Stay on the right side of the tax man this year19 September 2007
To stay on the right side of the tax man this year.
How do I do that?
The simple answer is to declare all your income and to only claim legitimate deductions. But it also helps to know what areas the Tax Office is targeting so that you can take extra care not to fall foul of its compliance efforts. Last month, the Tax Office released its 2007-08 compliance program setting out what it sees as the risk areas and how it will address them.
So how do I stay off the Tax Office's radar?
It would help if you don't own rental property, claim work-related expenses or own (or have recently sold) assets on which you may be liable for capital gains tax. Unfortunately that rules out most Money readers. This year the Tax Office is also targeting public company executives and directors with total remuneration of more than $1 million.
It says it has identified cases where income may not be fully reported, particularly in relation to benefits such as options and rights issues, cash bonuses and non-income capital benefits. And it's taking a close look at people who raised money to fund superannuation contributions (presumably to take advantage of that $1 million transitional limit on after-tax contributions) to check they've declared any tax payable on the income they raised. Anyone still feeling left out? Well, if you work in tourism, fitness and sports, construction, security services or on a mining site, take special care.
On top of everything else, employees in these industries will have their expense claims subjected to even greater scrutiny.
That's quite a list.Does it have the resources to audit all these people?
It doesn't - which is why its approach these days is less scatter-gun. Basically the Tax Office is developing systems that identify those people who might be doing the wrong thing so that it can leave the rest of us alone.
Its investigation activities include data-matching (where information such as income, dividends, bank interest and government benefits is cross-checked against your return) and building profiles of the type of activity and/or claims that might indicate a problem. The Tax Office says it will data-match more than 50 million transactions this year. And before it issues refunds, they are automatically checked against a set of criteria to detect incorrect or fraudulent returns.
If your tax return triggers one of these risk alerts, that doesn't mean you'll automatically be audited.
The Tax Office says its actions typically start with letters and phone calls seeking more information or clarification, before extending to field visits and audits.
For example, undeclared capital gains have been an issue for a few years. Last year the Tax Office wrote to 5200 people who had sold properties to alert them to their tax obligations. It then reviewed or audited 6100 returns which it identified as being at-risk. Those reviews resulted in $33.3 million of revenue adjustments.
This year it will be examining another 6000 taxpayers and expanding its use of data-matching to identify undeclared gains.
Rental properties are another perennial target. The Tax Office will write to new property investors to tell them of their obligations and write to existing investors identified as being at risk of not complying to remind them to do the right things as well as reviewing about 6000 cases where material amounts have been identified as being at risk.
With work-related expenses, it plans to conduct about 15,000 reviews as well as visiting 300 tax agents to review their practices and claims.
What's the story on checking where super contributions came from?
The Tax Office identified the surge of money into super as a focus before June 30. It has no problem with taxpayers contributing to super but it wants to make sure they've paid any tax liabilities on the money used to fund the contribution.
It is particularly concerned about unreported capital gains, in-specie contributions made to self-managed super funds (where you transfer the asset into the fund) where the transfer may not have been treated properly for capital gains tax purposes, borrowed funds where the interest costs were incorrectly claimed as a tax deduction and proceeds from cash economy or criminal activities.
The 2007-08 compliance report can be downloaded from www.ato.gov.au.