The Australian Tax Office’s 2012/13 compliance program, which was published this morning, reveals an increased emphasis on sophisticated data matching techniques in its pursuit of individual tax payers and a focus on expense claims.
On its radar this year for individuals are incorrect or fraudulent refunds for over-claims and deliberate fraud; work-related expenses for occupations with high levels of claims; people getting caught up in tax avoidance schemes; and omitted income, including dividends and interest, capital gains, and foreign source income.
The ATO is especially focusing on plumbers, IT managers and defence force commissioned officers.
Robert Jeremenko, senior tax counsel at The Tax Institute told SmartCompany the ATO upgraded its computer system a few years ago, which created a few problems at the time of implementation but was now paying dividends for the ATO.
“The Tax Office has, in certain areas, reduced its old-fashioned audit activity and a lot of that is as a result of the Tax Office computer system and data matching becoming very sophisticated,” says Jeremenko.
“Last year alone it gathered almost 600 million pieces of information from banks and health companies and it is using that to more specifically target its focus.”
It’s a marked increase on the 409 million transactions reported in 2007-2008 and the 538 million reported in 2011-12, and the ATO claims the use of third-party information allows it to detect income from a range of sources that has not been declared on an individual’s tax return.
Jeremenko says while there may be fewer personal audits now, the tax office is still vigilant and the reality is between the ATO and every other agency “there is not much data that they don’t have.”
This prompts the question of whether filling out a tax return should remain such a labour intensive process for individual tax payers.
“The government should really take a strong look at having automatic pre filing of tax returns; there are jurisdictions overseas that do this,” says Jeremenko.
“We are moving towards that, which would be positive.”
The ATO has its sights set firmly on the validity of individuals’ work-related expense claims this year.
“The ATO is focusing particularly on occupations they see have a historically high level of claims,” says Jeremeko.
“If you are claiming work related expenses you need to make sure you have good tax advice and document accordingly.”
The ATO has received additional funding for Project Wickenby and will be using this to investigate high profile offshore tax avoidance schemes.
“It will particularly be looking at money and affairs located or dealing with offshore tax havens, [such as] Vanuatu, Liechtenstein and others,” says Jeremenko.
“It has a strong information sharing network with overseas jurisdictions and is starting to see some benefits from that.”
SMSFs are also going to be under scrutiny from the ATO over the course of the next year.
“Again the Tax Office is highlighting this as an area of focus mainly because they are run by individuals and there are a lot of requirements that need to be fulfilled. The Tax Office wants to make sure people are not illegally accessing superannuation early,” says Jeremenko.
CPA Australia senior tax counsel Mark Morris told SmartCompany the ATO is looking especially at high-income earners who invest in financial products.
The ATO is planning a “particular focus” on investments by medical practitioners and other higher income individuals – particularly widely-marketed financial products that promise substantial tax benefits.
“They are saying be careful and make sure it is covered by a product ruling and is well thought out,” he says.
The ATO will also crack down on unscrupulous operators promoting these schemes.