Will the Tax Office Catch you in Its Snare?
Our friends at the Tax Office are getting smarter as they strive to increase the tax take for a Government battling to reduce its deficits.
Now, let’s be clear; we want the Tax Office to be effective in carrying out this part of their remit. We pay our share of tax which enables us to enjoy the benefits of this amazing country, so why should the cheaters get away without paying theirs? Besides, there are plenty of strategies which legitimately allow you to reduce your tax, so why cheat? That’s a whole different subject.
We wanted to give you the heads-up on where the Tax Office is focussing their gaze just now. I mean, they are kind enough to tell us what they are doing, so if someone gets caught in the knowledge of that, either they are not paying attention, or just plain stupid!
And getting caught out will be more than just a slap on the wrist. The tax Office, or the courts on their behalf, have ferocious powers to impose financial penalties, and even to incarcerate.
What is interesting is that the Tax Office isn’t so much picking up offenders just by looking at their tax returns, they are doing it by “data matching”. They have access to vast amounts of information from just about every imaginable source and they compare this with the information disclosed in people’s tax returns. You will see from the following, once the systems are in place, how relatively easy it would be to see if a tax return is either incomplete or, perhaps, gilding the lily.
Examples of what the Tax Office will be looking for:
- Salary & wages- under-declaring employment earnings or over-claiming PAYG withholding amounts.
- Omitting Interest and Dividend Income and over-stated claims for franking credits.
- Government Benefits under declared.
- Real Property Transactions. Matching reported capital gains on property disposals with information obtained from the Office of State Revenue. The Tax Office is getting this information going right back to 1985, the start of CGT as part of this project.
They are also getting information on rental Bonds from the Residential Tenancy Authority. - On-line sales activities from the likes of eBay
- Insured “Life-Style” Assets from insurers, including assets such as:
- Boats;
- Aircraft;
- Enthusiasts car;
- Fine Art;
- Race horses.
The objective of this exercise is to see whether the ownership of the insured assets fits with “life style” indicated by income reported in the tax return, or the capacity to acquire the assets in the first place.
- Information on Migrants and Visa Holders coming to Australia. This is to ensure they meet their tax obligations;
- Australians working Overseas.
to ensure they meet their Australian tax obligations, even whilst they may be temporarily living overseas, using information provided by AUSTRAC (Australian Transaction and Reports Centre).
So what other things are in the ATO’s sights this year?
- Work Related Expenses:
- where these are unusually high in relation to your industry or segment;
- Claims for travel between home and work;
- Claims for expenses already reimbursed by employers.
- Rental Properties:
- Property deductions generally and repairs in particular;
- Repair claims for newly-acquired properties;
- Interest deductions;
- Capital gains on disposals.
- Medicare Levy;
- Incorrect claims for exemption from the Medicare Levy.
- Main Residence Capital Gains Exemption being Incorrectly Claimed.
- Where the home has been used for income-producing purposes;
- Sub-division of the back yard;
- Incorrect claims of the 50% CGT discount of former main-residences, but are then rented out and sold within 12 months of ceasing to be the main residence.
As already mentioned, the Tax Office has an enormous amounts of information available to it and is investing significant resources to relate this information back to tax returns. Good record keeping is the first line of defence against claims of lodging an incorrect tax return, so, fore-warned is fore-armed.
If you have any concerns or questions we are here to assist.
