ATO compliance activity and voluntary disclosures

Key issues:

• The Australian Taxation Office Taskforce activity raised over $2.8 billion in tax liabilities from businesses and individuals. It is assumed this amount includes primary tax, penalties and interest.
• In the 2019-20 Federal Budget, the Australian Taxation Office received an additional $1 billion of funding (over the next four years) to expand its Tax Avoidance Taskforce.
• With increased tailored Australian Taxation Office activity, taxpayers should be aware of the benefits of making a voluntary disclosure to the Australian Taxation Office of any mistakes or omissions made in lodgements.

The Australian Taxation Office (ATO) Taskforce activity raised over $2.8 billion in tax liabilities from businesses and individuals. It is assumed this amount includes primary tax, penalties and interest.

The Governments return on investment must be good because in the 2019-20 Federal Budget, the ATO received an additional $1 billion funding (over the next four years) to expand its Tax Avoidance Taskforce. On another front, the tip-off line has been running hot with nearly 60,000 tip-offs called in to the ATO within just 11 months - close to a 40% increase. The above together with other ATO compliance activity indicates an increase of targeted and tailored activity over a number of sectors. 

From my experience in establishing the High Income/Wealth Individuals Program when I was with the ATO, history shows that as the ATO information gathering, data and systems improve; tried and true compliance programs are consequently rolled out to a wider range of taxpayers. For example, activities in the large enterprise segment are being rolled out to medium enterprises.

With the realignment of the ATO’s Client Engagement Groups to a more holistic view of taxpayer’s interaction across the tax and superannuation system, whole of tax reviews as compared to specific one off tax reviews, will become more frequent. For example, GST staff are now integrated into the main stream income tax with the objective GST and income tax reviews to be conducted at the same time.

The ATO receives a constant stream of information from numerous sources (e.g. company registers, financial institutions, state revenue authorities, the ASIC, land title registries). With increased ATO activity, taxpayers should be aware of the benefits of making a voluntary disclosure to the ATO of any mistakes or omissions made in lodgements. 

Should a tax shortfall arise as a result of an amended assessment, penalties (of up to 100%) and interest (at statutory rates) are generally payable on the shortfall amount. However, if a shortfall amount arises as a result of a voluntary disclosure by the taxpayer, there may be a reduction of the shortfall penalties as follows:

• 80% reduction if the voluntary disclosure is made before:
  • the Commissioner tells the taxpayer an examination is to be made of the taxpayers tax affairs; or 
  • if the Commissioner publicly requests that entities make a voluntary disclosure by a particular earlier day, that earlier day; 
• 20% reduction if the voluntary disclosure is made after the Commissioner told the taxpayer than an examination of its tax affairs is to be conducted; and
• 100% reduction if the shortfall amount is less than $1,000. 

Apart from civil penalties, the general approach of the Director of Public Prosecutions is that it is unlikely a person who makes a genuine voluntary disclosure will be prosecuted, unless the offence exhibits a significant degree of criminality. 

Things taxpayers should keep in mind

• The  ATO is funded for additional review and audit activity.
• The Commissioner may go back two years to amend assessments of individuals and small business entities provided there was no fraud or evasion.
• The Commissioner may go back four years to amend assessments of businesses, trusts and in some cases beneficiaries of trusts provided there was no fraud or evasion. 
• If the Commissioner believes there has been fraud or evasion by a taxpayer, there is no time limit for which the Commissioner may issue amended assessments to a taxpayer. 
• If the disclosure is for a number of years or involves complex issues it is recommended the disclosure is accompanied by a covering submission addressing all necessary information as may be outlined in the various ATO Practice Statements or Guidance. The objective of a submission is to present the ATO with a clear summary of the facts supported by relevant documentation and submissions. This approach reduces the time required by the ATO to deal with and finalise the disclosure.

If you have questions or would like to discuss making a voluntary disclosure, please contact HopgoodGanim Lawyers’ Taxation team.