Avoid the ATO’s wrath: Who’s in the firing line?

The ATO will deploy sophisticated technology to ensure wealthy Australians aren’t shirking their tax obligations, it announced today.

The ATO’s Compliance Program Report (2012-13), released this morning, signals a focus on wealthy Australians with a net worth of between $5 million and $30 million. But it won’t forget the big fish – those who earn more than $30 million – who are classified by the ATO as “higher wealthy individuals”.

Although fewer taxpayers will come under the spotlight this year, due to ATO staff cuts, those to be put under scrutiny will be chosen more specifically.

“We have much more advanced analytics now, which means that the audits are much more targeted,” ATO second commissioner Bruce Quigley told The Australian Financial Review today.

The ATO expects to complete about 120 reviews and 50 audits of our nation’s wealthiest people. It will be on the lookout for those who invest in schemes specifically designed to dodge tax, and businesses that shift profits to offshore jurisdictions where taxes are lower or non-existent.

Wealthy Australians are well within their rights to legally minimise their tax. The ATO says it will work harder to ensure they know the best ways to do it.

The ATO will this year be particularly interested in:

Trusts

The ATO is using information matching and relationship mapping systems to focus reviews and audits of groups involved in potentially manipulative practices in regard to trusts – a common wealth management vehicle.

“We continue to use the full force of the law when dealing with the most serious tax avoidance behaviours … We have established?a trust taskforce in conjunction with [anti-tax haven taskforce] Project Wickenby to respond to aggressive trust-related tax avoidance and evasion.”

Profit shifting (international transactions)

The ATO says it has “a continuing concern about related-party arrangements that shift profits out of Australia, or deductible expenses into Australia.” International related-party dealings amount to about $270 billion annually.

Private equity

Cases of particular focus in private equity will be: “where private equity holding arrangements are structured using multiple entities, in treaty countries and tax havens to avoid Australian income tax on business profits.”

For leading companies considering partnerships with private equity investors, this means checking that they won’t be drawing fire from the ATO.

Tax avoidance schemes

High income earners can become unwittingly involved in tax avoidance schemes.

“Our experience is that high income earners are more likely to be caught up in tax avoidance schemes. This year we will have a particular focus on investments by medical practitioners and other higher income individuals – particularly focusing on widely-marketed financial products that promise substantial tax benefits,” the report says.

A little advice: “Investors should seek tax advice from someone not selling the product and contact us if they have any concerns that an investment product may be promising tax benefits that are not available under the law.”

Self-managed super funds

Rather than taking an aggressive approach to the popular retirement strategy of self-managed super funds, the ATO is keen to work with SMSF auditors. The electronic Superannuation Tool (eSAT) is good news for executives and leaders, who have endured constant changes to superannuation rules.

Work expenses

The ATO warns that continuing increases in claims for work-related expense deductions will be closely examined. Information technology managers are among those who will be put under the microscope.