One of the more interesting items to come out of the rollout of the Federal Government’s various COVID-related programs over the last year was their reliance on the ATO’s systems to quickly and efficiently deliver large amounts of cash support. This reliance was built on the ATO’s systems being the most efficient and, more importantly, most effective in being able to both process and assess large numbers of claims from individuals and businesses. You’ll note the inclusion of the word “assess” in the previous sentence. The ATO has, over many years, quietly built a system that quite literally holds vast amounts of data on every Australian. This data, and the resulting data matching program that it has enabled, continues to grow each year as new sources are added into it. The most obvious output from it is the prefilling of tax returns with information on salaries and wages along with interest, investment income and private health insurance. But what else is being reported and what is the ATO doing with this information?
Example 1 – Cryptocurrency
Cryptocurrency has been a focus of the ATO and there has been a lot of “noise”, even during the pandemic, about this. Crypto currency is generally seen by the ATO as one of the foundations of the black economy, so views it as a potential risk to Government revenue. From 2019, the ATO has been connected into what they term as “Designated Service Providers”, (in other words Crypto exchanges), to obtain sale and purchase information. This information is then matched with other data obtained from banks and AUSTRAC – the government agency tasked with detecting and preventing criminal abuse of the financial system – so the ATO can match Crypto transactions back to the actual underlying cash transactions when someone buys or sells using “real” money. The ATO recently disclosed that it had obtained transaction data from the 2015 financial year all the way through to the 2020 financial year and was now working its way through the matching process to identify individuals and businesses that might have traded in or had Crypto currency and not reported it. So, we can expect more activity in this area as the matching process continues.
Example 2 – Residential property transactions
The ATO now also has multiple touchpoints to obtain information about the identity of buyers and sellers of residential property. You may not realise it, but the ATO acquires information on your property transaction by:
- Data matching the transaction to Land Titles offices. This is even easier to do now that Pexa has moved Land Titles to an online platform in a number of states;
- Your completion of the Foreign Resident Capital Gains Tax (CGT) Withholding Form. So, the ATO is informed ahead of time of who the buyer of a property is and their country of residence;
- Data matching with State Government revenue agencies. For example, in NSW a vendor needs to obtain a land tax clearance certificate for every sale. This certificate will inform the ATO what a vendor has told the NSW Office of State Revenue (OSR) the land was used for, and they can then match this back to the vendor’s tax return to check if any rents were declared or if the principal place of residence matches.
Therefore, the ATO is able to gain significant information to match back to the both the vendor’s tax return and the acquirer’s tax return if they report rental income.
These are two examples of how the ATO is currently expanding the direct data that it receives in order to verify a taxpayer’s income and assets. Special focus is currently on Crypto currency, the “Gig” economy (the use of a digital platform to connect freelancers with customers for short-term services such as food delivery or hailing a car ride) and working from home claims, and we expect audit activity to continue in these areas. However, the overall takeaway is to ensure that your tax return is completed correctly, that your claims are substantiated and that, where you genuinely make a mistake, seek to fix it as soon as possible. The ATO, in our experience, has shown leniency when a taxpayer has made a genuine mistake, but it’s important to double check your return before it’s lodged. It might take a couple of years, but data matching will eventually find you if something is missed.
By Scott Hogan-Smith, Chartered Accountant and Director