ATO compliance target areas

The ATO has released details of its compliance program for 2013–2014. It is not an exhaustive list, but explains the ATO’s key activities and focus areas for 2013–14. It also contains a number of case studies highlighting ATO enforcement action. In launching the compliance program, ATO Second Commissioner Bruce Quigley said the ATO will update the online version of the program throughout the year to report “on our progress and identify any emerging risks, including explaining what we are doing about them”.

The program includes the following points of note:

• The main way the ATO detects non-compliance is by analysing and matching information reported to it.

• The ATO has set up a new taskforce to deal with promoters, individuals and businesses that seek to misuse trusts. The ATO plans to conduct 5,000 data-matching cases and around 700 income tax reviews and audits over the next four years.

• This year, the ATO will use new information sources to check correct reporting of: (i) private health insurance rebate claims; (ii) flood levy exemptions; and (iii) taxable government grants and payments.

• The ATO says it will pay particular attention to large work-related expense claims made by: (i) building and construction labourers, construction supervisors and project managers; and (ii) sales and marketing managers.

• The ATO plans to run 170 checks on participants in aggressive tax planning schemes.

• In 2013–2014, the ATO will focus its compliance activities in relation to employers on: (i) reporting of pay-as-you-go (PAYG) withholding; and (ii) identifying and correctly reporting fringe benefits provided to employees.

• For large and multinational businesses, the ATO will focus on companies that engage in practices designed to shift profits offshore or avoid tax obligations; 125 risk reviews and 26 audits are planned. The ATO will also focus on tax consolidation issues, capital gains tax (CGT) outcomes and complex structuring, and will scrutinise financial arrangements.

• In relation to tax haven-related activity, the ATO says data has revealed extensive use of complex offshore structures by wealthy individuals, companies and their advisers. The ATO plans to conduct 680 reviews and 115 audits, and issue 50,000 letters in 2013–2014.

• For medium enterprises, the ATO will focus on income tax (including CGT, consolidation, trusts, profit shifting, private company schemes and fraudulent phoenix activity). It plans to conduct 1,000 reviews and audits and will make 2,500 contacts to verify information or provide advice.

• In relation to compliance with the consolidation rules, the ATO says that in the coming year it will not only continue to focus on outcomes that go beyond the consolidation regime, but also seek assurances that large and medium-sized taxpayers are complying with the 2012 consolidation law changes, which addressed claims relating to rights to future income and the residual tax cost-setting rules.

• In relation to GST, the ATO will focus on taxpayers in the mining, wholesale trade, manufacturing, financial and insurance services, government and retail trade industries who are experiencing change or whose business systems have undergone complex structural change. The ATO plans to review over 2,000 cases.

• The ATO says it has found that some property developers deliberately disengage from the tax system at the point of sale and fail to meet their GST obligations. They then create new entities for future property developments. The ATO says it has identified over 2,000 property developers who have on multiple occasions placed companies with outstanding GST obligations into liquidation.The ATO says “this is a red flag for potential phoenix activity” and the ATO plans to address this by demanding lodgment, enforcing payment and applying penalties.

• For tax professionals, the ATO will focus on practice management and risk differentiation. The ATO says its risk differentiation work shows that about 90% of registered tax agents “play a positive role in the tax system”.

• Self managed superannuation funds (SMSFs) will receive ongoing attention. In this segment, the ATO plans to conduct 1,100 checks concerning income tax obligations, 15,100 checks concerning regulatory obligations and 160 compliance checks concerning SMSF auditors.

Source: ATO publication, Compliance in focus 2013–14, http://ato.gov.au/uploadedFiles/Content/CS_C/downloads/CSC35735NAT74689.pdf.