The all-seeing taxman

The tax office is watching you – and you’ll be surprised where it is getting its information.

The Australian Taxation Office is awash with data on Australian businesses, and with increasingly complex and sophisticated computer systems it knows how to use it. As the saying goes, “forewarned is forearmed”, so it pays for business to know where the tax office gets its information and what it might do with it.

So where does that data come from? It comes from a range of sources that might surprise many, including: employers; banks and other financial institutions, including low-doc loans; other Australian Government and state and territory government agencies; overseas governments; AUSTRAC; land titles offices and planning authorities; property title transfers from many state and territory authorities; residential tenancy agreements from NSW, Victoria and Queensland; WorkCover authorities in various states and territories; motor vehicle registers; horse trainers and jockeys; the Australian Stock Exchange; share registers and managed investment funds; professional associations; aircraft purchases; the fishing industry; labour hire firms; building contractors; shopping centre lessors; and the Yellow Pages.

By comparing external data with tax returns, the tax office seeks to ensure that capital gains and losses are correctly returned across a range of areas, including real property, shares, charter boats and sections of the fishing industry.

The tax office also has a priority on monitoring asset disposals and transfers from small businesses to super funds. The tax commissioner says the tax office is identifying cases that involve inappropriate valuations or complex structures designed to avoid or minimise CGT.

The following examples also illustrate how the tax office uses third-party data:

• Third-party data revealed that a publishing company had omitted $462,000 from its business accounts by using a cheque cashing facility. The company made a voluntary disclosure when contacted by the tax office. The tax office also became aware that the practice was being promoted by word of mouth. This case raised around $219,000 (including penalties) in revenue, and the tax office says it is investigating several related cases;
• A past employee of a landscaping business told the tax office that many employees were regularly being paid “cash in hand” amounts of about $150 and that 75% of the business income was received in cash. An investigation found major discrepancies between financial institution records and amounts returned in tax returns and activity statements. The business operator was transferring cash between various trading and private accounts (including credit card and TAB accounts) to pay wages, and was not accounting for business income. The extra liability established (including penalties) was $328,000.

The tax office is part of the community. Its staff watch TV, listen to the radio and read newspapers. The office has an insatiable appetite for information about taxpayers and their business operations and it now has very sophisticated machinery to process that information. A business needs to be on its toes and needs good record keeping, a good accountant, and needs to heed the warnings put out by the taxman. If it reads the signs, problems with tax compliance can be avoided or at least minimised.

Terry Hayes is the senior tax writer at Thomson Legal & Regulatory, a leading Australian provider of tax, accounting and legal information solutions; www.thomson.com.au