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  • ATO action to reduce the gap

    The key to an effective tax system is a high level of willing participation. The extent of taxpayers' willingness to participate depends on whether they:

    • value the tax and superannuation systems
    • have trust and confidence in us as administrators.

    Our strategies to reduce the gap and encourage willing participation are based on these principles.

    We understand perceptions of fairness influence willing participation and confidence other taxpayers have in the integrity of the tax system. In addressing the high wealth income tax gap, we seek to improve the overall health of the tax and superannuation systems.

    The best way to achieve a sustained reduction in the high wealth private groups income tax gap is to make it easier for these groups to get their tax right, and hard to get it wrong.

    We work with high wealth private groups to give them certainty about how we view their tax affairs, support them to correct mistakes, and mitigate against future tax issues.

    Our analysis shows that many of the risks associated with failing to pay the right amount of tax are associated with the misapplication or misunderstanding of relevant tax laws. Some of the tax law interpretation issues we see include:

    • mischaracterisation of receipts as income or capital
    • incorrect treatment of payments from companies to individuals and the operation of Division 7A of the Income Tax Assessment Act 1936 and wealth extraction
    • incorrect reporting and calculation of capital gains events
    • claiming ‘tax incentives’, such as capital gains tax concessions, where there is no entitlement.

    Our pre-lodgment activities help taxpayers to get it right in real time. We also help them to correct their prior-year mistakes. These activities include our:

    • high wealth private groups tax performance program
    • commercial deals program
    • international and trust programs.

    Around 35% of amendments made by high wealth taxpayers were made voluntarily between 2012–13 and 2017–18.

    We continue to improve our risk models and develop our data and analytical tools so we can proactively engage high wealth private groups and help them comply.

    We support people trying to do the right thing if they make a mistake – but we take firm actions where we see attempts to evade paying tax.

    Tools and tips to help get it right

    We offer a range of tools and services to help taxpayers clarify our view of the tax consequences of significant and complex transactions.

    We encourage taxpayers to engage with us or their advisers, when planning activity outside their normal business as usual, including expanding activity offshore or transitioning to retirement.

    To avoid mistakes, high wealth private groups should:

    • have strong tax governance practices and system controls
    • seek advice from tax professionals when considering making changes to their business or wealth management structures
    • talk to us to gain greater certainty about the tax consequences of significant transactions or changes in structure before they happen.

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      Last modified: 19 Oct 2020QC 61748