Some ATO target areas: A year-end wrap

The ATO is constantly reviewing and auditing the tax affairs of many Australians and their businesses. Its annual compliance report certainly flags likely areas of review, but the ATO also regularly undertakes particular reviews of interest to it.

Here is a quick summary of some of the ATO’s current activities of interest.

Changes to income tests: ATO contacting taxpayers

The Tax Office has advised that, during the first half of December 2009, it is writing directly to around 240,000 taxpayers whose latest income tax returns suggest they could be directly affected by the new income tests which came into effect from 1 July 2009.

The income tests affect offsets such as the:

Dependent spouse tax offset
Housekeeper tax offset
Child-housekeeper tax offset
Parent, spouse’s parent or invalid relative tax offset
Senior Australians tax offset
Pensioner tax offset
Mature age worker tax offset
Superannuation spouse contribution tax offset

Three new income tests are used when calculating tax offsets and obligations:

Adjusted taxable income – broadly, adjusted taxable income includes taxable income, adjusted fringe benefits, tax-free pensions or benefits, reportable super contributions and total net investment losses. Both Centrelink and the Child Support Agency use adjusted taxable income for their assessments, but the income components used to calculate adjusted taxable income for each agency may differ.
Rebate income – this includes taxable income, adjusted fringe benefits, total net investment loss and reportable super contributions. From 1 July 2009, the ATO has used rebate income to work out whether taxpayers are entitled to the senior Australians tax offset and the pensioner tax offset.
Income for surcharge purposes – this includes taxable income (including the net amount on which family trust distribution tax has been paid), reportable fringe benefits, as reported on the payment summary, total net investment loss and reportable super contributions. The ATO uses income for surcharge purposes to work out whether taxpayers have exceeded the Medicare levy surcharge threshold.

They also affect eligibility for certain Centrelink benefits, and tax deductions for personal super contributions. The letters will describe the new income tests, what the taxpayer can do and where to seek more information.

SME owners should be aware that such letters may be sent to them.

PAYG and super withholding

In July 2009, the ATO began a project to make sure employers are withholding tax properly and making super guarantee contributions for their workers. The ATO has been looking at unreported cash wages and contracting arrangements to make sure businesses and their contractors are managing their obligations and getting their entitlements.

The ATO says it wants to learn why some businesses do the wrong thing – either knowingly or by mistake, or in an effort to stay competitive.

As part of this project, the ATO says it is also talking to individuals who are disadvantaged by not receiving their proper entitlements and who may feel they have no choice but to become contractors.

Checking PAYG instalments

During December 2009, the ATO is contacting selected tax professionals and business operators about pay as you go (PAYG) instalments.

Apart from small businesses in the $2 million to $10 million annual turnover market, the ATO says it will also be focussing on bookkeeper prepared business activity statements (BAS) and the construction and manufacturing industries.

The purpose of these phone calls will be to discuss instances where the amount of PAYG instalment received by the ATO for the quarter under review is significantly different to the amount of PAYG instalment received in a previous quarter.

Businesses should review their PAYG instalment rate each quarter and ensure they are not paying more than necessary.

Tax Office SME survey

The ATO has engaged an independent research company – Sweeney Research – to collect information from SMEs with a turnover between $2 million and $250 million.

The ATO is using the survey to collect feedback on a range of strategies, products and services. It is also seeking to get a better understanding of how SMEs would like to receive information and messages from the ATO.