Why lodge a Voluntary Disclosure?
The purpose of making a voluntary disclosure is to correct a misstatement in a lodgement submitted to the ATO. So why would you want to lodge a voluntary disclosure to the ATO?
The main benefit is that if administrative penalties are imposed, they could potentially be reduced by up to 80% depending on when the disclosure is made. Greater penalty reductions generally apply to disclosures that are made before the ATO notifies you of a review or audit. Where the amount voluntarily disclosed is less than $1,000, the ATO can reduce any administrative penalty to nil.
Additionally, making a Voluntary Disclosure may stand you in good stead and provide grounds for when you apply to seek a remission of any general interest charge and administrative penalties and, depending on the circumstance, by lodging the Disclosure, there may be a strong argument that the tax was not avoided by way of evasion.
Importantly, the ATO have stated that
“You also don’t need to admit there is a liability or that you were incorrect in your original statement when you make a voluntary disclosure.”
The ATO would not apply a false or misleading statement penalty if you have taken reasonable care (and can demonstrate this), even though the information is incorrect.
When should the Voluntary Disclosure be lodged?
Voluntary disclosures should generally be made before the ATO gives notice to you of a review or audit however, there are still benefits to lodging a Voluntary Disclosure once a review or audit has commenced. Where the Commissioner has notified you that an examination is to be made of a taxpayers’ affairs relating to a taxation law for a relevant period, lodging a Voluntary Disclosure (in the approved form) after the notification can reduce the base penalty amount (BPA) by 20%. In this instance, the Disclosure must notify the Commissioner about the shortfall, or the false or misleading nature of the statement and in doing so, it can be reasonably estimated to have saved the Commissioner a significant amount of time or significant resources in the examination.
How do you lodge a Voluntary Disclosure?
If a review or audit has commenced, it is best to notify the ATO case officer of your intention to make a Disclosure on the specific matter and provide an estimated time frame as to when this will be completed. In this instance, the Disclosure should be submitted to the tax officer conducting the review or audit.
For Voluntary Disclosures submitted whilst the taxpayer is under a review or audit, the ATO have recently issued NAT 75342 Voluntary Disclosure Form – If you’re under review or audit.
You can use this form to make a disclosure or, submit a written statement that contains all of the relevant information to notify the Commissioner about the shortfall or misstatement.
Importantly, to be considered for penalty remission, the Disclosure must disclose the shortfall or misstatement to the Commissioner and you must ensure that all necessary facts and circumstances on the matter are provided in order to demonstrate that the Disclosure has saved the Commissioner a significant amount of time or significant resources in the review or audit.
We generally treat the Disclosure as a statement of facts and provide an explanation on the error or omission with details of what should have been disclosed and where possible, provide an estimated quantitative tax impact of the mistake.
It is imperative that in making the Disclosure the submission includes sufficient details for the Commissioner to work out the amount of the tax adjustment. Failure to provide sufficient information to do so, will mean that the ATO will not consider the document a Voluntary Disclosure.
If you would like to discuss voluntary disclosures further, please contact Mimi Ngo.