Electronic data-matching
Electronic data-matching is a key tool used by the ATO to check compliance. Most people are willing to meet their tax and superannuation responsibilities. However, there are a small minority of taxpayers who don’t fully meet their responsibilities. The ATO says it uses a range of measures to identify those taxpayers, including the use of electronic data-matching.
Data-matching helps the ATO to identify fraud against the Commonwealth. The ATO says its data-matching programs make it possible for it to do the following:
- detect people and businesses operating outside the tax system;
- ensure that people and businesses required to lodge returns do so;
- check that income and capital gains are declared correctly;
- check claims for GST and fuel tax credits; and
- recover debt.
The ATO says it receives data from a range of external sources, including banks, financial institutions and other government agencies. The data is then electronically matched with the ATO’s own data holdings to help it identify, for example, individuals who may not be reporting all their income.
An example of something that could easily be picked up in a data-match that could attract the attention of the ATO would be the purchase or sale of houses, cars and boats – but with little to no income declared in tax returns. As well, the ATO can also check whether taxpayers have declared all bank interest in their returns. It can also cross-reference social security payments with tax returns.
The ATO is also looking to increase its use of data analytics to predict the lodgment patterns of taxpayers, their propensity and capacity to pay in debt cases, and objections from audit cases.
The ATO has broad powers to collect information from both public and private organisations. Some of the main types of information sought by the ATO include the following:
- investment income information from banks, financial institutions and investment bodies;
- payments to contractors and employees from employers;
- details of motor vehicles sold, transferred or newly registered from state and territory motor vehicle registering bodies;
- pensions, benefits and other payments from other government bodies;
- substantial sales made on websites such as eBay;
- share transactions from stock exchanges and share registries; and
- payments made for building and construction services from businesses in the building and construction industry.
From time to time, the ATO will release details of specific data-matching projects. Some of these projects take place over a number of years; however, some are ongoing. Examples of data-matching projects undertaken by the ATO include the following:
- Credit and debit card sales – this project involved the ATO obtaining data from banks and financial institutions of credit and debit card sales made by businesses. This project was largely targeted at identifying business owners under-reporting or omitting business income.
- Motor vehicle sales and transfers – the ATO sought data from state and territory motor vehicle registering bodies. The project gathered data on all motor vehicles that were sold, transferred or newly registered with a value of $10,000 or more. This project targeted individuals who were not reporting all their income or who were trying to avoid their tax obligations.
- Significant online selling – the ATO targeted significant online selling to help it identify people operating “off the books” and not declaring all their income. Note that the Government has also matched social security records against taxpayers running successful eBay stores to help it identify cases of welfare payment fraud.
- Share market transactions – the ATO sought data from stock exchanges and share registries to help it assess whether taxpayers were correctly declaring capital gains and income from the disposal or sale of shares.
Taxpayers need to be aware that the ATO can extend the length of time for which such projects run. It can also expand the breadth of information sought under the projects. Taxpayers should also be aware of information exchange agreements the ATO has with various foreign revenue authorities. From time-to-time, the ATO may even target a specific industry to identify businesses that may be participating in the cash economy.
Note that taxpayers’ privacy is protected by the Privacy Act 1988 and the strict secrecy provisions of the Income Tax Assessment Act 1936, the Taxation Administration Act 1953 and other tax law. These laws prohibit ATO staff from accessing, recording or disclosing any person’s tax information except in the performance of ATO staff duties.
Where the ATO finds a discrepancy
Where a discrepancy is identified (eg interest income not declared in a tax return), the ATO said it will check to see if the amount has been returned at another label by mistake. If the ATO decides to contact the taxpayer in relation to a discrepancy, it will provide the taxpayer with details of the discrepancy, and give the taxpayer the opportunity to check their records and contact the ATO if it has made a mistake.
Where a person has made an error due to poor record-keeping or a misunderstanding of the law, the ATO said it will work with them to correct their tax return and to improve their understanding of their obligations.
Want to know more?
Please contact our office on (02) 9954 3534 or email admin@hurleyco.com.au for more information.