Tax Office focus for 2009-10

Media release 2009/53

Supporting people during the economic downturn and dealing firmly with those who deliberately evade their tax and super obligations will be top priorities for the Tax Office in the year ahead.

In releasing the Compliance program 2009-10 Tax Commissioner Michael D’Ascenzo said the Tax Office will continue its strong program of help and assistance for businesses and individuals facing genuine hardship during the economic downturn.

"People can struggle with their tax and superannuation obligations in times of uncertainty," Mr D’Ascenzo said.

"To help businesses through these tough times we are providing a range of practical support measures to keep them engaged with the tax system including help to pay existing tax debts without interest.

"When many in the business community are doing it tough, it is even more important that the system is seen as fair and equitable.

"Our work to make sure people meet their obligations ensures there is no unfair advantage for those who don’t."

Specific areas of focus

Individuals and businesses can expect increased scrutiny of returns, in particular losses, high risk refunds, eligibility for tax offsets and employee share schemes.

The Tax Office will continue monitoring highly paid company directors and executives.

Over the next four years the Tax Office’s risk review and audit program for wealthy Australians and large to medium sized businesses will increase to ensure they meet their tax obligations as the economy recovers.

The monitoring of wealthy Australians will be expanded to include individuals with a net wealth of between $5 and $30 million.

Businesses that don’t declare all cash income to gain a competitive advantage can expect contact from the Tax Office as programs to deal with the cash economy are expanded.

Employers who don’t withhold and pay tax or do not make super contributions for their employees, will be a particular focus this year.

The risk of ‘phoenix’ activity, where company directors use serial liquidation as a means of avoiding their financial obligations, is also on the Tax Office’s radar.

Cross-border tax avoidance schemes, particularly those involving tax havens and transfer pricing, will continue to be a priority. Also dodgy schemes remain a concern during the economic downturn – particularly those offering illegal early access to superannuation savings.

"We are making an extra effort to keep people engaged and participating in Australia’s tax and superannuation systems that support the whole community," Mr D’Ascenzo said.

"Tax funds the public goods and services our community expects and relies on, while superannuation provides retirement incomes for many Australians.

"We appreciate people may need extra help to meet their day to day tax obligations and I encourage them to call us before they get into serious difficulty.

"We will also continue to be vigilant in detecting those who become involved in tax frauds such as falsifying refund claims and respond to these serious crimes firmly.

"This year’s compliance program will sustain community confidence in our tax and superannuation systems and help promote faster growth of Australia’s tax collections as our economy to recovers from the downturn."

Compliance program 2009-10

The following is a summary of some of the key priorities and activities for each market segment. For more information on these priorities and activities, and the full range of compliance measures, see the Compliance program 2009-10 at www.ato.gov.au

Individuals

Headline issues - page 8

Executives and directors

• Expanding data matching activities around executive and director remuneration to ensure shares and options are correctly reported.
• Checking Australian resident employees of multinational companies who receive benefits from overseas employee share or bonus schemes, to ensure all benefits received as income are reported.

Refund fraud

• Using new technologies to identify refund fraud, potentially unregistered tax return preparers and cases of fraud involving identity theft.

Information matching

• Matching over 400 million records from third parties and looking at more returns for risks concerning employee share schemes, health insurance policies that don’t provide sufficient private patient hospital cover, and eligibility for tax offsets and the Medicare levy exemption.
• We are following up over 500,000 reported income discrepancies and issuing 100,000 letters advising taxpayers where we have some concerns with the income reported.

Specific compliance issues - page 8

International dealings

• Matching information supplied by overseas revenue agencies and AUSTRAC against income tax returns to identify unreported foreign income.

Work expense claims

• Focusing on occupations with patterns of large/rising claims, returns that do not fit the pattern for a particular occupation and claims in returns lodged by tax agents that are outside the norm.
• Looking at work-related expense claims for people employed as truck drivers, sales and marketing managers, sales representatives and electricians.

Investors

• We expect an increase in the number of people claiming losses on the sale of investments and have written to people who purchased investment properties, shares or units in a managed fund last year to inform them of their capital gains tax obligations.
• Paying close attention to claims relating to retail investment products, managed investment schemes and other retail financial products to ensure deductions claimed are legitimate.
• Continuing to encourage participants of dodgy schemes to make voluntary disclosures and take advantage of possible reduced penalties.

Superannuation

• Focusing on implementing and raising awareness of reduction to concessional contributions caps to ensure that people who exceed the caps are identified and action taken in a timely manner.
• Continuing work with other agencies, super funds and financial institutions to identify and respond to illegal early access schemes.
• Following up complaints from employees about employers not paying the correct amount of superannuation.

Supporting people in financial distress

• Providing individuals and businesses with a range of practical support to assist them during the economic downturn including:
• fast tracking refunds
• giving businesses more time to meet lodgement and payment obligations without penalties
• payment arrangements over an extended period of time, and
• remitting penalties and interest.
• New online resources including a frequently asked questions reference tool and an online calculator to help taxpayers work out affordable payment arrangements.
• Supporting businesses and community organisations that provide assistance to people facing financial and related difficulties.

Micro businesses

Headline issues - page 13

• Helping viable businesses stay on track through our small business assistance program, the introduction of temporary penalty and interest concessions, and implementation of new measures including the small business and general business tax break.
• Contacting new employers to help them understand how to comply with their obligations.
• Reviewing employer returns to ensure PAYG withholding obligations are being met and dealing firmly with employers who are not meeting their obligations.
• Identifying and educating industries at high risk of not meeting superannuation guarantee obligations (focusing on road freight transport, automotive repair and electrical services industries).
• Identifying possible cash economy participants using additional information sources including benchmarks and following these cases up.

Specific compliance issues - page 14

Property assets and investments

• Expanding data matching on asset transactions from state revenue offices, land titles offices, share registries and other sources.
• Focusing on GST treatment of property transactions in particular unreported property sales, incorrect application of the margin scheme and non-lodgement of activity statements.
• Checking property transaction reporting for capital gains - in particular sales of property, capital losses and correct use of capital gains tax small business concessions.
• Ensuring shares are correctly taxed, in particular that losses are correctly accounted for.

Refund fraud

• We will examine the misuse of tax return labels, and will be increasing scrutiny of trading stock reporting and company losses.

Partnership and trust distributions

• Checking (using data matching) distributions from partnerships and trusts have been correctly disclosed.

Dodgy schemes

• Focusing on identifying dodgy tax schemes and warning participants of our concerns.
• Encouraging participants of dodgy schemes to make voluntary disclosures and take advantage of possible reduced penalties.

Self-managed superannuation funds

• Matching the increase in SMSFs with increased compliance work.
• Active compliance activities covering at least 10% of all new funds during the year focusing on loans, in-house assets, borrowings and non-arm’s length transactions.
• Ensuring approved auditors fulfil their role properly.
• Focusing on schemes designed to illegally release superannuation earlier.

Maintaining a level playing field

• Supporting honest businesses by taking firm action against those seeking an unfair advantage by managing risks associated with the cash economy through:
• development of industry benchmarks
• paying particular attention to employers who are not meeting their obligations to withhold tax and make superannuation payments on behalf of their employees
• letters to high risk taxpayers, and
• extensive use of data matching and computer-assisted risk profiling.
• Greater scrutiny on the home renovations sector, retail and hospitality industries.

Small to medium enterprises

Headline issues - page 19

Income tax compliance

• Developing and using new information collection and data matching tools to identify potential high risk taxpayers.
• Progressing risk assessments for all taxpayers with turnovers between $100 and $200 million.
• Initiating more than 300 new reviews.

Wealthy individuals

• Extending compliance activities to look at individuals with a net wealth between $5 and $30 million.
• Focusing on identifying and risk reviewing potential cases – verification activities to follow next year.
• Identifying improper use of losses and tax outcomes from property development transactions that are inconsistent with economic outcomes.
• Expanding use of external data such as records of property sales and share transactions.
• Undertaking at least 120 audits and 420 reviews.
• Sharing more information with other jurisdictions to identify high-risk transactions.

Specific compliance issues - page 19

Paying tax liabilities

• Supporting viable businesses to meet their tax obligations.
• Garnisheeing businesses deliberately choosing not to meet their obligations.

Lodgement

• Improving lodgement for entities with turnovers between $100 and 250 million, highly wealthy people, industries and sectors with higher rates of non-lodgement and late lodgement, and previously compliant businesses.

Income tax and fringe benefits tax compliance activities

• Ensuring FBT treatment of motor vehicles and super guarantee is correct.
• Increasing support for small business employers having difficulty meeting super guarantee obligations and closely monitoring compliance.
• Looking at business owners using loans, payments and debt forgiveness to distribute private company profits to shareholders or associates without paying the correct amount of tax.
• Examining compliance of untaxed private company distribution provisions.
• Continuing to monitor international transactions focusing on:
• foreign source income and deductions relating to cross-border transactions
• concealed assets and income
• ensuring foreign residents earning Australian income are meeting their obligations
• transfer pricing arrangements, and
• thin capitalisations and correct application of safe harbour rules.
• Ensuring capital gains tax is correctly applied, with a particular focus on ensuring capital losses are not offset against income.
• Examining business restructures focusing on exit and succession planning arrangements.
• Examining concerns with compliance around untaxed private company distribution provisions.
• Continuing to identify and track phoenix operators through better systems and intelligence.

Goods and services tax

• Property transaction audits focusing on unreported sales, correct application of the margin scheme, correct GST treatment of commercial and residential premises and retirement villages.
• Ensuring business correctly claim GST credits and focusing on business failing to report correctly.
• Focusing on businesses with cross border transactions.
• Reviewing refund claims for transactions made more than four years ago under section 13 of the Transition Act.

Excise

• Conducting 175 reviews and audits.

Paying a fair share of tax whatever your income

• Increased risk review and audit program for medium and large business over the next four years.
• Focusing on:
• dividends disguised as loans
• use of group property for private purposes
• undeclared and understated capital gains, and
• concealed income and assets in tax havens and jurisdictions that lack exchange of tax information provisions.
• Strengthening information matching to identify unreported income and obligations by employers, investors and highly paid executives in public, private and foreign-owned companies.
• Expanding verification activities of remuneration payments for highly paid company directors and executives involving overseas accounts and incorrect reporting of shares and options received as part of their salary.

Large businesses

Headline issues - page 25

• Complex business arrangements that look tax driven.
• Closely reviewing structures and arrangements that appear to exist only to obtain a tax benefit.
• Conducting compliance activities with around a third of the large business market.
• Identify instances of tax avoidance or deliberate non-compliance and providing pre-assessment advice.

Delivering the Government’s new measure to the community

• Consult closely with industry and professional bodies to implement new measures that affect large business including the general business tax break.
• Allowing managed investment trusts to make an irrevocable election to have gains and losses on investment assets subject to capital gains tax from 2008-09.
• Work with industry and professional bodies to minimise compliance costs and developing products to help implement new measures.

Promoting good corporate governance

• Australia will continue to engage with large business and work internationally with the OECD to ensure good tax compliance is included in a good corporate governance.

Working internationally

• Increasing our work with tax havens and bank secrecy jurisdictions to achieve transparency and effective exchange of information between our countries.

Specific compliance issues - page 27

Loss generation and loss usage

• Examining claims for losses that do not reflect genuine commercial arrangements, lack economic substance or are deducted but don’t meet certain tests.

Transfer pricing

• Increasing focus on arrangements between Australia and offshore entities including branches to shift profits and tax from Australia to other countries.
• Reviewing the advance pricing arrangements program to make it easier and more relevant as well as working with Joint International Tax Shelter Information Centre to improve transfer pricing processes.

Thin capitalisation

• Proactively reviewing taxpayers who are likely to be in serious risk of failing the thin capitalisation test.
• As part of this work, following up on non-lodgement and incorrect completion of thin capitalisation schedules.

Cross border arbitrage

• Focusing on contrived and artificial arrangements which generate debt deductions.
• Continue to review the use of Offshore Banking Units (OBUs) to preferentially swap profits into OBUs and shift OBU expenses out to increase the tax effect.

Consolidation activities

• Specifically focus on entities that join or leave a group as well as the acquisition, transfer and use of losses by groups.

Interaction of CGT with other tax law

• Focus on non-disclosure or incorrect reporting of capital gains or losses.
• Target arrangements designed to circumvent foreign resident CGT obligations.

GST

• Focusing on incorrect reporting of property transactions, unreported sales and application of the margin schemes.
• Reviewing eligibility of claims for out-of-scope supplies.

Non-profit organisations

Headline issues - page 33

Addressing non-compliance

• Reviewing 200 non-profit entities’ eligibility for concessions.
• Reviewing 95 non-profit employers to ensure they are complying with their obligations.
• Looking at deliberate misuse of tax concessions.
• Ensuring taxable non-profit organisations understand and meet their obligations.
• Focusing on activities not consistent with any special exemption.
• Checking the integrity of business systems including record keeping and complex transactions.
• Working with trustees of prescribed private funds to make them aware of new legislation that, if passed, will come into effect on 1 October 2009.

Specific compliance issues - page 33

Taxable non-profit organisations

• Offering clubs and other related organisations the opportunity to make voluntary disclosures of any mistakes.

Misclassifying supplies as GST-free

• Undertaking reviews and audits to test compliance with non-commercial supplies concessions.

Misclassifying grants

• Working with grant providers and recipient representatives to develop and implement a revised ruling on grants and other financial assistance clarifying GST treatment of the payments.

Government organisations

Headline issues - page 35

• Continuing to support government organisations by promoting good tax and superannuation governance.
• Assisting government organisations manage GST consequences of infrastructure projects.

Specific compliance issues - page 35

• Working with government grant providers to develop and implement a revised ruling on grants and other financial assistance clarifying the GST treatment of payments.
• Reviewing GST treatment of property transactions involving government organisations.
• Developing information, guidance products and strategies to help government organisations manage GST obligations during restructures.
• Monitoring the use of share-service agencies ensuring tax obligations are met.

Tax practitioners

Headline issues - page 37

Practical assistance to encourage compliance

• Working with tax practitioners and helping them influence their clients to remain in the tax system during difficult times.
• Increasing the number of regional working groups from four to seven to enable a range of practitioners to provide feedback on the business impacts of tax administration.
• Focusing on helping new registrants become aware of and access our information and services.
• Continuing to enhance the electronic superannuation audit tool to assist superannuation auditors.
• Ensuring tax agent lodgement program responds to the changing needs of tax practitioners and the community.
• Following up outstanding lodgements of new self-managed superannuation fund registrants and SMSFs that continually fail to meet their lodgement obligations.
• Undertaking around 1000 audits and reviews of approved auditors of SMSFs.

Changing regulatory environment - page 38

Tax Practitioners Board

• Developing a collaborative working relationship with the new national Tax Practitioners Board and supporting the Board’s approach to non-compliance.
• Providing administrative support to the new Board to help implement the new regulatory framework.
• Provide ongoing support for the state-based Tax Agent’s Boards during the transitional period.

Ongoing assurance and integrity

• Identifying unregistered tax return preparers and ineligible BAS preparers.
• Reviewing returns and activity statement lodgements to identify possible fraud or scheme promotion.
• Expanding the tax practitioner integrity service to follow up complaints against registered BAS agents.
• Encouraging tax practitioners to contact us about potential tax exploitations schemes.

Serious abuse of tax and superannuation systems

Headline issues - page 41

Tackling cross-border tax crime

• Monitor improper use of tax havens and bank secrecy to conceal ownership or control of assets and income.
• Project Wickenby funding has been extended for a further three years to 2012-13.

Refund fraud

• We have sophisticated analytical tools and techniques to detect attempts at refund fraud.
• Last year 36 people were prosecuted for refund fraud with 30 receiving custodial sentences.

Tax implications of organised crime

• We work with law enforcement and other regulatory agencies to manage the risk of deliberate and organised attacks on the tax system.

Specific compliance issues - page 41

• Continuing to conduct criminal investigations in relation to the cash economy, phoenix arrangements and schemes that offer illegal early access to superannuation.

Last Modified: Wednesday, 5 August 2009