A Tax Office crackdown on trusts and partnerships has uncovered almost over 20,000 examples of incorrect disclosure and underreporting of income.
Letters demanding explanations have been sent to 4400 tax practitioners, regarding 9800 clients with over 20,000 discrepancies. The partnership and trust distributions in question are for the 2003-04 and 2006-07 financial years.
The ATO has also issued fines and audit threats to the parties involved, asking them to explain why their tax returns contained incorrectly recorded items. The items in question include partnership salaries and wages, investment interest, rent, capital gains, deductions of losses and dividends.
Letters were distributed last month, while replies were due last Friday.
The ATO outlined its crackdown in the minutes of the Tax Practitioner Forum held in November.
“The tax practitioner is invited to respond, by providing supporting information where they believe there is no discrepancy, or lodging a voluntary disclosure. In the absence of a response, an audit letter will be sent to the taxpayer, and an amended assessment will be issued with penalty and interest applied.”
Consequences for inaccurate disclosures and underreporting include anything from a warning letter, to fines worth 25% of the shortfall amount.
Peter Bembrick, tax partner at HLB Mann Judd, says the letters are directed towards the smaller trusts and partnerships. He claims while the letters are routine, they are an attempt to discover which taxpayers have honestly made mistakes.
“The thrust is more at the smaller end, in terms of the trusts and partnerships. They’re relying on information given in tax returns, so there might be areas of information in the tax returns where things aren’t so clear.”
“It’s something that people need to be aware of. Particularly with trusts and partnerships, putting information on these tax returns can be complicated and it’s something that taxpayers certainly don’t find easy.”
“It’s very likely that people could make mistakes. But at the same time, these could be things they shouldn’t have missed in the first place, and should be a little worried about.”