In depth: ground rules for compliance

ground_rules_for_compliance.jpgATO places scrutiny on SME'S wealthy individuals

The Australian Tax Office has released another online compliance guide, this time targeting wealthy individuals and SME's, Small-to-medium enterprises and wealthy individuals: Our compliance approach, setting out in detail the major risk factors and ways to avoid them. As the front line players in our national economy, SME's and wealthy individuals have a crucial role to play as the largest revenue spilling group in our system contributing more than a quarter of all revenue collected from the ATO last financial year.

This group has an undeniable influence in Australia, employing many Australians and contributing significantly to the growth and diversification of our economy. Over $74 billion of revenue was collected in 2011-2012 rendering this group a chief target for the taxation watchdog.

We've taken out some of the points from Small-to-medium enterprises and wealthy individuals: Our compliance approach below.

Private groups

Private groups are and the individuals who control them can expect an increased level of scrutiny. To detect the interdependencies between entities within a group, the ATO uses sophisticated data mining techniques that help them to more effectively understanding relationships between grouped entities including individuals, trusts, partnerships and beneficiaries.

Again this year, the use third party data will be used to identify risks relating to related-party transactions, disposals of capital assets and international dealings.

Wealthy individuals

The ATO has stated some of the common risks associated with highly wealthy individuals which include:

  • Classification between revenue and capital account items
  • Capital gains tax no being returned
  • Division 7A - access to company profits other than via dividends
  • Overseas interests and international dealings
  • Arrangements involving trusts
Attention drawers
  • Tax performance varying substantially from business performance
  • Inconsistencies in activity statements or spikes in refund claims
  • Large, one-off or unusual transactions
  • Tax and economic performance varying significantly from similar businesses
  • Unexplained losses
  • A history of aggressive tax planning
  • Weaknesses in compliance structures, processes and approaches
  • Tax outcomes inconsistent with the intent of tax law
  • Lifestyle not supported by after-tax income
  • Private assets treated as business assets
  • Business assets used for tax-free private use
  • Dealings with overseas entities, especially low-tax jurisdictions and tax havens that allow banking secrecy, not disclosed
  • Use of complex structures and intra-group transactions to minimise tax
  • Transactions where the tax and economic outcomes are inconsistent
  • Poor governance and risk-management
  • Distortions and inconsistencies in market valuations and apportionments
  • Performance that falls outside small business benchmarks

This is the first time the ATO has undertaken such a controlled and essentially targeted approach to managing tax compliance for this group, defining small-to-medium enterprises as businesses with a turnover between $2 million and $250 million.

Some criticisms of the guide have indicated that that it is not nearly specific enough, pin pointing a broad scope of SME's with turnover's ranging from $2 million right up to $250 million dollar turnover.

For more information you can read the guide online here  from the ATO website.

 

 

 
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