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ATO auditors have you in their sights with data matching

Nicki Bourlioufas  |  29 May 2017Text size  Decrease  Increase  |  

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Thanks to data-matching software and a link-up with share registries, the ATO can see all your share transactions going back to 1985.


As we head towards the end of the financial year, many of us will be thinking about some of the big deductions that we can hopefully use to reduce our taxable income.

While the ATO has been in the press recently for a being the target of a huge tax fraud, there are several frauds on a much smaller scale that the ATO is seeking to uncover being carried out by regular taxpayers.

On its hit list are the usual suspects, such as landlords over-claiming deductions such as interest costs on loans to buy investment properties, and landlords not declaring capital gains on the sale of investment properties. That's been the case for many years.

Other popular areas the ATO targets are work-related tax deductions, with the ATO always keen to check overly large figures.

"The ATO have developed benchmark statistics for average deductions relative to different occupations. The ATO use this data to identify taxpayers who claim more than the average amount, which may trigger a review," explains Phillip Grantham, manager, countplus one.

"If you claim a higher-than-benchmark amount, you are at a higher risk of a review or audit by the ATO. ATO reviews and audits are very targeted due to the resources and sharing of information between federal and state government departments. This includes state revenue departments that record the transfer of property, for example," says Grantham.

"So, the ATO are aware when you sell property and may expect you to declare a capital gain from the sale of a rental property."

The ATO's targets include checking capital gains on share sales. Thanks to data-matching software and a link-up with share registries, the ATO has the ability to see all shares transactions back to 1985, when capital gains tax was introduced.

As part of its data-matching program, the ATO is obtaining transaction data from share registries and will compare that with information included in individuals' income tax returns.

"The ATO will also match this data against ATO records and other data we hold to identify taxpayers that may not be meeting their registration, reporting, lodgment, and/or payment obligations," the ATO says.

The ATO estimates that it will collect data for more than 61 million share transactions, and records relating to 3.3 million individuals will be matched.

Grantham explains that when investors register with share registries when buying shares, they are asked to provide their tax file number, otherwise additional withholding tax is withheld from dividends paid.

"On the flip side, as share registries share information with the ATO which is then used in the ATO's data-matching program, the ATO can then identify when you receive dividends and also when you sell shares," says Grantham.

"So, the ATO can predetermine many parts of your tax return, and if you do not declare these items, it can trigger a review of your return. This is like data matching with bank interest and your wages from an employer."

So, what exactly are your obligations? If you sell shares or investment property for a gain, then you need to declare that on your tax return as a capital gain, which is treated in the same way as your income.

"CGT operates by taxing any increase in value from the time the asset was acquired or created. The capital gain is taxed in the financial year the asset is sold ... the resulting [net] capital gain is included in your income for that financial year and taxed at whatever marginal rate you would then pay," says H&R Block in a Tax Tips publication.

So, if you buy shares for one price and sell them for a higher price, then the difference between the two is your capital gain or loss, minus your costs. This net capital gain is taxed at your marginal tax rate but you can usually discount a capital gain by 50 per cent if you have held the asset for more than 12 months.

Many of the audits the ATO will conduct are of high wealth individuals (HWIs), or people who control $30 million or more in net wealth. The ATO is writing to wealthier taxpayers to establish if they are HWIs, that is, if they control $30 million or more in net wealth.

"We just want you to tell us, according to the most recent information available, whether your client controls $30 million or more in net wealth. When we receive your response, we will update our records as required and note your client's wealth status on their file, so we can tailor our engagement with them and deliver the right services," says the ATO, meaning that they pay the right tax.

One of the big opportunities for a significant tax deduction is the ability to contribute to your super from pre-tax income, or salary sacrifice up to $30,000 for someone aged less than 49 years and $35,000 for someone who is aged 49 or more.

This contribution is taxed at a concessional rate of 15 per cent. The concessional cap drops to $25,000 from 1 July 2017 for all individuals. So, there are just a few weeks left to take advantage of this contribution, which will reduce your taxable income by a potentially significant amount.

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Nicki Bourlioufas is a Morningstar contributor. This is a financial news article to be used for non-commercial purposes and is not intended to provide financial advice of any kind. Opinions expressed herein are subject to change without notice and may differ or be contrary to the opinions or recommendations of Morningstar as a result of using different assumptions and criteria.

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