Inside the ATO’s property and car tax crackdown

The ATO has warned taxpayers to make sure they correctly report property transactions (including transfers, sales and purchases) on income tax returns and Business Activity Statements (BASs).

In the financial year ended June 30, 2010, the ATO said it conducted 3,250 GST reviews and audits that directly related to property transactions, and subsequently raised net GST liabilities of approximately $195 million. Of course, property transactions can have income tax and capital gains tax (CGT) consequences as well.

In 2010-11, the ATO expects to focus on:

data-matching with property transaction data it obtains from third parties and various government agencies (eg. state revenue authorities – see below);
using data-mining techniques to identify taxpayers who either do not or incorrectly report property transactions.

As an example of recent ATO action, a company that developed a 40-unit, strata titled, apartment block sold 36 of the units at market value and reported the sales on the appropriate BAS. The ATO said the company also:

sold three of the remaining four units to suppliers for well below market value as settlement for outstanding accounts;
transferred ownership of the single remaining unit to the spouse of a director of the company;
did not report the sales and transfer of ownership on its relevant BAS.

By data-matching, the ATO said it identified the company’s unreported transactions, which resulted in a large GST debt. The relevant Office of State Revenue also recouped from the company under-paid stamp duty amounts for the units sold for less than market value.

In one of its latest data-matching exercises, the ATO will collect information on Australia-wide property transfers. It will request and collect from the following state revenue authorities identity and transaction details pertaining to property title transfers between July 1, 1999 and June 30, 2010:

NSW Office of State Revenue;
NSW Land and Property Management Authority;
Victorian State Revenue Office;
Qld Office of State Revenue;
Qld Department of Environment and Resource Management;
ACT Planning and Land Authority;
ACT Office of Regulatory Services (Land Titles Office);
Tas State Revenue Office;
Tas Dept of Primary Industries, Parks, Water and Environment;
RevenueSA;
SA Land Services Group;
WA Office of State Revenue;
WA Landgate;
NT Treasury;
NT Dept of Planning and Infrastructure;
NT Registrar General – Land Titles Office.

The updated property title transfer information would be matched to identify non-compliance with CGT, income tax and GST obligations.

Motor vehicle purchases

The ATO also plans to request details of individuals or businesses from the following state and territory motor vehicle registries where a motor vehicle was sold, transferred or newly registered between July 1, 2009 and June 30, 2010 and the transfer and/or market value of the vehicle was $10,000 or greater: NSW Roads and Traffic Authority; Qld Transport; Vic Roads; Tas – Dept of Infrastructure, Energy and Resources; SA Dept for Transport, Energy and Infrastructure (Transport SA); WA Dept for Planning and Infrastructure; NT Dept of planning and infrastructure (Transport Division); and ACT Road Transport Authority, Road User Services, Urban Services.

The ATO will use the data to identify those participating in the cash economy by not declaring income to deliberately avoid their tax obligations. Potential non-compliance areas include income tax, superannuation, GST and FBT. The Tax Commissioner said the ATO is looking at whether a person’s income was not sufficient to support the purchase of the vehicle. If that person is associated with a business, the ATO will also look at whether the purchase was funded by “skimming some or all of the cash takings”. Mr D’Ascenzo said the ATO is also looking to identify businesses that sell vehicles and have failed to report or have under-reported those sales.

As I’ve warned before, SMEs should not underestimate the ATO’s data-matching and data-mining capabilities. They’re an inquisitive lot at the ATO, so be aware of what might catch their eye!