At a glance
- The Australian Taxation Office has undertaken several initiatives to improve tax compliance and enhance reporting.
- Key areas of focus will include rental income, GST compliance, and inappropriate claims as part of an ongoing effort to crack down on the black economy
- Increasing volumes of data are being used for pre-fill, but tax advisers have a big role to play in more complex areas and value addition for their clients.
With the end of the current financial year in sight, tax advisers have to be aware of moves by the Australian Taxation Office (ATO) to improve the level of compliance, as it works through existing programs and introduces new initiatives.
In the past few federal budgets, the ATO has received funding increases that it has used to address the income tax gap and the black economy. There has also been ongoing government support for the Tax Avoidance and Phoenix Taskforces.
The intelligence-gathering work of the ATO has also increased, with tip-offs to its Tax Integrity Centre at record levels. As a result, the ATO has conducted audit visits to businesses in areas where there appears to be a high level of black economy behaviour, such as not reporting cash transactions.
Michael Papandrea FCPA, director of ACT-based Papandrea Partners, sees the advances in technology and information gathering that the ATO has made as a game changer.
“From a practice perspective, we have to keep abreast of the changes underway,” he says.
“Advisers have to ensure that they have the systems and training in place to consistently identify the clients who may be impacted by such changes, or areas of risk within their practice. Checklists and investment in smart software can be very useful in this.”
Rental income is an area that the ATO has long identified as problematic. The ATO has indicated that some taxpayers continue to claim travel expenses to visit their rental properties, while some claim expenses under repairs when they should be depreciated.
There have been other cases where mortgage interest has been claimed when the property was not rented or available for rent, but is a holiday house reserved for the owners.
Some property investors who do not use tax advisers seem to be unaware of the ATO’s data-matching capabilities, and so make claims that might not be fully compliant. This could represent an opportunity for tax advisers to increase their client base by emphasising that professional advice is now not just useful, but essential.
“Unfortunately, with the information available from ‘tax adviser Google’ many taxpayers believe they are experts,” says Papandrea.
“With its new AI systems, the ATO has the ability to match behaviour with what is being declared. Up until now the cross-checking system has been limited. AI is closing that gap, so information will be available almost instantaneously to the ATO. This is where compliance is headed.”
Improvements in tax compliance
The introduction of Single Touch Payroll and the expansion of the taxable payments reporting system appear to have improved compliance due to enhanced reporting.
“The ATO has been signalling for some time the industries and practices where it has concerns,” says Elinor Kasapidis, tax policy adviser at CPA Australia.
“The latest efforts are a continuation of ongoing compliance activities to address the black economy. That has our support.”
Papandrea believes that the ATO will continue its focus on GST compliance, especially GST on property transactions. Inappropriate claims on vehicle expenses or travel expenses will be another area of attention, as will debt forgiveness and trust distributions. Issues around the superannuation guarantee charge are likely to figure over the next few years, particularly with an amnesty currently in place.
Kasapidis adds that the ATO has updated its approach to private groups, including a proposed increase to their level of disclosure. There is also a new ATO ruling on work-related expense deductions, which may impact some claims.
Another issue for tax advisers is the change in the lodgement method, with the introduction of online services for agents, myGovID and Relationship Authorisation Manager. The previous ATO Portal system was the subject of criticism, as lacking some functionality and not being user-friendly.
While the new system might experience some teething problems, the general view is that it will, over time, improve efficiencies for tax practices. However, advisers will need to ensure they are fully conversant with it before the end of the year, and that security issues such as password protection are addressed.
The overall trend is that the ATO is getting smarter at ensuring compliance. Taxpayers who might be tempted to sail close to the wind should bear this in mind, and advisers should ensure that clients understand the message.
“Advisers should have their systems and knowledge up to speed, and need to ensure that they can dissect their client base to identify the risk areas,” Papandrea says.
“They need to be on the front foot. Documenting discussions and advice at every stage is critical.
“The ATO is also looking closely at tax agents who have statistically been making the highest claims. Who would want to be dealing with that? You need to protect your brand and reputation.”
In the longer term, the move towards pre-filled returns for many taxpayers will mean that the business model of many practices will have to change.
“While increasing volumes of data are being used for pre-fill, tax advisers and agents still add value in more complex areas of tax and ensuring their clients have access to the full range of concessions and deductions available to them,” says Kasapidis.
“Notwithstanding this, CPA Australia has for many years encouraged members to enhance their offerings to clients and focus on value-added services.”
Papandrea agrees. “Compliance will continue to be an integral part of any accounting business if done properly,” he says.
“For example, a compliance review of a client’s affairs to stay abreast of the legislative changes and risk areas is the perfect segue into identifying areas of the client’s business that may require attention. This in turn leads to broader business advice for the client and the opportunity for a practitioner to expand into advisory services.”