The Australian Taxation Office (ATO) today released their Compliance Program 2011-12, a publication which outlines key focus areas attracting ATO attention for the coming year.  Below are a few of the more interesting statistics coming out of that report with comments from Mr Taxman himself, Adrian Raftery, author of 101 Ways to Save Money on Your Tax - Legally!.

Cash economy

ATO quick statistic: We increased our scrutiny of businesses deliberately not reporting their cash income, with over 1.4 million small businesses evaluated against our sophisticated risk-detection systems and over 16,000 businesses directly contacted through our compliance activities. These compliance activities raised around $151 million in liabilities this financial year (10-11).Thereby protecting honest businesses from unfair competition.

Mr Taxman comment: More and more people are dobbing in tax cheats that don’t declare their cash transactions.  The ATO’s net is widening very day and if you are a business that doesn’t report some or all of the cash that you receive as taxable income then expect the full wrath of the taxman when he comes knocking on the door. The ATO have very good small business benchmarks so tread carefully if you think you are going to fool them!

Data matching

ATO quick statistic:  Each year we cross reference information reported in tax returns against at least 500 million transactions reported by other parties. We will contact over 400,000 taxpayers who have apparent discrepancies in the information they reported. Third party reporting and data matching systems used by the ATO have been proven to have a significant impact on encouraging voluntary compliance. For example, in regards to data matching for individuals, in 2009 banks and other financial institutions reported over $18 billion in interest income that they had paid to individuals.  When this information was matched to tax returns, less than $330 million was omitted by taxpayers. Last tax time we identified more than 28,000 returns with total refunds greater than $129 million which are believed to be potentially fraudulent or include overstated refund claims. Included within these returns is over $27 million in claims that are potentially related to identity crime.

Mr Taxman comment: The ATO are getting better and better in identifying tax returns that are incorrect and fraudulent due to their data matching capabilities.  What you may have got away with ten years ago, is easily picked up in this day and age of computer technology and data sharing.  The average understatement of income that the ATO tracks down is $825 but it starts from as little as a few dollars.  Gone are the days of estimating your bank interest.  Take the time to calculate your income and be as precise as possible.  If you are going to try and de-fraud the government out of a nice refund then think again.  The ATO are focussing on “dodgy” tax agents as well and you can’t protest your innocence as you sign off on the tax return.  If a tax return is fraudulent, the ATO have the powers to go back indefinitely … so you can never hide from fraud.

Phoenix arrangements

ATO quick statistic: We will establish an ATO-wide phoenix database to support the ongoing and timely scrutiny of phoenix. The Australian Government has provided $22.1 million (2011–12 budget) in extra funding over the next four years to help us address phoenix behaviour. In addition, the 2010 legislation has allowed the demand of payments of a ’security bond’. To date, we have issued 10 ‘security bonds’, again with a view to protecting honest businesses as well as employees.

Mr Taxman comment: Nothing irritates me any more than seeing a “dodgy” businessman rack up a heap of debt, refuse to pay it, go bankrupt and then set up another new company and trade fresh again with no care for the financial hardship for the employees and suppliers that he has caused them.  These guys are scum of the earth with no morals whatsoever.  They don’t deserve having such an easy get-out clause with so little ramifications.  I would love to see ASIC work harder with the ATO on this and even de-register accountants and lawyers who recommend such behaviour.

Superannuation

ATO quick statistic: We audited over 920 individuals involved with illegal early release of superannuation benefits and 31 promoters, raising almost $14 million in liabilities. Over the last five years, our superannuation guarantee compliance activities have resulted in around $1.3 billion of additional super being collected for the benefit of employees.

Mr Taxman comment: Employers that don’t pay their employees’ super are parasites and it is paramount that the ATO protect the rights of employees to ensure that the correct amount of the superannuation guarantee is paid.  I would like to see some more training seminars to the trustees of self-managed superannuation funds (SMSF) to ensure that they have a greater understanding of the rules associated with their funds and how an early release is illegal.

Wealthy Australians

ATO quick statistic: We completed over 650 reviews and audits of highly wealthy individuals. We expect to raise over $800 million in liabilities by the end of 2010–11.

Mr Taxman comment: I am blown away with the $1.23 million average tax collected from these reviews of “wealthy Australians”.  It probably also means an extra $800 million in saved tax in future years as well. I think the taxman has also reduced the level that they define a wealthy Australian from $30 million down to $5 million.  I applaud these efforts because everyone should be paying their fair share of tax – no matter how rich or poor you are.  I hope the ATO continues to stay on their case and ensure that they lodge all tax returns and business activity statements (BAS) on time as well as paying their tax and GST.

Large business

ATO quick statistic: We expect to issue around 300 private and 100 class rulings to provide guidance on the application of the tax law to particular arrangements. We will also conduct tax reviews on around 400 large businesses to check on whether tax risks are present in these businesses and tax audits on around 150 large businesses to resolve identified tax issues.

Mr Taxman comment: I think it would be of value for the ATO to look at related party transactions, particularly those with companies that are loss-making or have overseas operations.  What we don’t want to see is profits that should be taxed in Australia being shifted internationally to more favourable tax regimes due to flexible transfer pricing arrangements.  The audited financial statements will show a note showing the difference between reported net income and taxable income – that should be a great starting place for any ATO audit.

Project Wickenby & organised crime

ATO quick statistic: To date 20 people involved in Project Wickenby have been convicted of criminal offences. Over $1 billion in tax liabilities has been raised, with over 300 million dollars gathered through increased voluntary compliance. Importantly, there has been a significant reduction in the flow of funds to tax secrecy jurisdictions such as Vanuatu, Liechtenstein and Switzerland. The ATO is involved in several taskforces with law enforcement bodies in the fight against organised crime including the Criminal Assets Confiscation Taskforce.

Mr Taxman comment: Project Wickenby has been a huge success story over the past five years for the ATO and the Australian public at large.  I have no troubles with people trying to minimise their tax but they need to do it legally!  When you travel around the world and see poor quality roads, hospitals and education systems, you learn to appreciate how important tax collection plays to keeping us living in such a lucky country.  The more that the taxman can breakdown these secret tax havens and organised crime syndicates the better it will be for all of us.  Keep up the great work guys!

Work related expenses

ATO quick statistic: Each year around 634,000 people register for a tax file number. Deductions for work-related expenses have increased by around 16% since 2007 and are one of the largest categories of claims made in tax returns.

Mr Taxman comment: I am seeing a big shift in employers paying less and less for things for their employees.  Instead of providing company cars, they now pay car allowances resulting in a higher claim by employees.  The average tax claim is now over $3,300 which makes the standard $500 deduction in a few years’ time look like a ridiculously low figure.  I am seeing more and more employees working longer hours and doing work from home.  Earthmovers, flight attendants, carpenters, joiners and real estate employees are under the main scrutiny this year so make sure that you have your claims in order. Those in other occupations don’t have a get out of jail card though because the ATO’s systems will identify “out of the ordinary” claims and probably put you on the hit list next year which includes going back over prior year claims!!