Taxpayer Risk Management

The Australia Tax Office (ATO) has released a new publication called the 'SME's and Wealthy Individuals -our compliance approach'.

The ATO defines Small Medium Enterprises (SME) to be businesses that turnover between 2 million and 250 million a year.  Wealthy Individuals are taxpayers with net assets greater than 5 million. These taxpayers are important to the ATO and the community as they account for more than one quarter of the ATO’s collected revenue.

Taxpayers can use this guide to manage their tax risks. The guide provides useful information on ATO audit and review procedures, escalation paths and alternative dispute resolution. It also includes the ATO compliance model, which outlines common triggers that attract the ATO attention. The ATO categorises each taxpayer into their risk differentiation framework which draws on information from their data matching and industry benchmark systems.

The publication lists the following triggers that attract the ATO's attention. With each trigger listed below we have outlined a risk management plan:

  • Inconsistencies in activity statements’- Ensure you have good record keeping system in place and undertake a detailed review before each activity statement is lodged.
  • Large one off or unusual transactions’- This would include transactions such as a sale of a business, it is best that you understand the tax implications of these transactions as and when they arise.
  • ‘Tax and economic performance varies from similar businesses in the same industry’-Understand and monitor the performance of your business. Understand the appropriate industry benchmarks and highlight any areas where there have been variances in your businesses performance.
  •  ‘Unexplained losses’ – Ensure you retain accurate records of carried forward losses. Often the ATO denies losses to be deducted because the tax payer has disposed of records that relate to losses incurred for example 15 years ago.
  • ‘Using complex structures with intra group transactions to minimise tax’- Make sure all intra group transactions are commercially realistic and reflect what would be undertaken by two unrelated parties. It is important that intra group transactions are dealt with at arm’s length and have the appropriate documents to support these transactions. For example – having appropriate agreements and tax invoices issued between the parties involved.
  • ‘Distortions and inconsistencies in Market valuations and apportionments’- It’s important to get independent professional valuations when required.

For more detailed information please consult the ‘Small to medium enterprises and wealthy individuals’ Our Compliance Approach’ publication  at

Data matching- the ATO compliance approach

The ATO has a responsibility to the community and to the government to ensure that everyone is paying the correct amount of tax under the law.

Data matching is a tool that the ATO uses to gather information from a variety of sources, to be brought together, complied and arranged at a lower cost than the historic manual methods of collection. It allows the ATO to identify people who are not complying with their tax obligations and to detect fraud on the Commonwealth.

The sources of data come from banks, financial institutions, investment bodies, employment information and welfare payments.  The supply of this data is authorized by legislation and is able to be matched with information submitted to the ATO through the tax system, to detect people who may not be disclosing all of their income. Information exchanges are also authorized by legislation between government departments. The ATO currently receive information from Medicare Australia, ASIC and banking transactions captured by AUSTRAC.

Your privacy is protected under the Privacy Act 1988 and the secrecy provisions of the Income Tax Assessment Act 1936, the Taxation Administration Act 1953 and other tax law. The ATO has further Commissioner voluntary privacy guidelines on data matching. These are internal guidelines that the ATO continuously monitor, to ensure the protection of the large amounts of information it contains on individuals across Australia.

Azure Group does not expect or invite any person to act or rely on any statement, view or opinion expressed in this report without first obtaining advice from a qualified professional person. The authors are not responsible for the results of any actions taken on the basis of information neither in this publication, nor for any error in or omission from this publication. 

2011 ABB Survey findings on SME financial management
Repair v improvement in a SMSF property asset

About Author

Tanya Moran
Tanya Moran

Tanya Moran is a Senior Partner and the Lead Taxation Partner of Azure Group. She has more than 20 years' experience working with a large array of businesses from small accounting firms to large international corporations.

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