TaxTalk Alert
ATO releases Compliance in Focus
for
2013-16 July 2013
On 16 July 2013, the Australian Taxation Office (ATO) released its new look Compliance Program for 2013-14,
Compliance in Focus.
The ATO's compliance focus for the year ahead describes the compliance issues that the ATO will focus on for each market segment, including individuals, large, medium and small businesses, employers, superannuation funds and tax practitioners. This information is useful for all taxpayers who may adopt a more strategic approach in managing tax risk by assessing exposure to the focus areas identified.
It is of no surprise that the ATO has its sights on multinationals with a strong focus on ensuring that large and multinational companies pay the appropriate amount of tax by focusing its compliance activities on companies that engage in practices designed to shift profits offshore with over 150 planned audit and risk reviews, and by working with other international jurisdictions. The other main areas identified for the ATO risk assessment and compliance focus for 2013 are:
ATO releases Compliance in Focus
-14
, the Australian Taxation Office (ATO) released its new look Compliance
The ATO's compliance focus for the year ahead describes the compliance issues that the ATO will focus on for each market
individuals, large, medium and small superannuation funds and tax practitioners. This information is useful for all taxpayers who may adopt a more strategic approach in managing tax risk by assessing exposure to the It is of no surprise that the ATO has its sights on multinationals
ensuring that large and multinational companies pay the appropriate amount of tax by focusing its compliance activities on companies that engage in practices designed to shift profits offshore with over 150 planned audit and risk reviews,
th other international jurisdictions.
main areas identified for the ATO risk assessment and compliance focus for 2013-14
data matching and
information gathering - over 640 million transactions are now checked each year to ensure income is correctly reported and claims not overstated
tax crime including working with other law enforcement agencies and international revenue authorities, and misuse of trusts including
the establishment of the Trusts Taskforce.
More support is to be provided to taxpayers through a
simplified and more user-friendly ATO website, new online services for individual taxpayers, and an online assistance tool for small business.
The ATO has adopted an ambulatory approach to this year’s program – that is, the program as released today is not an exhaustive list of all ATO compliance activity that may be undertaken for the year ahead. The online version of
Compliance in Focus 2013-14 is expected to be updated
throughout the year to identify any new emerging risks and expected ATO action, and also
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ATO releases Compliance in Focus
to report on the ATO's progress on its planned activity.
Below, we highlight some of the key areas of focus for the ATO for the upcoming year.
Business
Against the background of the ongoing debate on base erosion and profit shifting by
multinational enterprises, the ATO's compliance focus for 2013-14 for large and
multinational businesses is on those that "purposefully seek out opportunities to exploit vulnerabilities" in the tax law, and by doing so, "undermine the policy intent of the law and the integrity of Australia's corporate tax base". Business
arrangements that "cause concern" to the ATO have been highlighted, including:
shifting profits to
jurisdictions where they are taxed more lightly, for example, through the use of "service hubs" in lower taxing countries or through pricing arrangements manipulating equity and
debt ratios across borders (ie thin capitalisation) unnecessary and contrived
attempts to disguise asset sales to avoid capital gains tax
questionable asset valuations
inappropriate use of stapled structures, and
opportunistic use of the tax consolidation cost-setting provisions to seek increased revenue deductions and other tax benefits. This year, the ATO has
designated businesses that have an annual turnover of between $2 million and $250 million as medium-sized businesses (previously this category was referred to as small-to-medium enterprises). With around 98% of medium-sized businesses being privately owned and often controlled by a wealthy
individual or family, the focus is on complex business structures designed to avoid tax and superannuation obligations. The ATO has developed, and will use, 'data-mining' tools to understand the relationships between individuals, trusts, partnerships and companies within a group. Focus areas for this group of taxpayers include: securing outstanding
lodgments
shareholders accessing tax-free company funds through inappropriate shareholder loans
individuals using business funds for personal expenses shareholders using the
business' lifestyle assets for private purposes
misuse of trusts and omitted income
capital gains tax non-disclosure and under-reporting, and
fraudulent phoenix behaviour (i.e. deliberate liquidation of a business entity to avoid financial obligations with the intention of resuming business through a new entity).
The ATO has stated that it is committed to actively supporting small businesses (those with annual turnovers of less than $2 million) to meet their tax obligations,
acknowledging the challenges faced by small businesses such as lack of time or resources, or inadequate record keeping. The ATO's focus this year will be on early intervention to help these businesses meet their
obligations. Consideration will be given to the failure to report income and the over-claiming of concessions (e.g. capital gains tax concessions), noting that the ATO has expanded its
information-gathering capabilities to include more small business transactions such as payments to contractors in the building and construction industry and capital gains from the sale of shares and property. Profit shifting and e-commerce is a key focus area for the ATO in 2013-14, with additional Government funding provided to the ATO to address these issues (for example, additional funding was allocated in the 2013-14 Federal Budget to investigate the use of marketing hubs). In addition, the ATO will continue to support government initiatives such as the Treasury Specialist Reference Group to address tax minimisation among multinational
enterprises and to improve the transparency of the business tax system, and will actively engage and work with other
jurisdictions to facilitate multilateral compliance action to address profit shifting among large multinational entities (including through the Joint
International Tax Shelter Information Centre (JITSIC)). Continuing on with the work commenced in 2012-13, the misuse of trusts is another key focus area of the ATO with the establishment of the new Trusts Taskforce (announced in the 2013-14 Federal Budget) overseeing the work in this area. The Taskforce will focus on schemes by trustees to
artificially reduce trust income in an attempt to direct tax liabilities to certain beneficiaries while actually using the income for their own benefit, and other tax avoidance and evasion schemes.
The ATO will also target non-disclosure and under-reporting of capital gains tax (CGT), as the ATO sees some businesses engaging in complex
restructuring in an attempt to disguise asset sales or
manipulate asset valuations to artificially reduce their CGT liabilities. Some inappropriate activity identified include attempts to reclassify revenue and capital items to
inappropriately access
concessional tax treatments, or simply failing to disclose CGT events or claiming small business concessions that are not available. The ATO will also continue to focus on ensuring that foreign residents disposing of Australian property are meeting their Australian tax obligations.
Other areas where the ATO will continue its compliance efforts in respect of businesses are: Offshore banking units Exploration expenditure
claims in the mining sector Resource rent taxes Claims under the research
Use of the Reportable Tax Position Schedule
Fuel tax credits Wine equalisation tax
(WET) producer rebate, and Private company tax
avoidance schemes.
Employers
Reporting of PAYG withholding is an area of focus for the ATO with regards to employers in 2013-14. The ATO will pay particular attention to those who may not be meeting their obligations and work with them to ensure they are withholding and reporting the correct amounts. Intelligence gathering and information matching will be used to detect employers who are not meeting their
obligations, and reviews and audits will be conducted where discrepancies are detected. The ATO will increase efforts in identifying and reporting fringe benefits, with a focus on employers that may have a fringe benefits tax (FBT) obligation but are not in the FBT system. Third party information will be used to identify those employers outside of the system, and firm action may be taken where employers have deliberately sought to avoid their obligations. The ATO will also continue its compliance activity in the following areas:
workers incorrectly treated as contractors rather than employees
payment of the correct amounts of superannuation guarantee contributions.
Individuals
During 2013-14 the ATO will continue to improve
information-gathering capabilities and expand the
information-matching program, and also make more
information available for individuals to pre-fill their income tax returns. The ATO will use new information sources to check correct reporting of private health insurance rebate claims, flood levy exemptions, taxable government grants and
payments and certain payments to contractors in the building and construction industry. From 1 July 2014, the ATO expects to have more and higher quality data to share with individuals (and small businesses) about sales of shares, property and units in managed investment trusts as well as a greater range of international bank
transactions.
The ATO will also look at individuals (including self retirees) who are targeted by promoters of tax planning schemes promising high investment returns and significant deductions for complex arrangements that do not comply with tax laws. Fraudulent returns, identity thefts and errors will be another area of focus for the coming year. The ATO will use data mining and other analytical tools to identify individuals or organised groups deliberately making false claims or engaging in identity theft, and will work with the tax professionals to ensure they confirm their clients' identities before lodging their returns to protect the security of their clients' personal information.
Particular attention will be paid to high work-related expense claims by building and construction labourers, construction supervisors, project managers and sales and marketing managers. The ATO will also look closely at high work-related travel expense claims across individual income tax returns.
The ATO will focus on wealthy individuals using complex business structures such as companies, trusts and self-managed superannuation funds which may be structured in ways designed to under-report income or not disclose assets sales, or blur the distinction between business and personal income and expenses.
Goods and Services Tax (GST)
The compliance focus for the ATO in 2013-14 in respect of GST is business systems integrity, with particular focus on the mining, wholesale trade, manufacturing, financial and insurance, government and retail trade industries. Business system checks (including governance and risk workshops) are planned for taxpayers in these industries which are experiencing change or have undergone complex structural change to their business systems.
The ATO will continue to focus on refund integrity, with 43,000 refund integrity checks
anticipated for GST and other indirect taxes, across all markets and industries.
Property transactions are still on the ATO's radar with ongoing monitoring (including data matching) and investigation of taxpayers that incorrectly report GST when they acquire, use, develop, sell or transfer real property. Of particular concern is fraudulent phoenix activity among property developers who deliberately disengage from the tax system at the point of sale and fail to meet GST
demanding lodgment, enforcing payment and applying penalties to relevant taxpayers. The new taxable payments reporting requirements for the building and construction industry in relation to contractors (applicable from 1 July 2012) are also anticipated to assist in identifying non-compliance with GST obligations (among other things).
Serious evasion will be the focus of ongoing GST compliance activities, including information matching, and increasing the number of default assessments (including penalties of up to 75 per cent) issued to taxpayers that persistently fail to lodge activity statements.
Superannuation
The ATO's superannuation compliance activities in 2013-14 will focus on re-engaging people with their superannuation and on fund reporting, data and payment standards. This will include:
improving the online tool, SuperSeeker, and
implementing other changes to help people locate and manage their superannuation accounts help super funds in their
efforts to reunite people with their superannuation, and
providing guidance and support on the new data and payment standard for electronic rollovers and contributions (which take effect for APRA-regulated funds and retirement savings account (RSA) providers from 1 July 2013). The ATO will also continue to ensure that employers meet their superannuation guarantee obligations, and will audit employers involved in cafes and restaurants, carpentry services and real estate services. Where necessary, employers may be held accountable for a company's unpaid
superannuation guarantee debts under the new director penalty regime.
Self-managed super funds remain an area of focus for the ATO, in particular the misuse of the concessional tax
environment, either deliberately or unintentionally. Registrations of self-managed super funds using information on the Australian Business Register will be monitored. The ATO has indicated that it will not issue a new fund with a notice of compliance until after the fund has lodged its first annual return and it is satisfied that it is meeting its obligations. The ATO will also continue to monitor competence of approved auditors of self-managed super funds.
Planned compliance activities for 2013-14
TaxTalk Alert
Review and audit activity Number planned
Large businesses – income tax 250 risk reviews 70 audits
50 pre-lodgment compliance reviews
Profit shifting 125 risk reviews
26 audits Trusts Taskforce and trusts lodgment
compliance 5,000 data matching casesAround 700 income tax reviews and audits (over the next 4 years)
Tax haven related activity 680 reviews 115 audits 50,000 letters
Medium enterprises – income tax 1,000 reviews and audits
2,500 contacts to verify information or provide advice
Highly wealthy individuals 500 income tax reviews and audits
750 contacts to verify information or provide advice
Wealthy individuals 1,000 income tax reviews and audits 8,000 contacts to verify information or provide advice
GST – checking business systems 2,047 cases Property developers engaging in phoenix
behaviours
150 cases Advance pricing arrangements and mutual
agreement procedures
14 cases
Fringe benefits tax 1,500 audits, reviews and tailored advice to taxpayers
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Let’s talk
For a deeper discussion of how this issue might affect your business, please contact: Paul McNab +61 (2) 8266 5640 paul.mcnab@au.pwc.com Michael Bersten +61 (2) 8266 6858 michael.bersten@au.pwc.com Simon Rooke +61 (3) 8603 4133 simon.rooke@au.pwc.com Judy Sullivan +61 (2) 8266 0197 judy.sullivan@au.pwc.com Eddy Moussa +61 (2) 8266 9156 eddy.moussa@au.pwc.com Peter Le Huray +61 (3) 8603 6192 peter.le.huray@au.pwc.com Paul McCartin +61 (3) 8603 5609 paul.mccartin@au.pwc.com
