It's times like these when people are considering making a claim for some kind of government handout or government assistance. 

And in order to be eligible for these 'handouts', you need to be able to prove your earnings. 

But the problem that some people have is that they haven't filed a tax return in years, yet, feel that they should be entitled to receive some compensation.

How do we deal with this? Joining the discussion today are Ramona McGregor and Helen Driscoll.

What's the first step that you would do?

Helen Driscoll | Lawyer

The first thing we need to consider is who's involved, which for me, my primary concern is the claimant. That's the person who's found themselves in a situation for whatever reason, medical, accident wise. 

Secondly, we have the respondent. That could be an insurance company, a public body, or another individual themselves.

Ramona McGregor | Accountant

From an accounting perspective, we have a few people or entities to consider on top of that.

We've also got any other entities that might be involved with the claimant, any other trusts, and any other companies that are involved in passing on income to that person. We've also got the ATO and an accountant.

And, generally, what're the facts that surround this?

So what are the facts, generally, around this? How does someone do this? What are the facts they need to prove their income when they haven't done their tax returns? What are some of the times, dates and places that you look for?

Helen Driscoll | Lawyer

Well, as first pointed out, the main way to prove your income and the most solid way to prove your income is by having up-to-date tax returns. However, it's not uncommon and we do see it every single day with many, many claimants, the issue where they haven't lodged their tax returns and things aren't to date.

As a result, we need to look at other ways to show a respondent, whoever that may be, that the claimant earned a certain income and that they've lost a certain income and that income is going to keep being lost on and on and on into the future. 

At the very least, a respondent will want proof of three years of income prior to the particular incident in question.

Ramona McGregor | Accountant

If we are looking at lodging tax returns, we need to work out:

  • In what years do we need to lodge these tax returns?
  • What has occurred during those years?
  • Has something been lodged but not paid?
  • Have we incorrectly reported, or have we not lodged at all?
  • What is the quantum of the costs?
  • What are the taxes unpaid?
  • What are the potential penalties and the interest charges on those?

What does the client hope to get out of this?

Now we get to say, okay, what does the client want to get out of this? 

Helen Driscoll | Lawyer

One of the biggest heads of damage in a claim for compensation is economic loss. This is the pecuniary loss, and usually something that the respondent pays particular attention to.

This kind of loss consists of things like your past loss as a result of the particular incident in question and then what that's going to look like ongoing into the future. Particularly when it comes to lost career opportunities.

Naturally, what my client wants to do and what the claimant wants to do is to get the best and maximum loss assessed for their compensation claim.

Would it be fair to assume people are afraid of the consequences of not having filed tax returns?

Is it fair to assume that the reason that people wouldn't go and get this form of evidence, which is so persuasive, is because they're fearful of the consequences of not having filed the tax returns. Is that right Ramona?

Ramona McGregor | Accountant

That's definitely a fair assumption, and it can be one of the situations that claimants can face.

Their objective would be to work out what the damage would be, assess that fear and move towards a solution to getting those tax returns lodged.

And would clients be able to see you, Ramona, to address these fears?

So it appears that the main reason that people wouldn't get this very persuasive form of evidence, which is the tax return, is because they're fearful that the tax office might bring them more negative consequences than the compensation claim was worth.

Is that one of the things that they'd come and see you about, Ramona?

Ramona McGregor | Accountant

That's correct. A lot of our clients that come in through these matters are fearful of what is ATO going to do to us if we 'fess up now and we haven't done it for years. Their objective, at that point, is to work through the numbers, figure out what the ATO is likely to do, have a discussion and figure out the best way forward to get these tax returns lodged.

What are the obstacles a client faces in this situation?

Now that we know what the client wants and we know what the client's objective is, what are the big obstacles that they need to overcome to prove their economic losses without a tax return?

Helen Driscoll | Lawyer

Often claimants have quite a broad idea of what they're earning and what their income is, but they're not always going to know the specifics of what they're earning week to week and what those numbers are actually going to look like for an ongoing loss perspective.

This is particularly the case in more complex incomes and occupations. While the claimant's evidence themselves is very good and is taken seriously to a certain extent, it's not objective enough to persuade a respondent.

That then becomes one of the key obstacles that we deal with on day to day basis. And that's why there're many things that we can do to be persuasive and prove to a respondent that lost income and what that's going to look like ongoing for that particular individual into the future.

Ramona McGregor | Accountant

So the biggest obstacle we've obviously addressed is the fear of the unknown, but there are many other obstacles can come into play as well.

There are restrictions in being able to amend your tax returns. The ATO has already issued default notice of assessment on the client and you always get the issues where the ATO is not willing to negotiate or imposing harsh penalties and interest on the client.

Being fully aware of those obstacles, what's the first on you could suggest the client attack? 

Helen Driscoll | Lawyer

From my perspective, we would talk to the client about all the documents that they might have to prove their income

These documents include: 

  • Payslips;
  • Employer group certificates;
  • Payment summaries; 
  • Statements from an employer or a colleague;
  • Photographs of them doing their job (such as a hair dresser in a home salon);
  • A diary of calendar appointments; 
  • A Facebook group with all of their clients;
  • Text messages;
  • Discussions and reports from a financial planner; and more. 

A good example is when someone wants to retire at age 70 and they've spoken with their financial planner about their plans to retire at that particular age on the basis of their current income.

Things like putting down a home deposit because you're earning this amount of income, employer activity statements, text messages from clients, “Hi, I'm going to be meeting you at this time for this job. Could you let me know?”

All of these things are relevant. 

Ramona McGregor | Accountant

Our step one is quite similar to what Helen has just put forward - collate all the information, get all the details of all of your income and all of your expenses over the years. Bring that all together into one big bucket. 

Step two is the number crunching. That's when we figure out what are the taxes that are due and also consider the interest and the penalties on that. And this is the bit that clients and claimants can fear. 

On that note, I just want to cover that, in reality, if you're just an employee across the years, you might find you're actually entitled to a refund, as over the years your employer's probably already taken out the taxes that you're owed anyway. 

In these situations, we tend to find that ATO's just happy that you came forward. They're just happy that you volunteered yourself and you're getting yourself compliant. So generally, no penalties apply and interest doesn't apply anyway because you've got no taxes unpaid.

The conversation does get a bit harder if you've had untaxed sources over the years; for example, rental properties, business income investments. In these cases, yes, they might be taxes payable and there's no way out of that. On top of that, there might be penalties and interest, but that part is the variable part. There are ways, in our tax laws, that we can request penalties and interest to be reduced or even remitted completely. 

A tax professional will be able to help you navigate these requests to ensure you're accessing everything that you are entitled to.

In general, you will get a better response on these remissions from the ATO if you're the one that came to them and you're the one that stuck to what you've done. You might find that although you do have taxes to pay, the penalties and interest on that might not be as bad as you thought and it might be palatable as the ATO's just happy that, again, you're compliant and you came forward and you're dealing with your taxes now.

To conclude...

So I can see how the two of you had worked very closely together here, and Helen has provided you with a big list of all the income that could come from a certain person could give it to you, Ramona, and you could say, well, if there were tax returns to be filed, this is how much is be owing, it's up to the client what they want to do. And the client would then be left with a choice as to which way they'd want to proceed.

Ramona McGregor

Pilot Partners

Helen Driscoll

MCW Legal


Why are tax returns so important in a compensation claim?

Tax returns are the easiest and most relied upon form of proof of earnings in a compensation claim. 

Can i still make a claim for compensation if i haven't lodged tax returns?

Yes. There are a magnitude of ways you can prove your income to make a claim for compensation. 

How can i prove my income if i haven't lodged tax returns?

The number one thing you can do to prove your income is to collect any and every piece of evidence relating to your work. That could be texts, Facebook groups, photographs, discussion notes from financial planners, etc. 

You can download a more exhaustive list of evidence to collect here.

How much proof do i need to provide to prove my income?

There is no definitive, one-size-fits-all amount of evidence you need to collect. However, there is a definitive time-frame for which you need to prove your income - this is generally 3 years prior to the accident. 

Any less is generally unreliable for a future prediction and will be discredited by the insurer. 

Will I Be Penalised By The ATO If I Am Late Lodging My Tax Returns?

You might be penalised; however, more times than not, the ATO won't impose penalties as they would rather people come forward and pay their taxes. In situations where a penalty has been imposed, there is the possibility to have it superseded. 

what do i need to consider When lodging tax returns after the fact?

When considering lodging your tax returns at a later date, you need to consider some of the following:

  • In what years do we need to ledge these tax returns?
  • What has occurred during those years?
  • Has something been lodged but not paid?
  • Have you incorrectly reported or not lodged at all?
  • What is the quantum of the costs?
  • What are the taxes unpaid?
  • What are the potential penalties and the interest charges on those?

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