The ATO’s ability to match and use data is very sophisticated.
It collects information from a number of sources, including banks, other government agencies, and industry suppliers. It also gets information about purchases of major items, such as cars and real property.
The ATO compares this information against income and expenditure that businesses and individuals have reported to the ATO.
The ATO identifies businesses that:
- have told the ATO they no longer operate when they still are
- The ATO thinks are operating outside of the system
- are cash-only, or mainly deal in cash transactions
- under-report their real income.
Example: Unrealistic personal income leads to unreported millions
The income reported on their personal tax returns indicated that a couple operating a property development company didn’t seem to have sufficient income to cover their living expenses.
The ATO found their company had failed to report millions of dollars from the sale of properties over a number of years. A large portion of unreported income had been lost through gambling and significant funds had been sent to an overseas bank account. The couple and their related companies had evaded paying the tax of more than $4.5 million.
They had to pay the correct amount of tax based on their income and all their related companies. They also incurred penalties, including:
- administrative penalties (from the tax assessed on the returns that hadn’t been lodged – a minimum of 75% of the tax assessed)
- false and misleading statement penalties (because of their intentional disregard of their tax obligations and lack of cooperation during the audit – up to 75% of the shortfall of tax on the returns adjusted to their true income).
Example: Data matching uncovers hidden income
A Melbourne restaurant owner was found to have discrepancies between the business’s reported income and the data the ATO received from their bank.
The owner was given the opportunity to let the ATO know if they had made any errors before we started an audit. They consulted their bank and tax agent and advised that the business had failed to report their entire turnover.
Following discussions, the business owner made a voluntary disclosure correcting the business’s tax returns for three financial years, resulting in an unpaid tax of over $750,000. The ATO accepted this as reasonable because, based on the small business benchmarks, it was equivalent to other businesses in the same industry with the same turnover range.
Example: Failing to report online sales
A Nowra court convicted the owner of a computer sales and repair business on eight charges of understating the business’s GST and income tax liabilities.
The ATO investigated discrepancies between income reported by the business and amounts deposited in the business owner’s bank accounts. The ATO found the business failed to report income from online sales.
The court ordered the business owner to pay over $36,000 in unreported tax and more than $18,400 in penalties. The owner was also fined $4,000 and now has a criminal conviction.
Ref: https://www.ato.gov.au/General/Building-confidence/In-detail/The-cash-and-hidden-economy/
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