18th May, 2010
There is nothing “random” about ATO audits. Taxpayers still don't realise just how much data the ATO has access to from other sources, like financial institutions, so it can easily see if a taxpayer is withholding information. In January this year the ATO just spent some major money implementing a new computer system which encompasses a number of their old databases and systems. Computer matching makes the exercise of data matching automatic and easy to perform. Scott Partners expect that the ATO’s data matching activity to increase as a result of the introduction of this new system as a result audit activity will increase accordingly.
If your business, company, trust or individual return is subjected to “random” audit, review or investigation, you are responsible for the costs involved in providing the required information. The costs associated with an audit can start at a couple of thousand and range very high upwards of that. You can protect yourself against these costs by taking out Audit Insurance Cover. Should you wish to find out more information about Audit Insurance please contact Christian Dal Cin of this office on 03 9500 0511.
ATO Audit Targets for 2009-10 By Joe Kaleb
The ATO has received additional funding to undertake more audits this year and has indicated that it will be targeting specific groups.
Where a taxpayer falls within a target category, they should double-check their records to ensure that everything is in order as it is now more likely that they will be contacted by the ATO.
The main groups that will be targeted include:
Businesses
i. Employer obligations
Employers must continue to meet their PAYG withholding and superannuation guarantee obligations on wages paid to employees.
The ATO will be identifying employers who are not complying with these obligations and seek payment of outstanding amounts together with interest.
ii. Cash economy
Businesses that don’t declare all cash income to gain a competitive advantage will be monitored. The ATO will use additional information such as industry benchmarks to identify cases of non-compliance and plan to conduct around 3,700 audits and visit some 8,000 businesses. The ATO will also send around 35,000 letters to businesses that could be at risk of participating in the cash economy.
iii. Fringe benefits tax
The ATO continues to focus its compliance activities on employers who are not paying FBT on company owned cars, or are not correctly calculating the taxable value of company cars.
iv. Tax planning for business exits
The ATO will examine business restructures, focusing on exit and succession planning arrangements where the primary objective is to receive a tax benefit. This includes application of the small business capital gains tax concession upon sale of a business.
According to the ATO, the economic environment is likely to bring an increase in the number of owners choosing to wind-up their businesses instead of selling. The ATO will scrutinise voluntary liquidations as an exit strategy to ensure correct treatment of liquidation distributions.
v. Wealth extraction from businesses
Business owners who extract value from their business without paying the correct tax will be closely examined.
A number of arrangements will be subject to close examination. These include loans, payments and debts forgiven by private companies that in effect, distribute company profits to shareholders in a non-taxable form.
A particular area of focus this year will be where funds are advanced from a private company to an associate, especially to a related trust or partnership.
vi. Recoupment of losses
The ATO are concerned that some companies are not correctly applying the rules for recouping tax losses, particularly where there has been more than a 50 per cent change in the underlying ownership of the company. In this situation, the company needs to satisfy the very stringent “same business test” to recoup the losses which is a key compliance concern for the ATO.
The ATO will also look at situations where losses are artificially generated (e.g. through related party transactions).
vii. Work-related expenses
The ATO will continue to review income tax returns where large work-related expenses are claimed, comparing the deductions claimed to industry norms for certain occupations. This year the focus will be on:
* Truck drivers
* Sales and marketing managers
* Sales representatives
* Electricians
These occupations have been identified as having a pattern of large or increasing deductions claimed, and a large number of errors revealed by previous audit activities.
Investors
The ATO continually compare data from financial institutions and other organisations to amounts included in income tax returns.
This year the ATO will be accessing information from share registries, state revenue offices, land titles offices and motor vehicle registration departments to determine who has purchased and sold assets during the year and therefore may be subject to capital gains tax. This is in addition to the usual matching of dividends and other types of income.
The ATO is also concerned and will monitor taxpayers who have sold shares or other investments at a capital loss and may characterise them as an income loss to claim as a tax deduction against other income.
Executives and directors
The ATO will focus its data-matching activities on the correct reporting of shares and options received by directors and executives of both public and private companies.
The focus will also include Australian resident directors and executives of foreign companies.
Wealthy individuals
For several years the ATO has been examining tax minimisation strategies used by individuals with net wealth of $30 million or more. The ATO will now extend this to included individuals with net wealth of more than $5 million and focus on:
* Dividends disguised as loans.
* Use of company assets for private purposes.
* Undeclared and understated capital gains.
* Concealed income and assets in tax havens.
Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.
