Hot on the heels of the start of the new financial year, the Australian Taxation Office (ATO) this week released Compliance in Focus 2013-14. This program outlines the focus of ATO compliance activities over the next 12 months.
Notably, the ATO raised over $11 billion in additional tax revenue in 2012-2013. This year, its attention will primarily be on taxpayers involved in profit shifting, tax crime and the misuse of trusts.
The planned activities are aimed at addressing tax risks associated with six distinct focus areas – Individuals, Employers, Businesses, Superannuation, GST and Tax Professionals.
Individuals
Last year, the ATO’s compliance program netted over $1.1 billion in increased individual tax liabilities. This appears likely to increase in the years ahead with additional data matching resources now available to the ATO to gather data from over 8,000 contacts. This information will verify that provided by wealthy individuals and the income tax returns of thousands of other Australians. In addition, the ATO will target tax planning schemes, complex business structures and the reporting of taxable income by wealthy individuals.
Employers
Employers who fail to meet their Pay As You Go (PAYG) withholding and fringe benefits tax obligations in respect of their employees are now firmly in the ATO’s sights.
Intelligence gathering and data matching will form part of the concerted effort to identify those entities operating outside the system. Businesses operating outside the PAYG regime should consider that over 18,000 employer obligation checks are planned for 2013-2014. Indications suggest that such checks are just the tip of the iceberg in terms of the breadth of the ATO’s intelligence gathering capability.
Also in focus are those employers incorrectly treating employees as contractors to avoid employment overheads and those who fail to correctly meet their superannuation guarantee obligations. The ATO will initiate over 7,000 data matching checks on contractor arrangements.
Businesses
Profit shifting and e-commerce are continued areas of concern for the ATO. The additional government funding for this area means increased risk assessment, audit and advance pricing arrangement work will be conducted. The ATO has advised that targeted activities will include 125 risk reviews specifically aimed at profit-shifters in addition to the 250 income tax reviews aimed at large businesses.
The ATO’s increased liaison with other jurisdictions has enabled it to target profit shifting and the resultant erosion of the Australian tax base by multinational entities. Such measures, in conjunction with the recent changes to the thin capitalisation rules, are a warning to entities that engage in high risk international dealings.
Businesses can also expect increased ATO scrutiny of their transactions to identify attempts to avoid or reduce capital gains tax liabilities during the coming year.
With their increased use in recent years, trusts are also in the ATO’s sights (there are now 700,000 trusts registered in Australia). Additional tax return disclosures are now required to aid the detection of trusts which seek to minimise tax liabilities by directing trust income to tax-preferred beneficiaries or through other tax avoidance and evasion schemes.
The recently set up Trust Taskforce will increase the ATO’s monitoring capability as it undertakes 5,000 data matching cases along with a four year plan to undertake 700 income tax reviews and audits.
Superannuation
As the well-publicised superannuation changes come into effect there will be a renewed focus on assisting Australians to locate their lost superannuation, ensuring the integrity of the data reported by super funds, a continued focus on superannuation guarantee (as outlined above) and monitoring self-managed super funds and approved auditors.
Goods and Services Tax (GST)
Of Australia’s 2.73 million entities currently registered for GST, ATO compliance activities will focus on taxpayers who have undergone complex or structural changes to their business systems. The ATO aims to investigate 2,000 cases with particular attention directed at small to medium market taxpayers in high risk industries such as mining, wholesale trade, manufacturing, financial and insurance services, government and retail trade. The ATO also plans to encourage businesses in these industries to undertake GST health checks.
ATO efforts will also focus on the integrity of GST refunds, the reporting of GST in respect of property transactions and the identification of taxpayers who evade GST obligations.
Upcoming changes to PAYG requirements
In addition to the publication of its 2013-14 compliance program, the ATO also released guidance on how the upcoming changes to the PAYG regime will take effect.
The most significant change is the extension of the requirement to make monthly PAYG income tax instalments, aimed at more closely aligning an entity’s income tax instalments with its income and trading conditions. This measure will eventually apply to all entities with turnover in excess of $20 million and will come into effect progressively over five years from 1 January 2014.
Food for thought
So, all in all, it has been a busy week on the ATO front with recent communications providing much food for thought for taxpayers and tax professionals alike.
