ATO compliance activities

The ATO has released details of its 2012–2013 compliance program, highlighting the compliance issues attracting ATO attention and what it is doing to address them. The program covers individuals, micro businesses, SMEs, large businesses, Project Wickenby, tax practitioners, superannuation, promoter penalty laws and non-profit organisations. Focus areas identified by the ATO include:

• Incorrect claims for work-related expenses. In particular, the ATO says it will focus on claims made by plumbers, IT managers and defence force personnel. Taxpayers must keep written records for all their work-related expenses if their claims total more than $300.
• Tax avoidance schemes and tax effective investments. The ATO says it will focus on investments by medical practitioners and other high income individuals, particularly in widely marketed financial products that promise substantial tax benefits.
• Unrecorded and unreported cash transactions in the café and plastering industries. Note, the ATO is stepping up its use of third party information, such as information from suppliers, to identify under-reporting of income.
• GST refund integrity and GST evasion. The ATO says that with the introduction of the Commissioner’s discretion to retain high risk refunds, it may stop a small percentage of BASs for verification where it detects anomalies, discrepancies, unusual behaviour or changes in patterns. It says that in order to minimise the number of businesses having refunds delayed, it may also check some refunds after they have been paid.
• Incorrectly treating employees as contractors, particularly in the construction industry. In addition, the ATO notes that from 1 July 2012, businesses that make payments to contractors in the building and construction industry are required to report the payments to the ATO each year.
• Treatment of private company profits, particularly in relation to loan arrangements.
• Superannuation obligations of employers, with a focus on cafés and restaurants, real estate businesses and carpentry businesses in home building or construction.
• GST business systems in the certain industries. The ATO intends to conduct 500 reviews and audits in the mining, manufacturing, wholesale trade, and financial and insurance services industries in relation to GST business systems.
• Incorrect or contrived application of the consolidation cost-setting rules. The ATO notes that changes to the tax law in 2010 broadened the scope for deductions of the tax cost of certain assets in an unanticipated way. The ATO says it will administer the law as currently enacted in accordance with the administrative treatment published on its website. However, it notes that once legislative amendments have been enacted, it will assist taxpayers to review their claims relating to rights to future income and the residual tax cost-setting rules. The ATO says it is also examining cases where foreign partnerships are being included in consolidated groups for the apparent purpose of creating interest deductions in two countries (double-dipping). In checking whether such deductions are being correctly claimed in Australia, the ATO says it is exchanging information with foreign tax authorities where appropriate.
• The self managed superannuation fund (SMSF) sector. The ATO has indicated a greater compliance focus on SMSFs. Focus areas for 2012–2013 include:

-        new trustees, to ensure they can operate their SMSF and are not seeking to illegally access their retirement benefits;

-        lodgment of fund annual returns to improve timeliness and, in the case of new funds, to also ensure they are entitled to receive their notice of compliance;

-        irregularities in exempt current pension income (ECPI) and non-arm’s length transactions. The ATO says it will contact 3,000 funds in respect of their ECPI claim. It will also audit and review 100 SMSFs to ensure assets reflect their true market value;

-        re-reporting of contributions and compliance with excess contributions tax release authorities; and

-        breaches of trustee obligations reported to the ATO by approved auditors.

• Fraudulent phoenix activities. The ATO intends to conduct 200 reviews and audits targeting fraudulent phoenix activity. It will also increasingly use legal collection processes against phoenix company directors, including director penalties, garnishees and security bond demand notices.
• Trusts. The ATO says it will contact around 1,000 trustees and beneficiaries regarding a range of issues including lodgment, correct reporting of trust distributions and compliance with trust TFN withholding rules. It says it also expects to undertake around 30 reviews and at least 15 audits of aggressive trust arrangements.
• Project Wickenby. The ATO says around 300 audits and reviews will be progressed in relation to Project Wickenby. The ATO says it will also continue to “send strong messages” to those at risk of involvement in secrecy jurisdiction schemes. The ATO notes that since 2007­–2008, there has been a reduction of funds flowing to 13 high-risk secrecy jurisdictions of approximately $12 billion.

Extended compliance focus areas

In addition to the key areas of focus addressed in the compliance program for 2012–2013, the ATO has also released details of its extended compliance focus areas as at 11 July 2012. Some of the key areas include business structure schemes, trust schemes, private company deemed dividend avoidance schemes and aggressive employee remuneration schemes.

Sources: ATO 2012–2013 compliance program www.ato.gov.au/corporate/content.aspx?doc=/content/00326650.htm;

Compliance program – current areas of focus as at 11 July 2012 www.ato.gov.au/atp/content.aspx?doc=/content/00326654.htm