The ATO Ups its compilance game. Here’s what that means for tax payers.

ATO lifts their game …are you at risk of an ATO audit?

New technology and a different approach mean that the Australian Taxation Office has taken its game to a new level.

In the past few federal budgets, the ATO has received funding increases that it has used to address the income tax gap and the black economy. There has also been ongoing government support for the Tax Avoidance and Phoenix Taskforces.

The intelligence-gathering work of the ATO has also increased, with tip-offs to its Tax Integrity Centre at record levels. As a result, the ATO has conducted audit visits to businesses in areas where there appears to be a high level of black economy behaviour, such as not reporting cash transactions.

Michael Papandrea FCPA, director of ACT-based Papandrea Partners, sees the advances in technology and information gathering that the ATO has made as a game changer.

Rental income is an area that the ATO has long identified as problematic. The ATO has indicated that some taxpayers continue to claim travel expenses to visit their rental properties, while some claim expenses under repairs when they should be depreciated.

There have been other cases where mortgage interest has been claimed when the property was not rented or available for rent, but is a holiday house reserved for the owners.

Some property investors who do not use tax advisers seem to be unaware of the ATO’s data-matching capabilities, and so make claims that might not be fully compliant. This could represent an opportunity for tax advisers to increase their client base by emphasising that professional advice is now not just useful, but essential.

“Unfortunately, with the information available from ‘tax adviser Google’ many taxpayers believe they are experts,” says Papandrea.

“With its new AI systems, the ATO has the ability to match behaviour with what is being declared. Up until now the cross-checking system has been limited. AI is closing that gap, so information will be available almost instantaneously to the ATO. This is where compliance is headed.”

Improvements in tax compliance

The introduction of Single Touch Payroll and the expansion of the taxable payments reporting system appear to have improved compliance due to enhanced reporting.

“The ATO has been signalling for some time the industries and practices where it has concerns,” says Elinor Kasapidis, tax policy adviser at CPA Australia.

“The latest efforts are a continuation of ongoing compliance activities to address the black economy. That has our support.”

Papandrea believes that the ATO will continue its focus on GST compliance, especially GST on property transactions. Inappropriate claims on vehicle expenses or travel expenses will be another area of attention, as will debt forgiveness and trust distributions. Issues around the superannuation guarantee charge are likely to figure over the next few years, particularly with an amnesty currently in place.

Kasapidis adds that the ATO has updated its approach to private groups, including a proposed increase to their level of disclosure. There is also a new ATO ruling on work-related expense deductions, which may impact some claims.

Looking ahead