Tax Office compliance focus for 2008-09

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Media release 2008/42

Tax Commissioner Michael D’Ascenzo today released the Compliance program 2008-09 and announced the Tax Office will focus on income tax, tax havens, dodgy tax schemes, wealthy individuals, large business and the cash economy in the coming year.

“Our compliance program is an important part of our ‘prevention is better than cure’ approach to tax administration, in which we seek to help people understand and meet their tax and superannuation obligations at the lowest possible cost to them,” Mr D’Ascenzo said.

“By publishing our compliance program, we are letting the community know where we will focus our attention and the action we will take so people know which areas of risk they should avoid.

“This year we are expanding our coverage of income tax compliance issues across the board with the support of additional government funding.

“We are continuing our strong focus on detecting and discouraging the abusive use of tax havens and dodgy tax schemes. We are also encouraging people who may have done the wrong thing to come forward before we contact them and take advantage of reduced penalties for coming clean.

“This year we will expand our review of executives and directors to include senior executives of private and foreign owned companies, focusing on their remuneration packages and any failure to report equity benefits and cash or share bonuses.

“We are also examining the compliance risks associated with partnership and trust distributions and I encourage tax agents to discuss this matter with their clients and advise them to come forward if distributions have not been correctly declared.

“Large business issues on our agenda include promoting good corporate governance and looking at global corporate restructures that shift assets offshore.

“We will tackle the unfair cash economy practices that adversely impact many small businesses by working with more industries to develop benchmarks that businesses can use as a guide to getting their tax right.

“This will be backed up by greater use of data matching to more effectively identify and target people who may have under-reported income or over-claimed expenses with more than 5,000 cash economy audits or reviews.

“We are also improving our assistance program to support small businesses with a particular emphasis on helping businesses get started and stay on track.”

Compliance program 2008-09

The following is a summary of some of the key priorities and activities for each market segment. For more information on these priorities and activities, and the full range of compliance measures, see the Compliance program 2008-09 at www.ato.gov.au

Individuals

Our priorities, p12

Focus on capital gains from the sale of property, shares and other assets
Expand our review of the compliance activities of senior executives and directors
Monitor work-related expense claims, particularly out-of-pattern claims for self-education, car and travel expenses
Examine returns that reflect a pattern of poor knowledge and practice by tax agents

Our general approach

Investors, p15

Deductions for rental income increased by 11.8% in 2006-07 returns to 30 June 2008
We will focus on landlords who incorrectly claim deductions for interest or those whose claims for capital works exceed the construction expenditure
We will write to new investors to let them know how to report rental income and claim deductions, and people identified as being at risk of not complying

Asset sales, p15

Expand data matching to include information on asset transactions from state and territory title and revenue offices, security exchanges and share registries and reports from managed funds
Write to people who purchased investment properties, shares or units in a managed fund last year to inform them of their capital gains tax obligations if they dispose of these assets
Review cases of individuals who made a gain from disposing of assets to invest in superannuation

Dodgy schemes, p16

Encourage people to voluntarily disclose their involvement in dodgy schemes to take advantage of reduced penalties for full disclosure

Saving for retirement, p16

Expect to make an online tool available in 2008-09 for employees to check whether they are eligible for super guarantee, if they have received the correct contribution for each quarter, and how to lodge a complaint

Over-claiming deductions for superannuation contributions and excess contributions, p16

Match information from super funds with information provided in income tax returns to check the correct deduction has been claimed in the income tax return

Lost members register, p16

Write to one million individuals about their reported lost super accounts
Review a further 200,000 lost accounts and phone their owners

First Home Saver Accounts, p17

Manage the introduction of the First Home Saver Accounts from 1 October 2008

Executives and directors, p17

Write to company executives who appear to have under-reported income, with a focus on shares and options received as remuneration
Expand our compliance activities to include senior executives and directors of private and foreign-owned companies
Check the returns of individuals involved in takeovers to ensure correct reporting

Incorrectly claimed work-related expenses, p17

83% of employees made work-related expense claims in 2007-08 – an 8% growth in the value of claims to $13.6 billion as at 30 June 2008
In 2008-09 we will focus on:

occupations with a pattern of large and/or rising claims
returns which do not fit the pattern for a particular occupation
claims in returns lodged by tax agents that are outside the norm for their client base

Particular attention in 2008-09 will be paid to claims by nurses, medical practitioners and chefs based on the pattern of claims from last year

Refund fraud and integrity, p17

Examine returns for patterns that indicate a group of people are acting fraudulently together or attempting to undermine the integrity of the tax system
Check tax agents are correctly registered

increase reviews and audits, impose penalties and refer cases for prosecution where appropriate

Snapshot of activities, p18

In 2007-08 we:

reviewed 25,500 returns in relation to high risk refunds resulting in revenue adjustments of $38m
completed around 19,100 reviews or audits for work-related expenses resulting in revenue adjustments of $14.7m
completed around 7,200 reviews or audits for rental expenses resulting in revenue adjustments of $9.2m
reviewed or audited 6,690 people concerning capital gains tax resulting in revenue adjustments of $51.5m
identified 175 high income individuals who had potential remuneration discrepancies in their returns

voluntary disclosures were received in 62.5% of these cases and revenue from this project has now exceeded $27m

sent 2.2 million letters to individuals informing them they may have lost track of their superannuation
conducted a mail-out to 5,200 individuals who had not included reportable fringe benefit amounts in their tax returns, resulting in the recovery of $2.3m in overpaid super co-contributions
contacted members of 430 self managed super funds that were involved in illegal early access schemes
wrote to 377,800 individuals following up their outstanding lodgments and phoned 11,800 individuals to further ensure they met their obligations

these activities led to the finalisation of 48,600 income tax returns and fringe benefits tax returns and 85,400 activity statements, raising liabilities of $111.1m

wrote to over 200 tax agents and visited another 300 about work-related expense claim patterns.

Micro enterprises

Our priorities, p22

Help micro business stay on track with their tax obligations
Increase our audit coverage of employers
Focus on cash economy activities
Ensure offshore income is correctly reported
Risk profiling to detect debt problems much earlier so we can make contact and help businesses before the problem escalates and becomes more difficult to address

Our general approach

Lodging returns, p24

Focus on businesses that are expected to have high tax liabilities, businesses that fail to lodge on time or only meet part of their lodgment obligations and business operators with child support obligations

Expanding our coverage of income tax issues, p24

Increase audits of employer obligations including superannuation payments for employees
Increase our use of data matching to detect unreported income
Focus on cash economy activities such as business-to-consumer transactions

Sale of assets and investments, p25

Write to businesses who appear to have made a capital gain advising them of their reporting obligations
Contact businesses and conduct reviews or audits where a capital gain or loss has been omitted or calculated incorrectly, or small business concessions have been incorrectly applied

Partnership and trust distributions, p25

Review distributions from partnerships, trusts and beneficiary returns to check the distributions have been correctly disclosed

GST and property transactions, p25

Review and audit cases of unreported property sales, incorrect application of the margin scheme, incorrect reporting of adjustment events and businesses trying to avoid obligations by not lodging activity statements or not registering in the system

Saving for retirement, p26

Help new trustees of self managed super funds understand and comply with their obligations and address any lack of knowledge or understanding
Check all new funds where an approved auditor has reported a breach of regulations

Fuel tax credits, p26

Send 74,000 emails to businesses informing them of the expansion to fuel tax credits

Dealing with the cash economy, p30

Contact 50,000 taxpayers that may be vulnerable to participation in the cash economy, reminding them of tax obligations
Develop more trade benchmarks to help businesses operating in various industries understand what income levels might be expected
Undertake 5,000 cash economy reviews and audits including sending letters, phoning people and conducting field visits
Use data matching to identify potential non-reporting of cash income

Support for trustees, p33

Send start-up kits to new self managed super fund trustees setting out their role and responsibilities

Snapshot of activities, pg 28

In 2007-08 we:

provided practical support to over 73,000 new and established micro enterprises
conducted 7,600 assistance visits and 1,150 seminars and workshops
conducted 2,730 field audits, 1,300 telephone reviews, 18,900 desk reviews of employer obligations resulting in $252.2m in revenue raised
completed 3,000 reviews and audits related to income tax that raised $62.4m
sent 4,100 advisory letters and conducted 350 reviews and audits of personal services income raising $4.9m
sent 26,900 advisory letters and conducted 320 capital gains tax reviews and audits of business expense claims which raised $12.3m
conducted 21 reviews and audits of income tax refunds which raised $1m
conducted 710 audits involving serious fraud and evasion raising $71.7m in GST liabilities
undertook 2,000 reviews and audits of property transactions raising $45.3m in GST liabilities
conducted 1,040 audits and reviews of fuel tax credits and fuel grant clients, and 540 internal reviews
acted on 16,000 employee complaints about employees’ super guarantee obligations raising $239m in super guarantee
undertook over 9,400 audits and reviews of self managed super funds
wrote to 1.3 million individuals following their lodgment, telephoned 39,900 to ensure they met their obligations, finalised 343,400 income tax and fringe benefits tax returns and 222,400 activity statements, raising $786.5m in liabilities
negotiated 438,000 payment arrangements
issued 8,300 garnishee notices, 4,200 director penalty notices and 2,000 statutory demands to those who didn’t engage or continued to default on agreed arrangements
commenced legal recovery action against 7,300 micro enterprises
wrote to, phoned or visited more than 68,000 businesses during the year to check for non-compliant cash economy behaviour,

these compliance activities established more than $100m in total liabilities

received more than 30,500 reports about suspected failures to meet tax obligations to our tax evasion hotline
published business norm benchmarks for the roof tiling, painting, floor sanding and polishing industries.

Small to medium enterprises

Our priorities, p36

Increase focus on income tax compliance, particularly for those enterprises with turnovers between $100 million and $250 million
Increase monitoring of high wealth individuals
Communicate new fuel tax credits measures to eligible businesses

Our general approach

Promoting and verifying compliance by the highly wealthy, p37

As at June 2008, 1340 individuals were being monitored by the high wealth individuals taskforce
Expect to have 110 audits of high wealth individual cases underway in 2008-09

Income tax and fringe benefits tax (FBT) compliance activities, p38

Undertake 595 reviews and 370 income tax and FBT audits of small and medium enterprises
Contact 1,300 small to medium enterprises by letter or phone to verify specific income tax and FBT issues

Phoenix arrangements, p40

In 2008-09 we are maintaining an emphasis on early intervention by:

identifying and tracking phoenix operators through better use of systems and intelligence
discouraging new or emerging phoenix operators by identifying and contacting them earlier about their behaviour
targeting facilitators and promoters of phoenix arrangements

GST, p41

Focus on unreported property sales and other compliance issues around property transactions

Excise, p42

Expect to conduct 150 reviews and audits in relation to excise
Send 74,000 business an email informing them of the new eligibility for fuel tax credits

Snapshot of activities, p43

In 2007-08 we:

undertook 570 audits, 480 reviews and 1,780 phone and letter-based verification activities which raised liabilities of $370m
completed 27 audits and 440 reviews of highly wealthy individuals which raised $339m in liabilities
conducted 180 audits and reviews of recipients of fuel tax credits and grants and conducted 170 internal reviews raising net liabilities of $11.7m
conducted 30,000 GST reviews and audits which raised $266.7m in liabilities
sent letters to 15,300 businesses with outstanding lodgment obligations raising $56.3m in liabilities
acted on 3,200 complaints about super guarantee by employees which raised $131m in super guarantee liabilities
undertook more than 440 audits and reviews of self managed super funds
conducted audits and reviews of employers’ compliance with pay as you go withholding, super guarantee and fringe benefits tax, which raised $103.4m in revenue.

Large businesses

Our priorities, p46

Promote good corporate governance and provide greater certainty for tax risk-management
Support new tax measures related to financial arrangements, managed fund distributions and consolidation
Examine complex transactions
Monitor global corporate restructures that shift assets, functions and risks offshore

Our general approach

Promoting good corporate governance and greater certainty, p47

Establish a large business advisory group to reduce compliance costs and address technical and administrative issues
Co-design a more sustainable advance pricing arrangement program with industry

Delivering on the government’s policy agenda, p49

Design processes with industry to minimise costs of implementing government policy

Expanding income tax coverage, p50

Use extra government funding to expand coverage of large business income tax compliance

Capital markets, including mergers and acquisitions, p51

Extend priority ruling system for time-sensitive merger and acquisition transactions
Examine corporate restructures and capital gains tax, hybrid capital raisings and asset infrastructure deals

International issues, p51

Focus on tax havens, cross-border arbitrage, transfer pricing and profit sharing and non-resident withholding tax

GST compliance issues, p52

Focus on incorrect reporting of property transactions, incorrect application of the margin scheme and GST adjustment events
Issue public rulings and other guidance products to clarify our view of the GST law and conduct audits where risks are confirmed
Examine risks associated with international transactions to ensure GST is correctly applied and paid on goods and services consumed in Australia

Large superannuation funds, p53

Ensure investment and contribution income of large funds is taxed correctly
Identify trends and unintended consequences arising from the super simplification measure
Monitor claims for rebates and exemptions because of their significant impact on revenue
Ensure compliance with the new rules on the use of funding credits by funds

Snapshot of activities, p58

In 2007-08 we:

completed 33 compliance audits of large businesses and 139 comprehensive risk reviews, resulting in over $1.2 billion in additional collections¹, $2.6 billion in new income tax liabilities² and over $1.8 billion in notional tax³
resolved 5,300 outstanding lodgment cases resulting in $118m in liabilities raised
raised $455m in additional GST liabilities
finalised over 900 GST compliance audits focusing on integrity of business systems, financial supplies and property transactions as well as encouraging and responding to an increase in voluntary disclosures
saw an increase in voluntary disclosures related to GST from $126m in 2006-07 to $282m in 2007-08
acted on 277 cases relating to employee complaints on employers’ super guarantee obligations which raised $9m in liabilities
conducted 53 audits of large super funds to check whether their reporting of lost members was accurate and complete

one audit on a large administrator covering nine funds found systemic deficiencies with their reporting software, which resulted in 631 members being removed from the Lost Members Register with an associated value of over $98m.

Non-profit organisations

Our priorities, p63

Provide non-profit organisations with help and advice so they can comply with their tax obligations at minimal cost
Focus on arrangements that seek to abuse the concessional status of charities and deductible gift recipients, sometimes involving known promoters of aggressive tax planning schemes

Our general approach

GST, p64

Work with consultative forums to develop a GST ‘tips’ document for non-profit organisations
Continue to work with non-profit representative bodies to identify product needs and help them educate their member organisations

Pre-endorsement checks, p64

Expect to receive and check around 5,000 charity endorsement applications in 2008-09

Changes in activities after endorsement, p64

To ensure organisations remain compliant, we will focus on:

use of charities for private benefits
charities involved in tax minimisation schemes
charities not meeting their ongoing requirements

We expect to review 145 targeted cases in 2008-09 to determine if they remain eligible for tax concessions and/or deductible gift recipient endorsement

Prescribed private funds, p64

Focus on prescribed private funds not meeting their ongoing requirements or being used to obtain tax benefits for individuals
Expect to review 50 prescribed private funds in 2008-09

Snapshot of activities, p65

In 2007-08 we:

checked 3,600 applications for refunds of franking credits with 161 applications varied, saving $3.9m in revenue
reviewed entitlements for 113 deductible gift recipients and tax concession charities

19 entitlements were revoked and 14 cases received written advice to implement changes resulting in $439,100 in tax and penalties

conducted a self-review project for 410 charities resulting in 21 entities having their status revoked
completed 15 reviews of non-member income in relation to taxable clubs and associations
checked around 4,900 applications for endorsement as a charity or deductible gift recipient, with 1,205 disallowed
conducted audits and reviews of employers’ compliance with their pay as you go withholding, super guarantee and fringe benefits tax obligations, resulting in payments of $17.2m
acted on 286 cases relating to employee complaints on employers’ super guarantee obligations, raising $7.8m in super guarantee liabilities
visited or telephoned 200 non-profit Indigenous corporations to help them understand their tax obligations and report correct information.

Government organisations

Our priorities, p68

Assisting government organisations when they restructure or are involved in complex transactions
Reviewing our public ruling on grants of financial assistance

Our general approach, p68

Provide practical advice and information to government organisations on the Tax Office website
Emphasise the need to lodge on time and conduct audits where we identify cases of non-compliance
Follow up complaints from employees and contractors who have not received the correct super guarantee contributions from their employers or have not been offered a choice of super fund
In 2008-09 we are working with government grant providers and representatives of recipients to review our GST public ruling on grants of financial assistance with a view to providing further clarification
Continue to review the GST treatment of property transactions involving government organisations, communicating the correct position through discussions with agencies and with audits where there is potential non-compliance

Snapshot of activities, p69

In 2007-08 we:

conducted 295 visits with government employers to encourage early lodgment of their employer obligations end-of-year report
actioned 46 cases relating to employee complaints on employers’ super guarantee obligations which raised $1.9m in super guarantee liabilities.

Tax practitioners

Our priorities, p73

Continue to improve tax administration to reduce compliance costs
Enhance our service and advice to tax practitioners
Investigate claims of illegal or improper practices by tax agents to achieve greater assurance and integrity

Our general approach

Working with the tax profession, p73

Continue to focus on consultation and co-design with tax professionals, including through our external forums such as the National Tax Liaison Group (NTLG)
Pilot an electronic auditor tool with self managed super fund auditors

Self managed super funds (SMSFs), p74

Conduct approximately 900 reviews and audits of approved auditors of SMSFs

Improving access to technical advice, p74

During 2008-09 we will offer training packages to assist new tax agent staff

Services for bookkeepers, p75

Support bookkeepers as intermediaries in the tax system by giving them access to the Tax Agent Portal and implementing the business activity statement service provider helpline

Assurance and integrity, p75

Continue to monitor tax agent compliance and follow up where necessary with reviews and audits of their clients’ affairs as well as their own tax obligations
Identify and pursue unregistered tax return preparers and ineligible BAS preparers
In 2007-08, 60 unregistered agents were referred for prosecution action, and there were 15 successful prosecutions of unregistered agents

Care in dealing with tax exploitation schemes, p76

Encourage tax agents not to get caught up in schemes and to be aware of their responsibilities under promoter penalty laws

Snapshot of activities, p77

In 2007-08 we:

found 89% of tax agents were satisfied with the way we manage tax compliance following the 2008 tax agent perceptions survey
reviewed the performance of 670 self managed super fund approved auditors
made presentations to 212 tax practitioner groups
held the annual June tax seminar at 197 venues attracting 14,500 tax agents and their staff
improved other marketing and education products tailored for tax practitioners including our weekly email subscription newsletter ‘eLink’, which has over 21,000 subscribers
assisted 401 tax agents through a tailored lodgment program where circumstances beyond their control caused a lag in their lodgment performance
investigated and reviewed almost 180 registered agents, with 149 agents being referred to one of the six Tax Agents’ Boards for review

the Boards have advised that, among other actions, 13 registrations have been cancelled and three agents have been suspended

prosecuted 62 tax practitioners for 73 non-lodgment administrative offences.

Serious abuse of the tax and superannuation systems

Our priorities, p84

Tackle cross-border tax crime
Focus on refund fraud, such as stolen identities used to commit tax fraud
Work with other agencies to investigate serious breaches of the tax system

Our general approach, p85

Combat risks to the superannuation system such as deliberate illegal access to super
Ensure eligible clients comply with their fuel tax credits obligations
Monitor the growing and importation of illegal tobacco
Continue our work as part of Project Wickenby

Snapshot of activities, p88

In 2007-08 we:

completed 314 audits which raised $330m in liabilities (over one-third came out of Project Wickenby)
completed 178 investigations resulting in 67 successful prosecutions before the courts, all of which were successful
issued 21 excise penalty infringement notices
raised liabilities of $140m under Project Wickenby and:

collected more than $53m in cash with a further $44m in collections as a result of improved compliance behaviour by Wickenby participants
completed 109 audits, raising 200 amended assessments
had $60m restrained under the Proceeds of Crime Act.

Footnotes

¹ Some of this may have been from previous years’ activities.

² Some assessments are subject to disputes which may ultimately be resolved in favour of the business. We will cover this in our Annual Report 2007-08.

³ For the large business segment, notional tax includes future income tax revenue impacts associated with the reduction of carried forward losses.

Last Modified: Wednesday, 13 August 2008

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