as foreigner.
If its UK, maybe as Auzzie.
Either way. The fact he earned $20k split is Australia does not mean they is in the "tax free treshold". The ATO will look at the overall income, Aussie and foreigb, and work out what tax was owed on the rental income in the correct tax bracket, as well as the $950/yr fine for failing to logde tax return.
Your friend should listen to the accoutant.

While you may want to listen to your friend sob story on his tax avoidance, you won't get much sympaphy on here.

 

Tell him not to forget declaring his overseas income on the Australian return too if he is a resident.

Why don't you dob him in to the ATO?

 

$$950.00 is not a lot of money penalty wise x 9,but i have a mate in Brisbane who was doing this on several unencumbered houses all cash 50-50 split title wise all out in the open never paid tax in 11 years ,then his Wife meet someone younger at a Latin Dance Class and wanted a settlement and the #### hits the ATO'S high speed fan once the Ladies legal side found out the total picture..

 

Working in IT, I think over time it will only improve to catch tax cheats like this. More integration between entities, more data matching and data mining. Just looks at MyGov, or Centrelink now. Now more people get caught for claiming benefits they got as they didn't declare some income. More integration between employers, banks, real estate agents, billing companies, and ATO.
Should reduce the ability of the tax cheats to hide.
But no doubt, like this OP, and the centrelink cheats, they will cry foul, and complain when they are caught, thats its unfair for the authorities to hand out fines for cheating.
9yrs no tax return. Open and shut case of tax cheating. Pay the fine and declare all income properly the next time.

 

The ATO even reviews/data matches with bond board and SRO. So unless you self-manage and don't lodge a bond you're running a risk but land tax might trip you up.

 

And having used E-tax for years, I was quite suprised to see the full history of tax returns on MyGov when we had to do it on MyGov last year. So quite easy for them to data check people who have not put in tax returns for a few years ( but may have previously). Flag them for further investigation.
Looks like the system works and this guy got caught for tax cheating.

 

dont assume he is a tax cheat.

he could well be non resident with tax losses due to heavy gearing. im not talking the property paid for in cash but could well have a heavily geared share portfolio as well. you just dont know.

in that respect the government has lost nothing. someone who has dealt with various client situations would never assume he has cheated anyone.

they may well have thought well now we are non residents and the properties run at a loss we dont need to do anything until we sell a property. not the right advice but far from deliberately evading tax.

 

Sorry, by your assumption, someone who is even more heavily invested, would know the tax and reporting rules even more.
It's simple. He failed to declare income via tax returns for 9yrs straight, so should pay the penalty for tax cheating.
At the top of every tax return you have a checkbox saying "will you need to submit a tax retuen in the future". If he checked No, and went overseas, still with income from rental property, then he's a fraud.

Also, if he had done the right thing overseas, by declaring the Aussie rental income as "foreign income" in the tax return of that country, then he could have simply said to the ATO, look, it was declare in the courtry xxx's tax return.

But no, he failed to declare income , so has no rightly been fined.
Come-on, carrying over "capital losses" from year to year is different to in-year income.

Cricky, and your a tax agent.

 

He had a property paid for in cash ( no loan) and $20k rental income. With expenses, it would have been maybe $13k after expenses.
So he is positively geared, not running at a loss.
Remind me not to see you as an accountant .

Hey, I'm sure all the people you meet who dodged tax and the same as the prisoners who recon they are "innocent".
With electronic tax returns these days, he's got no excuse for not doing tax returns for 9yrs. Just a tax cheat that the ATO managed to catch.

 

Actually, $7,000 a year in expenses seems high.

Profit per year more likely to be at around $17,000 - depending on land tax cost.

 

obsidian

if you read my post you would have seen that i said he could be heavily geared into other asset classes e.g shares which offsets his gains from the properties.

i did over 20 voluntary disclosures with a well known sydney lawyer so im mearly saying without all the facts you dont know whether he runs at an overall loss or not.

not saying he shouldnt have got advice. he should have but ive seen cases where people just assume because they go overseas they dont need to do anything anymore. thats not correct but happens.

 

Lets split the difference and say $15k yearly net rental income .

Assume he earns foreign income overseas that puts him in the 35% tax bracket. So this guy has failed to pay $5000/ yr in tax for 9yrs, or $45k in tax not paid.
This guy knew what he was doing and thought he could get away with tax avoidance.

 

Lets get him!

Whats his details htopg?