Tax reviews and audits are increasingly being targeted at particular industries and individuals as the ATO refines its data collection and data matching systems. With self-assessment, there are now techniques to check basic data and trends extracted from information shown on returns. Using industry comparisons or analysis of data on returns, computer programs indicate the likely targets.
Audit strategies
The strategies of the ATO are becoming ever more targeted on areas of high non-compliance and high-risk revenue areas. Penalties are imposed if taxpayers are found to have understated their assessable income or overstated their deductions.
The ATO website contains a hub called Building Confidence. This microsite contains information about the ATO’s current compliance focus, strategies and activities.
Enhanced third party reporting, pre-filling and data matching
In November 2015, legislation was passed to introduce third party reporting of real property, shares and units, business transactions made through payment systems and government grants and payments data. The legislation contains four separate reporting regimes:
Transfers of real property – State and territory Revenue and Land Titles Offices will be required to report real property transfers. Reporting started 1 July 2016.Government grants and payments – government entities will be required to report on the grants they make to ABN holders and payments for services provided. Data will be collected from 1 July 2017.Business transactions made through payment systems – administrators of payment systems will be required to report transactions they facilitate on behalf a business. Data will be collected from 1 July 2017.Transfers of reportable securities and units in a unit trust – data on transactions involving shares or units will be collected from the Australian Security and Investment Commission (from 1 July 2016), stockbrokers, share registries, trustees and fund managers (from 1 July 2017).
ATO access
The Commissioner and any of his duly authorised officers have the right of full and free access to buildings, places, books and documents and to require a person to attend and give evidence to enable the ATO to carry out its statutory functions (subject to certain rules, processes and exceptions).
That applies for income tax as well as FBT, GST and the other taxes administered by the ATO. Access extends to electronically stored records and the ATO expects that encryption keys, passwords, login codes, manuals for hardware and software will be made available. These rights are provided for in s263 and 264 ITAA36.
The ATO has issued guidelines on its access powers in its online publication Our approach to information gathering, which contains a summary of its access and information gathering powers. This is a guideline regarding how those powers are to be exercised and taxpayers’ rights and obligations are safeguarded.
Subject to a warrant allowing confiscation or the taxpayer granting permission, the ATO is not empowered to confiscate any original records and so forth, but is empowered to extract details.
The ATO’s power of access applies regardless of whether the records and documents are held personally, at the business premises or at the offices of an accountant or solicitor. In some cases “legal professional privilege” or the “accountants’ concession” may apply to prevent access to some documents or other types of information.
An occupier of a building or any other place is specifically required to provide duly authorised ATO staff with all reasonable facilities and assistance to enable them to carry out their duties. A typical example of where the ATO would exercise its access powers is during an audit, undertaken on the taxpayer’s business premises. It would be expected that the taxpayer would provide an adequate working area with access to telephones, photocopiers, computers, light and power to enable the auditor(s) to complete the examination of the business records.
Subject to the application of legal professional privilege (or the accountants’ concession) to protect the requested information, it is an offence to hinder or obstruct a duly authorised ATO officer exercising his/her right of access. In the event that there is any physical obstruction, the ATO officers have the right to take all reasonable steps to remove that obstruction.
As a general rule, taxpayers will be advised in advance of an audit so the request for access should not come as a surprise. In exceptional circumstances ATO officers will arrive unannounced. Where that occurs the taxpayer is entitled to temporarily delay any search of their premises while the taxpayer seeks legal advice on either the right of access itself or whether any records or documents are subject to legal professional privilege. It can be expected that where the search is temporarily delayed the ATO will seek to ensure that no documents or records are tampered with during the delay.
An ATO officer is not entitled to remain on the premises without written authorisation signed by the Commissioner or his delegate. It is recommended that in the event of an unannounced audit, legal advice should be obtained.
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