On 3 March 2015, the Australian Taxation Office (ATO) outlined its compliance strategy in a new publication ‘Building Confidence’, which replaces the ATO’s superseded ‘Annual Compliance Program’.
The ATO is focused on working towards achieving greater participation between taxpayers and the ATO by improving communication between them and by making it easier for taxpayers to be compliant with their tax obligations.
In order to build confidence in tax administration, the ATO reports that it is seeking to strike a balance between enforcement and encouragement of future compliance and provide a level playing field for all taxpayers. To do this, the ATO aims to deploy a range of strategies to encourage early engagement with taxpayers on matters of tax compliance.
So that the right balance is struck for each taxpayer, the ATO is making an assessment of a taxpayer’s behaviour based on:
- risk – the likelihood of non-compliance and the amount of revenue or super at stake
- transparency – the extent to which a person is honest and open about their tax and super affairs (including the timeliness of such disclosure), and
- behaviour – whether a person shows signs of engagement in the tax system or, on the other hand, signs of non-compliance with their tax obligations.
Where people are open about their tax and super affairs and participate willingly in Australia’s tax system, the ATO will offer a ‘lighter touch experience’, which should result in less effort for such taxpayers to meet their tax obligations.
For those taxpayers who demonstrate a reluctance to do the right thing, the ATO will deploy tailored compliance strategies, such as risk reviews and audits, according to their perceived level of behaviour and the incumbent risk to the revenue of such behaviour.
‘Building Confidence’ provides guidance to each market segment about specific areas that will be subject to a heightened level of compliance over the coming 12 months. Taxpayers and their advisors should review their affairs in respect of these focus areas and be prepared for ATO engagement concerning those focus areas at a much earlier stage.
The publication ‘Building Confidence’ is available online and is a dynamic publication, which ATO advises will be updated from time to time to provide taxpayers and their advisors with timely updates on new and evolving compliance initiatives being employed by the ATO.
Specific areas of focus for each market segment follow below.
The theme which emerges from the publication in relation to small business is that the ATO is increasingly seeking to implement systems to make compliance less burdensome, moving towards the introduction and improvement of online services to create a greater ease of access for small business. Enhanced customer services by way of an after hours support service, as well as a small business newsroom, which provides alerts and news for small business tax and super in one place.
Benchmarks for small businesses are also being reintroduced, with a focus towards using industry benchmarks as a measure of an entity’s tax risk exposure. If small businesses are consistently falling outside of those benchmarks, they are likely to draw additional attention from the ATO.
Benchmarks for the 2014 year can be found at this here.
Finally, small business taxpayers need to be aware that the ATO have expanded their information-gathering capabilities to collect information about transactions in the small to medium market segment. Taxpayers and their advisors need to be aware that the ATO can now data match payments made to contractors in the building and constructions industry and capital gains from the sale of shares and property, amongst other commonly publically reported transactions. This data will be used by the ATO to identify businesses and taxpayers that fail to report income.
Privately owned and wealthy groups
For privately owned and wealthy groups the ATO has indicated that it will continue to focus on perceived aggressive tax planning through the use of complex structures, tax avoidance and evasion. Whilst the ATO will also continue to focus on mixing personal and company expenditure and the use of trusts, the ATO’s attention continues to be attracted to:
- poor tax and economic performance
- one-off or unusual transactions, and
- wealth/value shifting.
Privately owned and wealthy groups are defined as:
- economic groups with an annual turnover of greater than $2 million that are not public groups or foreign – owned, or
- resident individuals who, together with their business associates, control net wealth over $5 million.
In this market segment, the ATO analyses entities on a group basis and the ATO will continue its use of risk assessment of privately owned groups, using data matching and other sophisticated data analytics to categorise taxpayers’ according to their likely risk profile. We also expect to see an increased focus on tax risk management systems and corporate governance policies in this sector of the market.
Some of the strategies employed in the public groups and internationals market segment will start to be employed by the ATO in the privately owned and wealthy group’s market segment. The ATO are seeking to further tailor such strategies to this segment having regard to the sophistication of the taxpayer concerned. All taxpayers in this market segment should consider whether their governance strategies are appropriate having regard to their likely perceived sophistication as an organisation and industry player. Care should be taken by those groups which have grown significantly in size over the last couple of years.
Public groups and internationals
The ATO continues to seek early engagement with taxpayers in the Public Groups and International market segment due to the potential for non-compliance to result in an increased risk to revenue. The focus of the ATO’s strategies in this sector is prevention before correction to increase certainty for both taxpayers and the regulator.
There are more than 30,000 businesses in Australia falling within this market sector spanning across four main industries – superannuation, insurance, energy and resources, and banking and finance.
Across all industries, the ATO is looking at particular tax risks such as losses, international profit shifting and particular, significant transactions, occurring across a businesses lifecycle including:
- mergers and acquisitions
- divestment of major assets and demergers
- share buy backs
- capital raisings and returns of capital
- private equity entries ad exists
- initial public offerings
- transactions involving trusts
- infrastructure investments
- financial arrangements, and
- cessation of business operations in Australia.
Superannuation – employer obligations
The ATO has announced that it will be targeting its education campaign regarding superannuation guarantee charge obligations focusing on those employers in child care services, building, industrial cleaning and hospitality industries. The ATO has also announced that its audit strategy will focus on employers in hairdressing and beauty, clothing retail, management advice and consulting businesses.
The ATO reports that they will investigate employers when employees notify the ATO that they may not have received their full super guarantee entitlements. Super guarantee obligations are also reviewed with the ATO undertakes pay as you go compliance reviews.
The ATO is also expanding its library of online resources for trustees of self managed super funds to ensure that the compliance remains at an acceptable level amongst the increasing number of self managed super funds.
The ATO is continuing to monitor concessions individuals receive on their superannuation. In doing so, the ATO is continuing to review excess contributions to superannuation notwithstanding the recent changes to more fairly address inadvertent breaches and disproportionate penalty effects. Care should continue to be taken when making contributions to super.