Lawyers in Tax Office’s compliance spotlight
The Australian Taxation Office (ATO) has expressed concerns about issues within the legal profession following recent compliance activities.
While the majority of legal practitioners meet their tax obligations, the ATO has identified a significant number who are not fulfilling their responsibilities, particularly in lodging returns, accurately reporting income and paying tax on time.
A common issue observed is the incorrect reporting of distributions from partnerships and associated service trusts. Lawyers who divert legal practice income to associated entities may be classified as high-risk and attract compliance attention.
To assist legal professionals in assessing and managing their tax risk, the ATO offers an online resource that outlines inappropriate alienation of income and the compliance actions that may follow.
To address non-compliance, the ATO has taken actions such as:
- Conducting reviews and audits
- Issuing default assessments
- Applying garnishee notices
- Entering into payment arrangements
- Initiating prosecutions
Legal professionals are urged to:
- Ensure all tax lodgements are up to date (including income tax, GST, FBT, superannuation and other obligations)
- Correctly report trust and partnership distributions
- Accurately declare all income
- Lodge on time, every time
- Voluntarily disclose any missed tax obligations
- Ensure compliance with PCG 2021/4
Non-compliance can have serious professional consequences. In one case, the Queensland Civil Administration Tribunal upheld a decision by the Bar Association of Queensland that a barrister was unfit to practise due to multiple failures, including unpaid tax liabilities dating back to 2019. A review of more than 250 lawyers found that 85% had failed to lodge tax returns, with some having multiple years overdue. As a result of these investigations, the ATO has raised $28 million in liabilities by securing outstanding lodgements and identifying omitted income.
To further support its compliance efforts, the ATO is set to receive a significant funding boost. As part of the 2024–25 Federal Budget, the government has allocated nearly $1 billion in additional resources over four years. This investment will enhance the ATO’s ability to pursue tax avoidance and improve the integrity of the tax system, particularly among high-wealth individuals, closely held businesses and professional service firms. Read 2025-26 Budget summary here »