 ATO AUDIT TARGETS
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Employer obligations
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If businesses employ staff, they need to meet a number of employer obligations, including:
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PAYG withholding ¨C this includes obtaining tax file numbers and withholding declarations from all employees, withholding from payments, issuing payment summaries and preparing annual withholding reports. This year we expect the ATO will audit around 400 businesses to ensure they have complied with their employer obligations.
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superannuation guarantee ¨C where employers need to make mandatory superannuation contributions. They will also investigate all cases where employees tell the ATO that their employer is not making superannuation payments or has not reported details of superannuation payments to them. ; and
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fringe benefits tax ¨C where employers need to report and pay fringe benefits tax when employees are rewarded with non-cash benefits. This year the ATO plan to review around 480 businesses to ensure they have complied with their fringe benefits tax obligations. Of these, 180 will be more comprehensively audited.
The ATO compliance focus is on situations where the reporting of some aspects of employer obligations does not correspond with other reporting. Some businesses are hiring labour under a contractor arrangement but the arrangement is more like an employee¨Cemployer relationship. They are looking at these arrangements to ensure that tax is properly paid, either by the employer or the worker. In particular, they will review around 400 arrangements that may involve alienation of personal services income. Workers who are not employees are businesses in their own right and the ATO will help them comply with their business tax obligations.
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Reporting Correct Information
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By accurately reporting information in activity statements and income tax returns, businesses can ensure they pay the right amount of tax. Good records help people manage their business, including their expenses and cash flows. The ATO are continuing their focus on ensuring that businesses meet their record keeping obligations. When reviewing activity statements and income tax returns to check that the right amount of tax has been paid, the ATO mainly focus on ensuring that:
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the correct amount of GST payable has been calculated and reported
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income and expenses have been reported correctly, and
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PAYG withholding amounts have been withheld where required, and reported.
This year we expect the ATO will review around 800 businesses for compliance with income tax and PAYG withholding. Of these, around 580 will be audited
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GST Compliance Activities
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Large one-off or unusual transactions
Analysis of the ATO data and the transaction data of the federal and state governments continues to show that some clients are not reporting and paying GST on unusual or infrequent transactions, such as the disposal of a business asset or trade-in of a motor vehicle. This is further highlighted when they match large refund claims with the GST treatment of a business, or look at the GSTfree transactions made by a business that would not ordinarily be expected to make GST-free supplies. The ATO are maintaining their focus on this issue and intend to review 700 cases this year through fieldwork and issue 1,500 letters to businesses that have disposed of assets.
Large omissions of GST and incorrect input tax credit claims
As a result of referrals from other agencies, cross-matching data and analysing large refunds, the ATO have identified businesses that are failing to report and pay large amounts of GST or claiming false or unsubstantiated input tax credits. The ATO have also identified artificial arrangements that are contrary to the intention of the law. Non-arm¡¯s length transactions entered into to generate refunds by exploiting the timing difference between the cash and accruals method of accounting for GST are an example of such an arrangement. The ATO intend to audit 130 businesses this year.
Incorrect claiming of tax refunds
The ATO do extensive checks to prevent incorrect payments of refunds. Where they are concerned about a refund, they may phone or visit a business to substantiate the claims they have made in their return or activity statement. The ATO may also contact third party suppliers to validate transactions that result in a
refund. The work performed in this area has identified a continuing risk across small to medium businesses. Consequently, this year the ATO expects to check 13,000 GST input tax credit refunds (11,900 by phone and 1,100 field audits). These include claims for acquisitions that did not have GST levied on them, sales not reported for GST purposes and claims made without a valid tax invoice. The ATO also expects to check about 3,700 income tax returns and will request that seemingly excessive refund claims be substantiated.
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Property, building and construction industry
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Property, building and construction remains a high-risk industry from a tax compliance perspective. The ATO are implementing the tax recommendations detailed in the final report of the Royal Commission into the Building and Construction Industry, including establishing a building and construction industry forum.
By analysing information from their field staff, industry groups, other agencies and the community, they expect to identify instances of tax evasion and/or avoidance, including:
- failure to lodge returns and activity statements
- failure to pay tax
- failure to include all income
- incorrectly claimed deductions
- false invoicing, and failure to withhold tax from cash wages.
This year the ATO are increasing their focus on businesses with a turnover of up to $100 million. We expect to undertake about 540 reviews to examine all tax obligations and the overall level of tax being paid, including superannuation obligations. We expect to examine another 300 cases involving noncompliance
with GST obligations. Our examinations will include inappropriate application of the margin scheme on property sales, incorrect payment of GST on the sale of renovated or converted residential properties, as well as some large infrastructure projects involving property developments.
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