ATO hit list for 2011/12... Are you on it?

Question: Hi Brett, I saw one of those examples of television journalistic brilliance that the ATO has a new compliance program for next year. I hate always getting letters from the ATO just because I run a small bar and have 13 family trusts. Can you tell me who’s on the hit list for the coming year? Am I going to be in the firing line again?

Answer: The ATO revealed its hit list for the 2011-2012 financial year. Not surprisingly, the ATO is focused on personal services income, small business benchmarks , overseas income, cash economy, work-related expenses, superannuation early release, and self managed superfunds. It is best to start your tax planning as early as possible. Speak to your accountant and advisers about structuring your affairs to stay under the radar. The last thing anyone wants is to have the ATO doing a midnight raid on your house at Christmas.

High Wealth Individuals

Individuals with high net worth – between $5 million and $30 million are generally found by the ATO to meet basic taxation obligations. However, the ATO intends to contact 2000 people about outstanding tax issues. Alert: 2,660 high wealth individuals – individuals who effectively control $30 million or more in net wealth – are being monitored by the ATO right now. The Tax Office raised more than $800 million in income tax adjustments from high wealth individuals. However, most of that is in dispute. This year, the ATO is completing over 380 risk assessments and reviews and over 60 audits of high wealth individuals.

Personal Services Income (PSI)

The ATO is targeting sham contracting. This is where an employee is incorrectly classified as a contractor to save on employee entitlements. The ATO says its field work has gathered evidence of sham contracting arrangements. The ATO also reports it received 16,300 employee complaints last
year. The ATO says it’s consulting with industry representatives about new tax compliance measures. Those measures require businesses to report annually any payments they make to contractors in the building and construction industry.

The ATO is also targeting individuals streaming their PSI through another entity. The ATO is concerned those individuals might incorrectly split their income with an associate (such as a spouse or child) on a lower tax bracket.

Do you have a company?

The ATO is after directors and highly paid individuals. Individuals earning over $1 million and their use of closely held entities will be reviewed. Do you use charitable trusts and self-managed super funds? Unfortunately, you are in the spotlight. People from medical practices to football codes are all in focus. Over the past 4 years the ATO has reviewed 2,000 highly paid individuals – finding 60% of tax returns needed correction. Mostly due to incorrect deductions or amounts being claimed, omitting income, and the use of taxminimisation schemes.

Superannuation and SMSFs

Schemes offering early access to superannuation and superannuation contribution caps are in sharp focus. Anything limiting the amount of contributions qualifying for concessional tax treatment is in focus. The ATO warns “firm action” for breaches related to self-managed super funds.

Small business benchmarks and cash economy

The ATO has identified 46,000 businesses under-reporting their cash incomes. The benchmarks are expected to expand from 107 industries to 137 in the next 12 months. Officially, the benchmarks are to help businesses compare their performance versus the rest of the industry. In practice, the benchmarks set unrealistic expectations for many businesses to meet. The Tax Office says plastering and coffee shop industries will be paid close attention this year to ensure they don’t abuse tax laws through cash payments, with administrative penalties and prosecutions possible from business reviews.

GST evasion

The ATO says 300 audits and reviews will look at serious and significant non-compliance. In Western Australia, the ATO recently successfully prosecuted a business woman for GST evasion in the District Court. Sentencing of that person is to take place later this month. That business woman is looking at a maximum 10 years imprisonment for each of the 3 offences.

Brett Davies, lawcentral.com.au