As part of the 2008-2009 Compliance Program the ATO is examining the compliance risks associated with partnership and trust distributions.
The ATO is reviewing distributions from partnerships and trusts to the respective partner and beneficiary returns for the years ended 30 June 2004 to 30 June 2007 to ensure that the distributions have been correctly disclosed.
Many public practices may have already received a letter listing clients whose partnership or trust income distributions either have not been disclosed or may have been understated in their individual income tax returns.
The ATO is asking practitioners they have contacted to raise this matter with their relevant clients with a view to correcting or substantiating the amount of distribution returned in their individual returns.
Practitioners who receive a letter and believe the distribution is correctly returned can contact the ATO or ask their client to contact the ATO to advise of the amount returned.
Practitioners should also identify the return form label in which the distribution has been included. Where the label includes more than one income amount please provide a break-up of the amounts included.
The ATO is giving clients the opportunity to make a voluntary disclosure lodging an amendment through the Tax Agent Portal, or by mail. This will result in a reduction of the penalty if your client acts promptly.
Where there is one distribution identified as a discrepancy the penalty will be reduced to nil plus interest charges. Where there are multiple distributions identified as discrepancies the penalty will be reduced to 5 per cent of the tax shortfall plus interest charges.
The ATO requests that the amendment be lodged within 28 days of the date of the letter. Special circumstances will be taken into account.
If there has not been a response to the letter within 28 days an audit may commence for the income tax returns listed in the letter. The ATO will send a letter to the postal address of clients if an audit commences.
If the audit determines distributions have been omitted or not fully declared penalties of between 75 per cent for intentional disregard of taxation law to 25 per cent for failure to take reasonable care, plus interest charges, may apply.
The ATO encourages practitioners to discuss this matter with their clients and arrange voluntary disclosures where appropriate.
Further information
