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ATO Compliance Programme Includes Tax Avoidance Crackdown

Wednesday, July 25, 2012

The Australian Tax Office's (ATO) annual compliance programme has been released, with Tax Commissioner Michael D'Ascenzo warning that efforts to combat tax avoidance schemes will be stepped up.

Included in the programme is a list of those the ATO will place "under the microscope." Over the course of the 2012/13 year, the ATO will concentrate on: tax fraud and avoidance schemes; those who fail to declare all their income; the highly wealthy; property-related tax issues, and employers who do not meet their superannuation obligations.

The programme also details the focus areas identified as significant risks to tax and superannuation compliance this year. They include:

  • occupations that have shown a pattern of relatively high levels of work-related claims, including IT managers, plumbers and defence force non-commissioned officers;
  • high income earners involved in tax avoidance schemes;
  • unreported cash transactions within the plastering and café industries;
  • contractor arrangements, in particular in the construction industry;
  • the self-managed superannuation fund sector, and
  • employer obligations for superannuation in high risk industries.

"By openly setting out our focus areas for the year ahead we want to encourage people to make the right decisions. This includes helping them avoid being trapped by tax schemes, in particular by stepping up our efforts to ensure people can recognize, reject and report tax avoidance schemes," D'Ascenzo said.

During the year, the ATO will aim at improving the support it provides tax practitioners. This will be done by offering premium phone services, tax technical experts, relationship managers, and enhancements to online tools and portal functions.

Officers will visit approximately 160 of the highest-risk tax practitioners with a disproportionate number of clients failing to meet their lodgment obligations. The ATO will conduct more than 40 separate consultations with around 400 tax practitioners to co-design compliance approaches.

In addition, a research programme will allow the ATO to approach 3,000 tax practitioners for their feedback, and the ATO will extend its consultation procedures to obtain the views of regional and rural practitioners. Initiatives will be undertaken to ensure that tax and BAS agents meet their own tax obligations.

Turning to individuals, the programme shows that the ATO will use extensive data matching to focus on incorrect or fraudulent refunds for both over claims and deliberate fraud. It will continue a focus on occupations that have shown a pattern of relatively high levels of claims, and will review work-related expenses for non-commissioned officers in the defence force, IT managers and plumbers.

High income earners involved in tax avoidance schemes will be investigated, with a particular focus on widely-marketed financial products that promise substantial tax benefits as well as investments by medical practitioners. Third-party data will be used to detect omitted income from dividends and interest, capital gains, and foreign source income.

The ATO expects to complete around 120 reviews and 50 audits of Australians with a net wealth of between AUD5m and AUD30m, and 200 reviews and 50 audits of those with AUD30m or more in net wealth. Around 1,000 trustees will be contacted in relation to the use of trusts to inappropriately minimize tax.

100 reviews will be undertaken in relation to higher risk cases where taxpayers are suspected of having incorrectly reported capital gains or losses, and action will be taken against employers not complying with their fringe benefits tax obligations. Reviews will also be taken to ensure that small and medium-sized enterprises have systems that adequately support correct goods and service tax (GST) and excise reporting.

On the large business side, there will be 500 reviews and audits on mining, manufacturing, wholesale trade, and financial and insurance services industries in relation to GST business systems. 700 reviews and audits will be conducted to address GST risks associated with the sale, transfer and acquisition of real property.

The ATO will closely monitor the implementation of the taxation of financial arrangements (TOFA). It will look at corporate restructures, mergers and acquisitions, conducting 20 risk review and consider incorrect or contrived application of the consolidation cost-setting rules.

Lastly, with related-party arrangements that shift profits out of Australia amounting to around AUD270bn annually, the ATO will continue a focus on multi-national enterprises to ensure they pay the correct amount of tax, with 25 reviews and 29 audits being conducted.

D'Ascenzo was clear as to the impact such programmes have. He explained, "We check over 600m transactions a year. This means that we can detect those who do not report all their income from things like dividends and interest, capital gains, and foreign income. Last year we stopped more than 109,000 income tax returns for potentially incorrect or fraudulent claims saving the community almost AUD200m in revenue."