ATO puts legal profession under the spotlight for tax compliance
The Australian Taxation Office (ATO) has increased its focus on tax compliance in the legal profession. A recent review of over 250 lawyers found that 85% had overdue lodgements. Some had failed to lodge tax returns for multiple years. As a result, the ATO secured $28 million by enforcing overdue lodgements and identifying unreported income.
Common tax issues among legal profession
The review revealed widespread tax lodgement failures among legal practitioners. Some of the most common issues included failure to lodge tax returns. A significant proportion of legal professionals neglected their tax obligations, with some accumulating multiple years of overdue lodgements. Many lawyers also misreported distributions from partnerships and associated service trusts, leading to incorrect tax filings.
Additionally, some legal practitioners failed to declare director’s fees, which the ATO classified as personal income. One alarming case involved a lawyer who owed $8.6 million due to years of non-compliance and improper income redirection. Another lawyer faced penalties exceeding $400,000 after failing to report director’s fees for personal services rendered.
Consequences of non-compliance
Beyond financial penalties, lawyers who fail to meet their tax obligations risk severe professional consequences. The ATO warned that persistent non-compliance could lead to findings that practitioners are not “fit and proper” to practice law. This may affect their ability to continue working in the profession.
A recent ruling by the Queensland Civil and Administrative Tribunal highlighted this risk. The tribunal found that a barrister was unfit to hold a practising certificate after failing to pay tax liabilities since 2019. Justice Thomas Bradley emphasized that knowingly using funds for personal expenses instead of tax payments was unethical and unacceptable.
How lawyers can stay compliant
To avoid penalties and reputational damage, the ATO advises lawyers to ensure all tax lodgements, including income tax, GST, fringe benefits tax, and superannuation obligations, are up to date. It is also essential to accurately report trust and partnership distributions, declare all sources of income, including director’s fees, comply with Practical Compliance Guideline 2021/4, and voluntarily disclose any tax obligations they may have overlooked.
With the ATO closely monitoring compliance, legal practitioners must uphold high ethical standards, including fulfilling their tax obligations, to maintain public trust and professional integrity. By proactively addressing their tax affairs, lawyers can avoid penalties, protect their professional standing, and ensure their financial practices align with regulatory expectations.
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Disclaimer: The following article provides general information and should not be considered as professional financial or legal advice. For specific advice regarding your business, consult with a qualified professional
