The 75% penalty: what an ATO audit costs a non-resident seller

Ivan sells lighting from Prague. Three years of Australian sales out of a Sydney warehouse, no registration, no ABN, and — until eleven weeks ago — no contact of any kind from Australia. This video builds the bill he ended up with, line by line, the same way we built a BAS line by line. Same construction. Very different total.

It started with a letter. Not an accusation — a request for information, saying the ATO had reason to believe he may have had a GST obligation and inviting him to explain. That letter is the fork. Everything about the number at the end of this video was decided by what Ivan did in the fortnight after it arrived.

One framing note before the numbers, because this video could easily be a fear video and that isn't what it's for. Nothing here is unusual or aggressive — every line on Ivan's bill is ordinary published practice, applied the way it is applied to Australian businesses in the same position. The reason it lands hard on overseas sellers isn't severity. It's duration: an obligation that switched on silently and then ran for years before anyone looked, so the same rules are being applied to a much longer period than they normally would be.

Line one: the GST itself. When a seller who should have been registered wasn't, the tax doesn't start from the letter. It starts from the date registration was required. For Ivan that was two years and nine months earlier, the month his rolling turnover cleared the line. Every Australian sale since carries GST — at one eleventh of the price, because Australian prices are GST-inclusive.

Ivan's Australian sales across that period were four hundred and eighteen thousand dollars. One eleventh of that is thirty-eight thousand. That's the starting figure — before anything is added, and before anything is taken off. It's also money he never collected from customers, because he didn't know to build it into his prices.

Line two, and this one runs in his favour: input tax credits. Ivan imported constantly — that's what a lighting business does. Import GST paid at the border across the same period came to nine thousand four hundred dollars, and once he is registered with an effective date covering that period, those credits are claimable against the liability. So the thirty-eight becomes about twenty-eight and a half.

Now the part that depends on who moves first. If a seller doesn't engage, the ATO can raise a default assessment — an assessment on the information it holds rather than the information you have. That means marketplace figures and border data, without your credits, without your returns, without your fee deductions. It is not designed to be accurate in your favour, and the burden of displacing it falls on you afterwards.

Line three: the administrative penalty. This is calculated as a percentage of the tax shortfall, and the percentage depends on behaviour rather than amount. Broadly: failing to take reasonable care sits at the lower end, recklessness in the middle, and intentional disregard at the top — up to seventy-five percent of the shortfall. That's the number that gets quoted, and it is a ceiling, not a default.

Which means the penalty is the one line on this bill that is genuinely negotiable — not by arguing, but by conduct. A seller who engages, produces records, and corrects the position is in a different category from one who ignores three letters. Ivan answered within a fortnight, produced three years of settlement reports and customs declarations, and did not contest the underlying facts. His penalty was assessed well below the ceiling.

A word on records, because it's the thing that separates a manageable review from a bad one. Ivan had three years of settlement reports and customs declarations, which meant his figures could be reconstructed from his own documents. A seller who can't produce records isn't in a stronger position for it — the assessment simply gets built from what the ATO holds instead, and that dataset has all of your sales and none of your credits. Poor records don't create doubt in your favour. They remove your ability to argue.

Line four: interest. A general interest charge runs on the unpaid amount from when it should have been paid — so on the oldest quarters, nearly three years of it. Interest is the line people forget entirely when they estimate this themselves, and on a multi-year shortfall it is not small. It can be remitted in some circumstances, and that too is a conversation rather than an entitlement.

And a practical line that isn't on the bill but decides how it gets paid. The ATO can issue a garnishee notice to a third party holding money for you — including a marketplace holding your settlement funds inside Australia. Being an overseas company doesn't put those funds out of reach, because they haven't left yet. Sellers who assume distance is protection are usually thinking about their bank account, not their next payout.

Finally, how it actually gets paid, because the lump sum is what frightens people most and it's often the least fixed part. Payment arrangements over an extended period are routine where a business engages and the liability is agreed. Ivan's was spread across quarters alongside his now-current BAS obligations, which meant the business kept trading. The tax was never the thing that threatened it — the version that threatens a business is the one where nobody engages, the assessment is built without credits, and collection starts against funds in Australia before any of it is negotiated.

Ivan's bill: thirty-eight thousand of GST, less nine thousand four hundred of credits, plus a penalty at the cooperative end of the scale, plus interest across three years. A meaningful number, paid over an arranged period — and roughly half of what the same facts would have produced under a default assessment with no credits and a penalty at the top of the range.

Which brings us to the version of this video nobody makes, and it's the one worth remembering. Everything Ivan did after the letter, he could have done before it — and the same disclosure made voluntarily, before any ATO contact, attracts substantially larger penalty reductions. In the ATO's own published case material, a business that came forward and cooperated paid no penalty at all. Same tax. Same interest. No penalty.

If a letter has already arrived, the sequence is: don't ignore it, get your records together, and get the effective date right — that date decides how much of the past is in scope, and it's the number everything else is built on. If no letter has arrived, you have the more valuable option. The team at Epic Tax are Australian registered tax agents who handle both — voluntary disclosures and ATO reviews for overseas sellers. General information only, not tax advice.