Inside the ATO’s never-ending GST fight

Back in the 2010-11 Federal Budget on May 11, 2010, the Tax Office received a four-year funding package of $337 million to undertake additional compliance activities to promote voluntary GST compliance.

While the ATO continually undertakes GST compliance activities, including audits, the extra funds are aimed at helping the ATO compliance program to:

• detect and deal with taxpayers that deliberately avoid their GST obligations; and
• enhance support and education to encourage taxpayers to willingly meet their GST obligations.

The ATO is also continuing to expand its ability to identify non-lodgers and detect taxpayers that over-claim entitlements, deliberately under-report or omit income, and use cash transactions to hide income and evade tax obligations.

The ATO is taking concerted action against GST non-compliance. This includes:

• issuing pre-due date reminders about lodgements to taxpayers via SMS and letter;
• using new risk indicators to detect incorrect or fraudulent refund claims on activity statement credits;
• comparing businesses to small business benchmarks for their industry to identify cases for audit or review. The ATO says businesses performing outside their benchmark range may not be recording or paying tax on all their transactions, especially cash transactions. The use of the benchmarks has come in for some criticism, eg. for not adequately taking into account legitimate differences between businesses, and for being unfairly used by the ATO as a basis for issuing amended or default assessments. The Tax Inspector-General is reviewing the use of the benchmarks – submissions were due by February 3, 2012 and the Inspector-General’s report is awaited with interest;
• using the small business benchmarks to calculate default assessments where a business has reported insufficient or unreliable information, or has failed to meet their lodgement requirements; and
• increasing ATO focus on taxpayers that have multiple outstanding activity statement obligations, including telephony-based lodgement enforcement, raising default assessments and, in some cases, prosecution action.

The ATO said the GST compliance program for the 2010-11 year has yielded over $290 million from GST compliance activities, approximately $185 million in GST cash collections, and $150 million in GST debt collection.

The ATO’s GST compliance program focuses on the following key areas.

Dealing with GST fraud and evasion

The ATO is seeking to detect and deal with GST refund fraud by verifying refunds by visiting businesses and contacting third parties to substantiate claims. The ATO will also be increasing its efforts to detect false, manipulated or stolen identities to obtain GST refunds. Identity fraud related to tax fraud in general is a growing problem, not only in Australia but in other countries like the US as well.

The ATO says it will audit and, where appropriate, prosecute taxpayers who:

• deliberately do not register for GST even when required to do so;
• collude with others to evade or avoid tax obligations;
• intentionally do not report, or consistently under-report, their tax (including GST) obligations;
• attempt to obtain refunds when not entitled; and
• persistently and repeatedly exploit bankruptcy.

Improving activity statement lodgement

The ATO is increasing its ability to match data from a variety of sources and is contacting more taxpayers identified through the matching process. In particular, the ATO will look closely at the property industry using information on asset transactions held by State revenue offices and land title offices to identify developers that sell property, but do no lodge their activity statements.

The ATO said in the 2010-11 year, it made over one million contacts with taxpayers regarding their lodgement obligations, referred over 700 non-lodgement cases for prosecution action.

Reducing GST debt

In relation to collecting GST debt, the ATO is focusing on ageing debts and phoenix activities. It said it will take the following action:

• For taxpayers who miss a GST payment and do not contact the ATO to advise they are having problems, the ATO will phone or send those taxpayers a notice, and may also refer the debt to an external collection agency.
• For those taxpayers who are unwilling to cooperate with the ATO regarding alternate arrangements and payments, the ATO may issue garnishee notices and statutory demands.
• For those taxpayers who have previously defaulted on a payment arrangement, the ATO may ask for an upfront payment and/or request that payments are made by direct debit.

For the 2010-11 year, the ATO said it collected over $150 million through additional GST debt collection activities, and referred more than 245,000 debt cases to external agencies.

The ATO encourages taxpayers who review their records and who find one or more mistakes that increase their tax or reduce any credits they may have claimed, to make a voluntary disclosure. While they will still have to pay the tax they owe, the ATO will generally reduce penalty amounts.

The GST has now been around for over 10 years, so ignorance of its operation and the necessary compliance requirements won’t wash with the Tax Office. Difficult economic times for SMEs can create or exacerbate an already difficult situation. Failing to comply with GST obligations can definitely be injurious to the health of any business.

Terry Hayes is the senior tax writer at Thomson Reuters, a leading Australian provider of tax, accounting and legal information solutions.