ATO going back to the future

A surprising announcement by the Australian Taxation Office (ATO) indicates that it intends to go on a time travel adventure back to 1985 to try to catch tax avoiders. It will acquire details of entities share registries for the period 20 September 1985 to 30 June 2016 with a view to match share sales and purchases. This exercise is intended to identify unpaid Capital Gains Tax (CGT), but is likely to lead to unintended detection of Employee Share Scheme (ESS) reporting failures.

The ATO will collect details such as contact details, purchase and sale details and quantities of shares acquired or disposed of. It is estimated that more than 95 million records will be obtained, including the records of approximately 1.2 million individuals.

The ATO intends to identify people who have not included income and capital gains from share transactions in their income tax returns. Ordinarily the ATO can go back two or four years where returns have not been correctly prepared but there are no limits where there has been fraud or evasion.

Individuals who have failed to disclose details of CGT or shares awarded under ESS may be contacted by the ATO and asked to amend their returns. Companies with an ESS arrangement in place who have neglected to comply with their employer reporting obligations may also be at risk.

Given the ATO’s activity in this area taxpayers who have not properly disclosed share transactions or employee shares in their tax returns should take steps to make a voluntary disclosure to the ATO. Additionally companies who have offered employee shares in the past should ensure they have met their disclosure obligations by reviewing prior year’s reporting.