PLEASE EXPLAIN

When collecting data from other agencies and organisations for its matching programs, the tax office is required to comply with the Privacy Act 1988, the secrecy provisions of the Income Tax Assessment Act 1936, the Taxation Administration Act 1953 and other tax laws.

These laws allow the ATO to go to any individual and/or third parties to demand information. This can result in the ATO issuing letters asking you to explain undeclared income and/or seemingly unaffordable purchases made from your accounts.

Unbeknown to many people, the tax commissioner – who has access to all shared data between the ATO, Centrelink and other government agencies – can under Division 353 of the Taxation Administration Act 1953 request back-data from bank statements, credit cards, money held in other’s names and/or in trusts or other structures.

Failure to comply invariably results in a court hearing and in some cases the Australian Federal Police may be called in to investigate.

While penalties can range between 25% and 90%, plus interest, in extreme cases individuals and/or their accountants can also risk going to jail.

Admitting to any mistakes can help to avoid harsher penalties, says Rami Brass, director of tax services with RSM Australia.