Private ruling: Lost Records - Estimating Income
Published: April 2013
Ruling period: Years ended 30 June 2000, 2002, 2003, 2004, 2005, 2006 & 2007
Date scheme commenced: 1 July 1999

Ruling: Q1: Is the client able to use ATO benchmark figures as an estimate of their business income? | A1: No | Q2: Is the taxpayer able to use an estimate of their previous business income in order to lodge their outstanding returns? | A2: Yes

Relevant facts and circumstances: Taxpayer has advised that during a house move their records of income have been lost or destroyed. Therefore the taxpayer is unable to report their income for their 200X to 200Y income tax returns. The taxpayer has advised that they have receipts for expenses for their business, operated as a sole trader. The taxpayer has attempted to obtain bank statements for the outstanding years; however the bank is not able to provide these due to the fact that they are older than 7 years. To enable the taxpayer to lodge their outstanding returns they are requesting permission to use ATO percentage benchmarks for income.


Reasons for decision: Summary: It is not possible to use the ATO benchmark percentages to lodge your income tax. However, as stated in practice statement PS LA 2011/ 2 5, if a tax payer is unable to reconstruct their records for the purpose of lodging their returns they can make a reasonable estimate of their tax payable. Law Administration Practice Statement 2011/25 PS LA 2011/25 reconstructing records and making reasonable estimates for taxpayers affected by disaster states: | Detailed Reasoning - Lodging taxation documents and returns using reconstructed records: 14. Under the self assessment system, the Commissioner will generally make an assessment of income tax under section 166 of the Income Tax Assessment Act 1936 (ITAA 1936) on the basis of the return which the taxpayer is required to lodge by reason of section 161 of the ITAA 1936. Similar legislative provisions exist in respect to other revenue products administered by the ATO. 15. Pursuant to Division 388 of Schedule 1 to the Taxation Administration Act 1953 (TAA), lodgment of returns, notices, statements, and other documents under a taxation law in an approved form must include a declaration by the taxpayer that any information in the document is true and correct (section 388-60 of Schedule 1 to the TAA). 16. Where a taxpayer's records have been destroyed as a result of a disaster, the taxpayer may not be able to lodge a return, notice, statement or other document in the approved form. | Detailed Reasoning - Reasonable estimates for business taxpayers: 38. If a business taxpayer is unable to reconstruct their tax records for the purposes of lodging taxation documents and returns, the taxpayer can make a reasonable estimate of their tax payable. The tax officer should request the taxpayer complete and lodge a 'Reasonable estimate for documents destroyed by disasters' form. 39. Taxpayers may request assistance from the ATO to help reconstruct their records for the purposes of making a reasonable estimate. 40. To assist a taxpayer to make a reasonable estimate of their taxable income, the tax officer should consider the following: · If no current year activity statement or only partial year activity statement data is available, tax officers should obtain all the ATO data available, preferably for the last three years, being activity statements and income tax returns. Note, that some tax professionals may be able to access this data using the Tax Agent Portal. · The tax officer can use prior year lodgments to make a trend-based reasonable estimate of income and deductions. The estimate is based on the three year trend average of activity statements and income tax returns; unless there is good reason to do otherwise, for example, the current year contains exceptional circumstances: - ATO statistics as published on ato.gov.au will be applied as part of the process when averaging data. - Any estimate of this kind must take into consideration identified, annual downturn in business. · If a trend-based estimate is not possible, the tax officer should consult with the taxpayer to determine if it is reasonable to base their returns and activity statement on the previous year's returns and/or statements for the same period. No uplift factor need be applied. As an example, if a credit for the same period last year was issued, and a trend-based estimate cannot be made, the ATO would generally issue a refund for the same amount. 41. If the taxpayer cannot make a reasonable estimate of their taxable income and no data exists for the current year, then the tax officer should consider alternative bases for making a default assessment of income and other tax obligations, including the factors set out at paragraph 53 of this practice statement. | Detailed Reasoning - Conclusion: The taxpayer should use prior year lodgments to make a trend-based reasonable estimate of income , the estimate should be based on the three year trend average of activity statements and income tax returns; unless there is good reason to do otherwise, for example, the current year contains exceptional circumstances: The taxpayer should complete a 'reasonable estimate for documents destroyed by disasters' form, available on the ATO website.