The ATO earlier this month released its new document, "Building confidence". This is a shift from previous years, where its predecessor document was referred to more blandly as its Compliance Program.
The document sets out the ATO's approach to managing compliance within the tax system and, in line with the new name, how it can better work with businesses and other taxpayers to create confidence in the system.
The Commissioner goes to great lengths to stress that the majority of taxpayers willingly meet their obligations and for those, the ATO's aim is to intervene as little as possible and, where practical, reduce the compliance burden.
However, he also notes the need to strike a balance between encouragement and enforcement based on risk, transparency of the taxpayer and the taxpayer's behaviour when it comes to tax compliance.
The Commissioner makes it clear to taxpayers that the ATO has an unprecedented quantity of information available to it from external sources including banks, share registries, other government agencies and even global information exchanges, making it a case of, in the Commissioner's words, "when", not "if" non-compliant taxpayers will be caught.
In fact, during 2013/14, compliance activities raised $1.5b, having reviewed transactions worth over $500b.
Focusing on the cash economy continued to be a feature of the ATO's compliance activity as it relates to small business, while so-called wealthy individuals (those controlling net assets of between $5m and $30m) have remained in the spotlight.
The Commissioner also issued warnings by highlighting its results in other areas, including:
- Preventing over $660m of incorrect or fraudulent GST refunds from being paid out;
- Issuing 1,400 director penalty notices for failure to comply with superannuation guarantee obligations;
- Prosecutions, resulting in significant jail terms; and
- Continuing to raise revenue via its long running Project Wickenby.
While stopping short of naming industries and specifying compliance activities, the Commissioner did note some areas the ATO is paying particular attention to, including:
- Work related expenses, especially for:
- overnight travel;
- motor vehicle claims (particular those incorrectly claiming home to work travel) ;
- work related proportion for use of home phones, computers and similar devices;
- Excessive deductions for holiday homes, where rental arrangements may not be on an arm's length basis.
The ATO is also working to improve its online services, particularly by enhancing the ability to lodge tax returns online and working towards low-risk taxpayers being able to be assessed without the need to prepare a tax return.
The ATO recognises that there are around 2.7m small businesses operating in Australia. It has established a panel for small business operators to have their say and help the ATO improve its services.
In recognition of the fact that under-resourced business owners will often be working on their books after hours, the ATO has also introduced an after-hours support service as part of its Small Business Assist service.
It is also developing an online tool for the benefit of contractors and consultants to assist them in working through the complex personal services income rules.
As part of its online initiatives, the ATO is also working to reduce compliance costs to businesses by streamlining processes, particularly by enabling compliance activities to be completed using existing accounting software.
From a compliance activity perspective, the ATO makes it clear that it has significant industry benchmarking data available (collected from income tax returns and activity statements) and businesses operating outside of these benchmarks may face scrutiny.
Privately Owned and Wealthy Groups
The ATO defines this category as:
- economic groups with a turnover of greater than $2m, but excluding public and foreign owned groups; or
- individuals who control over $5m in net wealth.
It's no secret that the ATO has a focus on this group, particularly where trusts are involved. It has now established a Trusts Taskforce that will investigate what it believes is aggressive tax avoidance or evasion using trusts.
In addition, the ATO plans to look closely at capital losses, while also scrutinising large, one-off or unusual transactions.
Public Groups and International
At the high end of the market, the ATO intends to focus on industries including banking and finance, energy and resources, superannuation and insurance. It also notes that structuring and important transactions (eg mergers and acquisitions, share buy backs) will attract its attention.
On the international front, transfer pricing and the resultant risk of profit shifting will remain firmly on the ATO's radar.
Once again, the Commissioner has emphasised its focus on promoting compliance as a means to maintain a fairer tax system, while also warning of the increasingly targeted resources the ATO has available to it in its effort to clamp down on those who do not willingly participate.
This publication is issued by Moore Stephens Australia Pty Limited ACN 062 181 846 (Moore Stephens Australia) exclusively for the general information of clients and staff of Moore Stephens Australia and the clients and staff of all affiliated independent accounting firms (and their related service entities) licensed to operate under the name Moore Stephens within Australia (Australian Member). The material contained in this publication is in the nature of general comment and information only and is not advice. The material should not be relied upon. Moore Stephens Australia, any Australian Member, any related entity of those persons, or any of their officers employees or representatives, will not be liable for any loss or damage arising out of or in connection with the material contained in this publication. Copyright © 2014 Moore Stephens Australia Pty Limited. All rights reserved.