Money on the move

Tax and revenue agencies around the world traditionally ensure the integrity of their systems by scrutinising taxpayers' affairs based on their tax returns.

In Australia scrutiny is applied after income and other tax returns are lodged - at the end of the tax year. It's an effective system with many advantages.

However, Australia is also part of a worldwide trend to use real-time data to put people on notice, even before their returns are lodged.

The Tax Office is contacting people to ask about their current financial activities before they even lodge a tax return.

We analyse real-time data and compare it with historical patterns to detect risks. Tracking these financial activities as they happen gives the Tax Office a head start in detecting tax crime.

For example, in October 2008 the Tax Office and the Australian Transaction Reports and Analysis Centre (AUSTRAC) worked in real time to identify suspect transactions.

During routine work we noticed a spike in transactions involving money coming into Australia.

The monthly average for transfers of money from the United Kingdom to Australia is 60,000. In October 2008 transactions reached 95,000. Transactions from Jersey doubled from an average of 3,000 to an October high of 6,000.

However, there was no corresponding increase in transfers out of Australia. Usually, money in roughly equals money out, but not in October 2008.

International transfers of money are not necessarily illegal, but they can indicate attempts to evade tax. We asked the question - was this money overseas income that wasn't being declared?

Australian residents for tax purposes must declare all income regardless of where it is earned. Residents from overseas aren't always aware this is the case.

The hundreds of thousands of transactions relating to last October's spike were analysed to identify those worthy of a closer look. Twelve-hundred taxpayers were contacted about their transactions and put on notice that they would be subject to further scrutiny.

As a result, 80 people voluntarily amended previous tax returns, taking advantage of reduced penalties and other concessions available. $2.8m in undisclosed income was declared and $1m in tax and penalties were raised.

They are now on notice that the Tax Office will review future returns against the intelligence it gathers.

As it turned out, the main reasons for the increase in inbound transfers during October 2008 was the fall in the Australian Dollar.

Tax Office analyst Craig Philp said investors were spooked by the falling price of the Australian Dollar, particularly those with money in tax havens that didn't attract government guarantees to banks.

'It was the month that the shiver went through the entire financial industry,' Mr Philp said.

'If you had a large amount of cash in the Channel Islands, you were probably a bit nervous.

'It seemed wiser to bring it back to Australia and, because of the fall in the value of the Aussie dollar, there was a disadvantage in sending it elsewhere.'

Tax Office Assistant Commissioner (International Relations) Malcolm Allen said because of our strong partnership with AUSTRAC our analysts were able to get straight on to assessing these compliance risks as they emerged.

The Tax Office regularly uses AUSTRAC data to profile countries, financial institutions such as banks, and individuals, to assess risk as part of its international compliance activities.

    Last modified: 28 Jan 2010QC 28247