Making a voluntary disclosure to the ATO
When a taxpayer discovers an error or omission in a prior tax return, making a voluntary disclosure to the ATO is the right course of action. The ATO treats voluntary disclosures more favourably than errors it discovers during an audit — penalties are significantly reduced, and the prospect of prosecution is minimised for genuine disclosures.
This is an 8-step workflow for making a voluntary disclosure to the ATO when a taxpayer has understated income, overclaimed deductions, or made another error on a tax return. A voluntary disclosure before the ATO identifies the issue can reduce penalties by up to 80%.
Before you start
- Details of the error or omission in the prior tax return(s)
- The original tax return(s) and assessment notice(s) for the affected years
- Supporting documents quantifying the correct tax position
- Instructions on whether the error was intentional or inadvertent
The workflow
Assess the nature and extent of the error
Identify exactly what was incorrect — understated income, overclaimed deductions, incorrect GST treatment, or other errors. Quantify the tax shortfall for each affected year and determine whether the error was a reasonably arguable position, carelessness, or intentional disregard.
Calculate the expected penalty reduction
Determine the base penalty rate (25% for lack of reasonable care, 50% for recklessness, 75% for intentional disregard). A voluntary disclosure made before the ATO contacts the taxpayer about the issue can reduce the penalty by up to 80%. After ATO contact, the reduction is up to 20%.
Determine the disclosure method
Decide whether to lodge an amended return through the ATO online portal, submit a request for amendment in writing, or make a formal voluntary disclosure via a detailed letter to the ATO. Complex or multi-year disclosures are better handled via a formal letter.
Prepare the voluntary disclosure document
Draft the disclosure letter or prepare the amended returns. The disclosure should clearly identify: the affected years, the nature of the error, the correct position, the tax shortfall, and that the disclosure is voluntary. Include all supporting calculations.
Address any GIC interest exposure
Calculate the general interest charge (GIC) that will apply from the original due date of the tax to the date of payment. The GIC rate is set quarterly by the ATO. Consider whether a remission of GIC may be available in the circumstances.
Lodge the disclosure with the ATO
Submit the voluntary disclosure to the ATO. For formal disclosures, lodge via registered post or through the ATO online services for agents. Keep a complete copy of everything submitted and record the date of lodgement.
Respond to ATO queries and negotiate the outcome
The ATO may request additional information or clarification. Respond promptly and cooperatively. If the ATO proposes a penalty or amended assessment that differs from the taxpayer's position, negotiate the outcome including any remission of penalties or GIC.
Pay the shortfall and confirm the matter is closed
Once the amended assessment is issued, arrange payment of the shortfall, penalty, and GIC. If the amount is significant, apply for a payment arrangement. Obtain written confirmation from the ATO that the matter is finalised and no further action is contemplated.
What you will have at the end
The tax error is corrected through a voluntary disclosure, the amended assessment is issued with reduced penalties, and the taxpayer has certainty that the matter is resolved with the ATO.
Common issues
- Disclosing after the ATO has already commenced an audit, reducing the penalty discount
- Not quantifying the shortfall accurately, leading to further ATO enquiries
- Failing to disclose all affected years, resulting in the ATO discovering additional errors
- Not applying for GIC remission when genuine circumstances warrant it
- Making admissions in the disclosure that could be used in a prosecution (rare but possible for fraud)
Run this workflow on a real matter
Quillio helps quantify tax shortfalls, calculate penalty exposure, and draft voluntary disclosure documents — giving you confidence the disclosure is accurate and complete. See /practice-areas/tax-lawyers or start a free trial.
This workflow covers voluntary disclosures for tax return errors. Taxpayers facing potential criminal prosecution for fraud should seek specialist criminal tax advice before making any disclosure. Legal professional privilege considerations may also apply.
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