Please don't worry; tax is an extremely emotional issue for most of us, but its totally fixable. I don't know everything about taxation, but I've read a lot in relation to my ebay business and I think I can answer a few questions.
Firstly, the fact that the ATO are chasing up late tax returns now is a positive thing. They are not looking to put people in Jail; they are just chasing up tax owed and penalties.
Regarding taxable income, you will only pay tax on income that hits your Australian bank account. If your sales income was deposited to a European bank account when you lived there, then that money is taxable in Europe. You just need to be careful not to look like you're a tax evader. So if you lived & worked in Europe, I think that would all be ok with the ATO (but research this in detail and ask an accountant).
Your overseas sales are GST exempt, so you need to subtract those sales from your total income to work out if you are GST liable. Many if not most ebay sellers will not owe GST in my opinion.
Regarding penalties for failure to lodge a tax return, the ATO are much harsher on people who falsify information and get caught, and on those who wait until an audit before admitting to their tax liability.
You should go to the ATO within 20 months after your tax return is due, and get on a tax accountants books (so he can apply for extensions if necessary). Penalties start at $110 per month since the time your tax return was due (I think the maximum penalty is Tax owed+5%) BUT if you don't admit to your tax liability, penalties start at tax owed plus 80% . If you made a loss, I'm pretty sure I read on the ATO web site that you won't owe penalties.(search `FTL' on the ATO site)
The key is to lodge your tax return before the ATO request an audit. If you can't pay, the ATO will agree to a reasonable tax repayment plan like any creditor.
So for anyone who is worried, my advice is take these steps:
1.Register with a chartered accountant ASAP. Just get your name on his or her books for now. If you are late with everything else, they will be able to apply for extensions on your behalf.
2. Do your books. If you have questions, you can easily make an anonymous call to the ATO and ask for specific help. I can recommend this, as when I've asked my accountant questions, it usually costs me over $250 , and he doesn't always know the answers.
3. See your accountant and make repayment arrangements with the ATO if they are required.
Hope some of that helps. Most of this information is on the ATO web site.
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