The Australian Tax Office is piloting a scheme to give taxpayers some peace of mind and certainty about their tax returns.
This year, the ATO is sending letters to a small group of taxpayers as part of a trial to confirm that their 2014-15 tax return is finalised.
If a taxpayer receives such a letter, they will be advised that their 2014-15 tax return “is now finalised” and the ATO will not be conducting any further review or audit of the return. The ATO calls these letters “Certainty letters” (they have also become known as “OK letters”).
The letters relate to 2014-15 tax returns only.
The ATO says that this year, the letter is being trialled with a sample of people who meet certain criteria. A taxpayer might receive this letter because:
- they lodged their return electronically by myTax, e-tax or via a tax agent;
- they had taxable income under $180,000;
- their income was only from salary or wages, allowances, Australian government allowances and payments, gross interest and dividends;
- deductions they claimed were work-related expenses, interest or dividend deductions, gifts and donations or cost of managing tax affairs;
- a range of other factors apply, including good lodgment, compliance and debt history;
- they had straight-forward tax affairs (such as no links to other entities)
Not everyone who meets the criteria will receive a letter during the pilot, the ATO said.
The ATO is able to give taxpayers this certainty in large part due to its extensive use of data-matching. This enables it to match tax returns against data it receives from third-party sources to check tax returns have in fact been lodged, and that taxpayers have correctly declared their income and claimed tax offsets.
Under Australia’s self-assessment tax system, the ATO accepts tax returns lodged at face value and assesses them accordingly. Generally, they may be subject to further review or audit, but the pilot “Certainty letter” scheme goes one step further and tells the taxpayer that their return is considered by the ATO as finalised and no further review or audit will be undertaken.
It is too good to be true?
Well, there is one exception. That is where the ATO receives additional information about a tax return that would indicate fraud or evasion. Then it will review the return further.
The ATO says if it becomes aware of additional information that indicates deliberate avoidance of tax due to fraud or evasion, it will advise the taxpayer that the “Certainty letter” no longer applies to them and outline the reasons why they are now subject to a review or audit.
From a taxpayer’s point of view, the idea is a good one. And the ATO sets clear parameters around which it will issue the letters.
If you receive such a letter, chances are you will be able to sleep a little better knowing your tax return is not going to come back and bite you.
Terry Hayes is the editor-in-chief of tax news reporting at Thomson Reuters, a leading Australian provider of tax, accounting and legal information solutions.