Crime Scene Investigation -  ATO Style

Technology is revolutionising the Australian Taxation Office's (ATO) compliance capabilities and the revenue it collects.  With a few mouse clicks, the ATO's new $800 million ‘Big Brother' computer system can uncover abnormalities and irregular transactions that used to involve up to seven weeks of manual work. With each mouse click, 300 analysts in the ATO's elite fraud squad can see new links in the data and they are getting closer to tracing potential taxable transactions or fraud that previously might have been missed.


For the first time this tax year the computer will summons every piece of data about your affairs including every dollar you've earned, properties, cars or boats you've purchased and your business connections including the tenants in your investment property and the members who sit on your company's board. The computer matches tax records against third-party data received from banks, share registries and other government agencies such as Centrelink and the Australian Securities and Investments Commission, checking employment, dividend, rental and other income.


Data-matching or comparing the same piece of information from two different sources has expanded rapidly in recent years. Four years ago, the ATO matched 50 million transactions, this year it will match 500 million. In 2004, the first year data-matching results were reported in the annual compliance program, the ATO detected 266,000 errors and issued $130 million in tax bills. Last year, it found almost 400,000 errors and raised $350 million in extra tax. In the first three weeks of processing 2010/11 tax returns, the new system has detected suspect refunds worth $85 million. The entire tax return season last year netted only $105 million.


The ATO's director of intelligence systems, Bruce Paynter says, "We can search in real time and that data is updated every night, so we're no more than 24 hours behind real time". Paynter adds that soon the ATO will strengthen its monitoring of you with the ability to use spatial mapping, overlaying charts of connected addresses on to Google Earth. "Then we can zoom down and look at a house - so in our property area, we might be looking at a property development that's claiming GST and we zoom down and find out it's a vacant property," he says. "It's all very CSI." Tax commissioner Michael D'Ascenzo says the introduction of the computer system is "bigger than anything else anyone has done around the world in the tax arena."


While identifying tax evasion, the system is also designed to speed up the processing of returns and refunds. Unfortunately, this wasn't the case last year for more than half a million taxpayers who experienced delays and refund cheques went missing for a further 140,000 taxpayers. Not surprisingly, the ATO were inundated with complaints.

 
The ATO's strategy is to channel its resources into high risk industries and taxpayers based on sophisticated data analysis. The degree of data capture and usage is revealed in their 52-page compliance program for this tax year and it will check work expense claims following a 16 per cent rise last year. Also under the microscope are the structures used by the rich to manage their wealth and income that is streamed by contractors through Companies and Trusts. Income reported by small businesses (with cafes and plasterers a specific target) will be compared with cash economy benchmarks they have compiled.


Clearly the ATO are no longer engaging in ‘fishing expeditions' and the building and construction industries will be targeted to ensure there is no ‘sham' contracting arrangements to evade Pay-As-You-Go obligations. Online traders will be scrutinised to ensure they report all their income and the rebate claims of wine producers are also on their radar.

While the location of the computer system near Sydney's CBD is a closely guarded secret, the security system is state of the art. Entry is only permitted with an escort and photo identification through futuristic cylindrical tubes. Those who gain entry into the highly secure site are subject to a number of checks on exit, including being weighed to ensure no weight was gained that might indicate a person could be smuggling out sensitive data.


The ATO's 2011 Hit List
• Focus on high earning individuals who are earning more than $1M - from medicos to footballers
• The very wealthy with assets of more than $30m
• Targeting Plasterers and Cafes
• Businesses that incorrectly treat employees as contractors
• Legal Firms that have been recently re-structured
• Review payments made to 10,000 insulation installers
• Rental Properties -The ATO intends to continue issuing review letters to taxpayers who have unusually high claims for rental deductions, low rental income in relation to rental deductions and high claims for interest and borrowing expenses. The ATO will also focus on investors claiming expenses when the property was not available for rent or where the owners use it for their own personal use.

IMPORTANT DISCLAIMER: This newsletter is issued as a guide to clients and for their private information. This newsletter does not constitute advice. Clients should not act solely on the basis of the material contained in this newsletter. Items herein are general comments only and do not convey advice per se. Also changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of these areas.

 

 


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