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About 85 per cent of lawyers could be at risk of disciplinary action for failing to lodge tax returns, the Australian Taxation Office revealed.
ATO coming for lawyers over tax failures
24 March 2025
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6 minute read
Following a review into the legal profession, the Australian Taxation Office (ATO) raised $28 million just by securing overdue lodgements and detecting omitted income in returns filed by practitioners.
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In its analysis of over 250 lawyers, the ATO discovered that 85 per cent did not lodge returns, including some with multiple years overdue.
“We expect everyone to meet their tax obligations, but our recent work with the legal profession has revealed some lawyers are failing to lodge returns, are making errors, or are not paying their taxes on time,” the ATO said in statement.
One of the most common issues is lawyers who incorrectly report distributions from partnerships and associated services trusts.
By redirecting legal firm income to an associated entity, the ATO said the practitioner “may come to our attention as high risk”.
For example, an unnamed lawyer owed $8.6 million in liabilities for not lodging returns for several years and assigning income to related entities that also did not lodge returns.
Another lawyer was caught for not declaring income as director’s fees.
The review found this income was related to services the lawyer personally performed and a failure to declare them led to them paying about $400,000 in liabilities, including penalties.
The ATO said if prosecuted, legal practitioners could face a finding they are not a fit and proper person to practice and may be struck off.
In a recent Queensland Civil and Administrative Tribunal decision, a barrister was found to be unfit to hold a practising certificate due to failures that included unpaid tax liabilities since 2019.
Justice Bradley said the barrister knew the money he spent on any other thing was “money he was denying the ATO”.
“This was wrong,” Justice Bradley said.
“To describe it as an administrative failure is inadequate. Most right-thinking members of the community expect people to honour their obligations to meet their debts, if they can.”
To avoid penalties, the ATO said lawyers should make sure their lodgement is up to date, including income tax, goods and services tax, fringe benefits tax, super, and other obligations.
Lawyers should also be checking trust and partnership distributions to ensure they are recorded correctly, account for all income, lodge on time, comply with Practical Compliance Guideline 2021/4, and voluntarily disclose tax obligations they may have missed.
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