On 16 July 2013, the Australian Taxation Office (ATO) released its Compliance Program for 2013-14, called “Compliance in Focus”. This details the compliance activity (e.g. tax audits, reviews and data-matching) for certain categories of tax payers, including individuals, large, medium and small businesses, employers and superannuation funds. This is very useful information for taxpayers because it allows them to manage their tax affairs and risks in a proactive and strategic manner. Naturally, the Azure tax team will analyse any impact for its clients, and we strongly encourage all newsletter recipients to consider the issues below, form your own view of your exposure and contact us if you have any questions.
Areas of ATO focus:
International businesses
The ATO is very active in targeting international businesses who it regards to be shifting profits offshore via inappropriate transfer pricing policies between international related parties or excessive debt in Australia. See our last month’s Newsletter in relation to Thin Capitalisation.
Wealthy individuals
The ATO will contact people where their wealth seems at odds with what they are reporting on their income tax returns.
The ATO will undertake income tax reviews and audits of wealthy Australians (those controlling net wealth between $5 and $30 million) and contact others to check claims or provide advice. The Azure Group team feels that this includes a large number of Australians who, for example, may have been fortunate over the years in the property market and accumulated a property portfolio of more than $5m.
The ATO also plans to undertake income tax reviews and audits of highly wealthy individuals (those controlling net wealth greater than $30 million) and contact others to check claims or provide advice.
Small business (with annual turnovers of less than $2 million)
- The ATO will be targeting:
- overclaiming concessions
- claiming capital gains tax concessions they are not entitled to
- attempting to hide income and operate in the cash economy – the ATO will make use of Benchmarking to detect potential non-compliance.
Benchmarking involves a set of parameters that the ATO expects a small business to demonstrate, e.g. cash to credit card sales ratio. Should they fall outside the benchmarks, there is an elevated risk of ATO scrutiny. These benchmarks are something that small business have control over. Please contact your Azure Group advisor if you are curious or have concerns about your businesses’ benchmarking performance.
Medium-sized businesses (annual turnover between $2-250 million)
The ATO will focus on:
- making sure businesses lodge their outstanding returns
- misuse of trusts
- omitted income
- capital gains tax non-disclosure and under-reporting.
Self-managed super funds
The ATO will focus on the misuse of superannuation tax concessions and serious breaches of SMSF obligations (e.g. non-arms length transactions and incorrect withdraws).
Incorrect work-related expenses claims
High claims made by the following will attract ATO attention:
- building and construction labourers, construction supervisors and project managers, and
- sales and marketing managers.
Superannuation guarantee
The ATO plans to investigate every time an employee complains that their employer has not paid their superannuation guarantee entitlement.
The ATO regards some industries to present a higher risk of employers not complying with their superannuation guarantee obligations. It will focus on:
- cafes and restaurants
- carpentry services, and
- real estate services.
Further, employers may be held accountable for their company’s unpaid superannuation guarantee debt under the new director penalty regime.
Contractor arrangements
Whilst certain persons may be engaged as “contractors”, the ATO may take the view that the substance of the relationship is in fact that of an employer/employee relationship. The distinction is a question of fact and can be a grey area. However, this can have serious consequences for a business from a PAYG, superannuation, GST and FBT perspective. The ATO plans to undertake reviews of employers to ensure they are meeting their obligations.
Data matching
Continuing with its efforts in this area, more than 640 million transactions are reported to the ATO annually from sources such as banks, share registries, employers, merchants, states and territories and other government departments. This information is used to pre-fill returns and detect people trying to avoid their tax and superannuation obligations.
In the last financial year, ATO used data and information matching to raise $947 million in revenue adjustments from some 445,000 reviews and audits.
Reporting of PAYG withholding
The ATO will use intelligence gathering and information-matching to detect employers not meeting their obligations. 17,700 businesses will be reviewed for their employer obligations.
Please feel free to contact a member of our team today on (02) 9238 1188 or email us at ourteam@azuregroup.com.au if you have any questions.
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