Data-match­ing: Mark Story

So­phis­ti­cated data match­ing al­lows the tax of­fice to iden­tify peo­ple who fail to dis­close all their in­come

Money Magazine Australia - - CONTENTS - STORY MARK STORY

As Or­wellian as it may ap­pear, the Aus­tralian Tax Of­fice has the means to de­tect when you ap­pear to be liv­ing well be­yond your means. Those found to have undis­closed in­come could end up be­ing fined and, in worst-case sce­nar­ios, jailed.

The abil­ity of the ATO and other govern­ment agen­cies, to­gether with pri­vate com­pa­nies, to “over­lay and an­a­lyse” data from any num­ber of sources is far from new. Af­ter all, this is what the fi­nan­cial in­tel­li­gence agency AUSTRAC was set up to do in 1989.

Since then, how­ever, AUSTRAC’s abil­ity to elec­tron­i­cally track and match var­i­ous sources of pub­lic data (ATO, Cen­tre­link, child sup­port, Medi­care, and the Depart­ment of Im­mi­gra­tion) with pri­vate data – such as mo­tor reg­istries, pri­vate credit agen­cies, banks, your em­ployer and even on­line mar­ket­places – has be­come highly so­phis­ti­cated.

Like it or not, the ATO no longer re­gards any­thing, be­yond le­gal and/or ac­coun­tant priv­i­lege, as pri­vate. So­phis­ti­cated elec­tronic data-match­ing, to­gether with a height­ened ap­proach to col­lect­ing tax, es­pe­cially with fed­eral bud­gets deep in deficit, are a wake-up call to those who are tempted to fly un­der the radar.

The ATO has said that “com­pli­ance ac­tiv­i­ties” such as data-match­ing have al­ready helped it to col­lect more than $9 bil­lion from Aus­tralian tax­pay­ers. High-risk tar­gets

How­ever, de­spite the grow­ing so­phis­ti­ca­tion of data-match­ing, mis­takes can be made – and they tend to be whop­pers. For ex­am­ple, Cen­tre­link at­tracted a lot of neg­a­tive at­ten­tion to data-match­ing for tak­ing an ag­gres­sive and robotic ap­proach to a re­cent debt re­cov­ery pro­gram.

Flaws in the method­ol­ogy it used to data-match over 230,000 wel­fare re­cip­i­ents’ ATO data with their self-re­ported in­come have wrongly iden­ti­fied thou­sands (around 20%) of peo­ple as ow­ing money to Cen­tre­link. Lack­ing any hu­man checks, Cen­tre­link in­cor­rectly cal­cu­lated a re­cip­i­ent’s in­come by bas­ing it on their an­nual salary rather than tak­ing a cu­mu­la­tive 26-week snap­shot of what they were paid.

De­spite the bad wrap Cen­tre­link in­curred over its heavy-handed ap­proach, Mark Chap­man, tax commu-

nica­tions di­rec­tor at tax prepa­ra­tion firm H&R Block, says the ATO typ­i­cally ex­er­cises its data-match­ing pow­ers re­spon­si­bly.

“While the ATO does give ev­ery tax­payer a risk pro­file, it’s only those deemed high risk who are com­pre­hen­sively mon­i­tored,” he says. “These in­clude peo­ple with overseas as­sets and those with glar­ing anom­alies be­tween their in­come and their out­go­ings.”

Avoid the crack­down

Most at risk are those who re­main bliss­fully un­aware of the ATO’s abil­ity to track what they do on­line, and/ or those with glar­ing dis­crep­an­cies be­tween what they earn and what they spend.

For ex­am­ple, if you’re sell­ing more than a cer­tain amount of goods via eBay or sim­i­lar on­line mar­ket­place an­nu­ally, the ATO may con­clude that you’re trad­ing for profit, rather than mak­ing pocket money from of­fload­ing some old fur­ni­ture.

The ATO has warned users of “shar­ing econ­omy” apps that it per­forms data-match­ing with third par­ties to de­tect un­de­clared in­come. For ex­am­ple, last year it wrote to 20,000 rideshar­ing driv­ers about their tax obli­ga­tions af­ter data-match­ing iden­ti­fied them as earn­ing an in­come through Uber or sim­i­lar apps, such as Air­tasker and Airbnb.

As a re­sult of con­cern over meet­ing their tax obli­ga­tions and nav­i­gat­ing their way through what de­duc­tions can be claimed, peo­ple who of­fer ac­com­mo­da­tion on Airbnb teamed with H&R Block.

As­sis­tant ATO com­mis­sioner Matthew Bam­brick has stated that in­come should be de­clared re­gard­less of whether the shar­ing econ­omy ac­tiv­i­ties are “odd jobs”, such as an oc­ca­sional Air­tasker task, rent­ing out a room through Airbnb or a full busi­ness. That means amounts paid for rent­ing out all or part of a house or unit through the shar­ing econ­omy must be de­clared as rental in­come in a tax re­turn.

To avoid get­ting caught up in the ATO’s crack­down, Chap­man urges Uber driv­ers to de­clare their gross rideshar­ing in­come. He says, un­be­known to many, it’s also com­pul­sory to reg­is­ter for GST if you trans­port pas­sen­gers through ride-sourc­ing re­gard­less of your an­nual turnover.

To off­set any tax li­a­bil­ity, rideshare driv­ers can claim nu­mer­ous po­ten­tial de­duc­tions, in­clud­ing fees and com­mis­sions to Uber, cost of in-ve­hi­cle snacks pro­vided to pas­sen­gers, in­sur­ance pre­mi­ums and other ve­hi­cle costs such as fuel, ser­vic­ing and clean­ing. Chap­man also re­minds peo­ple to keep the all-im­por­tant log­book.

Non-dis­clo­sure is il­le­gal

There’s also a pre­vail­ing mis­con­cep­tion that money kept or placed overseas is not ac­ces­si­ble for tax pur­poses, says Rami Brass, di­rec­tor of tax ser­vices with RSM Aus­tralia.

He says overseas bank havens sel­dom work be­cause peo­ple are in­vari­ably found out once they bring money back to Aus­tralia and start “splash­ing the cash”. The ATO has ex­ten­sive pow­ers to ob­tain in­for­ma­tion from overseas tax ju­ris­dic­tions.

Given that hid­ing money is il­le­gal, Brass says the bet­ter op­tion is to seek pro­fes­sional help early, iden­tify all the po­ten­tial op­tions, in­clud­ing trusts and/ or part­ner­ship ar­range­ments for max­imis­ing tax de­duc­tions.

He says that alarms bells should ring loudly if seem­ingly cred­i­ble ac­coun­tants ap­pear will­ing to par­tic­i­pate in ques­tion­able prac­tices. “The bet­ter op­tion is al­ways to dis­close all earn­ings, plus funds held else­where, and will­ingly pay any out­stand­ing tax rather than at­tempt to dis­guise.”

While there’s ab­so­lutely noth­ing wrong with us­ing cash, Brass warns that do­ing cash trans­ac­tions purely to avoid tax is likely to land you in hot wa­ter, he says.

Brass also re­minds peo­ple that non-dis­clo­sure of pay­ments made us­ing cash is an equally se­ri­ous of­fence. In­di­vid­u­als or small busi­nesses us­ing cash pay­ments to hide earn­ings usu­ally catch the eye of ATO when data re­ports re­veal their spend­ing far out­weighs their in­come, he says.

“In­di­vid­u­als work­ing in a cash en­vi­ron­ment, like tradies, do­mes­tic help and cash-only re­tail­ers, typ­i­cally face the great­est temp­ta­tion of un­der­stat­ing their earn­ings.”

Most peo­ple get caught out when they spend over a cer­tain amount. But in ad­di­tion to data-match­ing, the ATO also uses what’s known as bench­mark­ing to flag when a busi­ness’s earn­ings or gross mar­gins are se­ri­ously out of whack with its peers. While there might be good rea­sons why your busi­ness falls out­side the bench­mark, Chap­man says the ATO will still want to know why.

“Given that their third-party data does ac­tu­ally match what they dis­close on their tax re­turns, data-match­ing for the vast ma­jor­ity of tax­pay­ers isn’t an is­sue,” he says. “How­ever, if you’re one of less than 1% of tax­pay­ers un­der re­view an­nu­ally, it’s time to stop and con­sider the con­se­quences of your ac­tions.”

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