Notice of assessment for a default assessment: the ATO guessed your income. Now what?

When returns are not lodged, the ATO can issue a default assessment based on the information it holds. Rather than continuing to wait for your return, it assesses the year using reported income data available to it.

The critical consequence is what is missing from that calculation. Because the ATO does not know your deductions, they are not included, so the assessment usually overstates the tax. A penalty is added on top as well.

So a default assessment is not a statement of what you owe. It is what the year looks like when only half the picture is available. Our guide on what to do about an ATO default assessment covers the process in more depth.

Because a return for that year was not lodged, and earlier requests to lodge did not result in one arriving. A default assessment sits at the end of that sequence rather than at the start of it.

It is common for people who moved house, changed email addresses, or stopped checking myGov during a difficult period. The letters may have been issued without ever being read.

It is also common where someone believed the year did not need a return - a low-income year, a year mostly on Centrelink, a year abroad. The ATO's data suggested otherwise, so it assessed the year.

The assessed amount becomes a debt on your account, even though it was calculated without your deductions. The general interest charge then accrues on that inflated figure, and the penalty added to the assessment sits alongside it.

Left alone, the debt can progress into recovery action, which can include garnishee notices to a bank or employer, or referral to an external collection agency.

The bigger risk is timing. Act quickly, because the windows for having a default assessment reviewed or replaced are limited. A year that could have been corrected can become much harder to unwind once those windows close.

Lodge first. Lodging the actual return for that year is the usual way to replace a default assessment. Your return includes your deductions and your real circumstances, which is exactly what the ATO's version was missing. In many cases the corrected figure is dramatically lower.

Then deal with penalties and debt. Once the year is assessed properly, the penalty attached to the default assessment can be revisited and remission requested, and any genuine balance can go onto a payment plan.

Do not wait to gather paperwork. That is the mistake that costs people the review window. We retrieve the ATO pre-fill data for the year, so the return can be prepared without you first finding old payslips. A free assessment tells you where you stand and what it costs to fix, on a fixed fee, and it can be done quickly enough to matter here.