Taxation Law - Major ATO Targets For 2007/2008 Tax Year

The Commissioner of Taxation has recently released his 2007/08 Compliance Programme.  As with every compliance programme the emphasis shifts and this year the ATO's goals are about "being fair and professional; applying the rule of law; supporting taxpayers who want to do the right thing; and being consulted, collaborative and willing to co-design." 

As with Wickenby the ATO will be reviewing the tax implications imposed by an increase in international dealings and widening its focus on an expanding body of high-wealth individuals both on an asset and income basis. 

The ATO will rely more upon information technology to ensure that enforcement is far more effective.  Data matching and information sharing enables them to focus more on high risk individuals, firms, companies and institutions.  They are also expanding their network of collaborative arrangements including everyone from governments through to financial institutions.  The capacity to identify tax risks is significantly improving.  Deterrence through sanctions and the real possibility of being caught are high on the ATO's agenda. 

The ATO Compliance Programme for 2007/08 identifies the following major targets:

• Superannuation has become a clear target due to the types of arrangements entered into by taxpayers.
• Self-managed superannuation funds.  Structuring of in-house assets and loans to members. 
• CGT - Unreported capital gains and income.  The main residents exemption will continue to be scrutinized. 
• Reviews and audits will be conducted to identify unreported capital gains "made on the disposal of shares, investment properties, vacant land, holiday houses and capital contributions received from managed funds."
• Superannuation fund contributions will be cross-matched "to individual tax returns to identify unreported capital gains or unreported income."
• Top executives of large companies with total remuneration of $1M or more are of interest with options and rights issues, cash bonuses and non-income capital benefits receiving attention. 
• Lodgment activity including high income executives and professionals.  The ATO's focus will also include child support obligations, promoters of tax exploitation schemes and those using tax havens.
• GST - The ATO has always had issues with the cash economy. This year the ATO will contact more than 62,000 businesses in response to tip-offs and enquiries. 
• Taxpayers whose lifestyles are out of step with their reported income - watch out.
• Unreported business to consumer cash transactions including tradespeople, subcontractors and the building and construction industry and restaurants and café proprietors are high on the list.
• GST - real property transactions including unreported sales and the margin scheme.  The ATO is particularly concerned that the GST system is being rorted by the alleged export of services where natural consumption occurs in Australia yet the overseas entities providing those services are not registered for and do not pay GST.
• Payments to shareholders, shareholders' loans and the forgiveness of debts to shareholders.
• Any transaction where a business owner tries to extract value from their business without paying tax including share buybacks, capital deductions, the sale of shares and demerger provisions. 
• High wealth individuals who have substantial assets and income.  The ATO is concerned with identifying these individuals, examining the entities through which they conduct business and checking the type and style of transactions involved. 
• Large businesses -  "We will examine the use of tax havens, cross border arbitrage, transfer pricing and profit shifting, as well as corporate restructuring that shifts assets, functions and risks offshore."
• Once again promoters, professionals and participants are the main game.  The ATO sees promoters as a major threat to the revenue as with any tax exploitation scheme. 

The ATO's primary role is the maintenance of a cost effective tax administration system which safeguards the revenue.  As a result both tax crime and aggressive tax planning come in for special attention annually.  Both information technology and enhanced co-operation both in Australia and overseas between governments and agencies is being steadfastly pursued.

Project Wickenby has taught the ATO an enormous amount about onshore and offshore tax evasion and the role played by promoters, professionals and participants. 

In recent years identity theft, refund fraud and the involvement of tax practitioners in fraudulent behavior have become of special interest and this year is no different.  Identify theft and activity statement fraud dominate sentencing statistics for 2006/07. 

All of this material appears in greater depth in the Commissioner of Taxation's speech on the ATO's Compliance Programme 2007/08, Sydney, 16.8.07.

As the Commissioner has said the ATO will support taxpayers who want to do the right thing and it will be fair but firm with those who don't.  Firmness includes penalties, sanctions, prosecution and incarceration.

Obviously there are a lot of taxpayers whose affairs are not tax compliant or who may have entered into schemes or arrangements starting in the 1990s or the early 2000s which are of concern to them and require the services of a specialist tax lawyer.  Please call Frank Egan of LAC Lawyers for assistance.