Everyone wants to minimise their taxation, but if errors are made in your tax return, its increasingly likely that they will be identified. Martin Rush highlights two areas to be mindful of this financial year.
The Australian Taxation Office (ATO) is using increasingly sophisticated techniques to identify taxpayers whose tax return disclosures do not match other data the ATO holds. Every year, they identify areas within the tax system to target. This year the focus will be on work-related expenses and online transactions.
Work-related expenses commonly include expenses for car and travel, clothing, laundry dry-cleaning, self-education and tools and equipment relating to earning your income
According to the ATO, work related expenses totalling $21.3 billion were claimed by 8.4 million taxpayers in the prior year. This equates to an average claim of approximately $2,500 so you can understand why this is a focus of the ATO.
In 2014/15, the ATO conducted approximately 450,000 reviews and audits of individual taxpayers. This year the ATO will be focusing on taxpayers whose work-related expenses are considered to be ‘high’. What is ‘high’ is determined by:
- Claims made by individuals in the same industry
- Prior year claims by the taxpayer
- The taxpayers level of income.
When claiming work-related expenses, you need to ensure that the expense:
- Has been incurred and not reimbursed by the employer
- Is directly related to the taxpayer’s income earning capacity
- Is substantiated by appropriate records.
In 2015, Australia’s digital economy was estimated to be worth $79 billion. With significant tax revenues at stake, the ATO needs to ensure that tax obligations are met. Their data-matching program aims to achieve this by electronically matching data received from taxpayers to other sources of information and examining anomalies which indicate a taxpayer may be running a business but not declaring their income.
In October 2016, the ATO confirmed three sources of information it will use for ‘data matching’ this financial year:
1. Ebay – the ATO will continue to acquire on-line selling data annually with a particular interest in taxpayers who sell goods or services totalling more than $12,000.
2. Credit and debit cards – the ATO has been collecting this information since 2009. Data is received from all four major banks, the smaller banks, American Express and Diners Club. This data identifies credit and debit-card sales.
3. Share Registries – the ATO will be collecting share transaction details from all the major companies providing share registry services (e.g. Link Market Services, Computershare etc.). Information will be collected from 20 September 1985 (i.e. introduction of capital gains tax regime) to current.
There are many other sources of data used by the ATO for this purpose, with the above three having been highlighted recently.
Significant resources are being put into data analytics and data matching to identify excessive work-related expenses and understated income in tax returns. If errors are being made in tax returns, then the likelihood of the ATO identifying these errors is increasing all the time. Penalties imposed by the ATO can be as high as 75%. More than ever it pays to be upfront and honest.
Please contact your local Accru advisor if you have any questions about how this may apply to you.