THE TAX MAN COMETH
Big brother is watching – here’s how to keep him from taking too much away
Australians tend to like to push the envelope when it comes to authority figures. This is an historical quirk of the Australian ethos and is reinforced by the fact that one of our national heroes is an Irishman who robbed from the rich and was finally caught because he was wearing so much metal that he couldn’t move.
Some of our great Australian traditions include: doing that extra 5 kilometres an hour on the freeway and then claiming no knowledge if pulled over by the police; taking home those few extra pens and maybe a stapler or six from the office supply cupboard at work; and lying about the age of children so that you can still pay half-price at the movies or on the train.
And of course there’s the age-old favourite: embellishing the facts when reporting on your income and expenses at the end of each taxation year. ‘Tax embellishment’ is neither evasion nor avoidance; it’s just…well, it’s just Australian. Now I hate to be the messenger of doom, but it looks like the 2004/2005 taxation year could bring us that much closer to the end of the age of embellishment.
WARNING. WARNING. WARNING.
The Australian Tax Office has recently issued some sombre, and unprecedented, warnings to all Australian taxpayers. In fact, large- and medium-sized businesses, property-related tax issues, those who fail to lodge returns, and people with outstanding debt will all come in for close attention from the Tax Office
It is true that the vast majority of people do the right thing, more or less, and that tax embellishment, as opposed to out-and-out tax avoidance schemes, really doesn’t do all that much harm. Or does it? Tax Commissioner Michael Carmody declared recently that ‘by setting out the risks faced when engaging in particular activities I want to influence the decisions people make about their tax affairs’. But what does that actually mean? And what do we need to do? Well, when speaking to the ATO a few clear directives have come out.
I’LL DO IT NEXT WEEK…
Firstly, people who habitually fail to lodge tax returns, or don’t pay their tax, will come under increased scrutiny this year. In most cases, this is not done with malicious intent, rather it is reflective of another great Australian pastime – apathy! But the ATO does not care one little bit about why you have not lodged a return for five years. ‘I didn’t get around to it’ will probably keep you out of jail but it won’t stop thousands of dollars worth of fines. Oh, and one old wives tale that needs to be untold is: just because you are entitled to a refund does NOT mean that you won’t be fined. It is the act of not lodging, not just the financial consequences, that is frowned upon. The rationale for this is quite logical when you think about it. If everyone in the country lodged a return only every 5 years or so, imagine the financial drain on the nation’s purse strings if huge amounts of money had to paid unexpectedly.
WE HAVE THE TECHNOLOGY…
1984 has come and gone and Big Brother is watching us now. The debate over national ID cards is, in many ways, futile. It is a fact that we are already on more than one database, and most of us are on dozens. It is also a fact that many of these databases are cross linked and cross matched – and the ATO will be taking full advantage of this technology. In other words, correct reporting of income and deductions must be a focus for all of us. Carmody explains that ‘ensuring the correct reporting of rental deductions, such as claims of capital expenses, will be a focus again this year’, but then this clear warning as well: ‘We will also expand our use of data-matching to check that income from property and share sales is declared, and capital gains tax is paid.’
Remember also that the ATO can prosecute to ensure that defaulters meet their obligations. The latest example of this occurred in August 2005, when the Parramatta District Court jailed a NSW man for 18 months for his role in an income tax fraud totalling $350,000. The man was found guilty on eight charges of defrauding the Commonwealth and aiding and abetting to dishonestly obtain a financial advantage. It appeared that he produced false payment summaries and lodged a number of income tax returns for the 1999 to 2001 financial years resulting in $147,248 in refunds.
WHICH INDUSTRIES IN PARTICULAR?
This year the ATO will especially be looking at people in the construction, food preparation and processing industries; dance, drama and music instructors; healthcare professionals; and teachers and academics to ensure that they are getting their work-related deduction claims right. If you are not sure about claims around motor vehicles or self-education then talk to an expert because they are the areas that will be examined.
The Tax Office will also focus on deductions for work related expenses, rental property expenses and on capital gains from the sale of property and other assets.
GO DIRECTLY TO JAIL…
It is clear that the ATO is toughening up on tax reporting which is not quite ridgy-didge. Deputy Tax Commissioner Michael Monaghan makes it clear that taxpayers who defraud the Commonwealth are involved in criminal activity. ‘As well as using our own intelligence and controls, we work very closely with law enforcement agencies to detect and deal with those who commit fraud’, he says. The extent of this is surprising; according to Monaghan; ‘In the 2004-05 financial year 102 people received prison sentences for tax fraud’. That means courts sit two to three people every week on such charges. Our great Australian pastime looks like it will be lost forever because those who continue to ‘embellish’ are not being larrikins so much as fools.
BIGGER IS BETTER
Now you might be thinking that you are pretty safe when it comes to PAYG tax, especially safe if you work for a large company. But think again. Last year the compliance activities of the ATO raised more than $8.7 billion in additional liabilities, and collections approached $6 billion – the bulk of this coming from big business. Carmody explains: ‘The value of our efforts in the large market is reflected in these results and it will continue to be the area of most intense scrutiny this year.’
STUCK IN THE MIDDLE
So say you are involved in a medium-sized business. The pressure is off, right? Wrong. Medium-sized businesses, particularly those with turnovers of between $50 million and $100 million, will face
increased scrutiny this year. There appears to be no respite because Carmody explains: ‘Our audits in this market have confirmed risks around profit-shifting, capital gains tax, and GST.’
GOOD THINGS IN SMALL PACKAGES?
The gatekeepers of our taxation system also think that small business debt continues to be an issue. Michael Carmody has repeatedly said that the ATO does not want to send viable businesses to the wall. However, an official statement from the ATO seems to cover all bets because, ‘out of fairness to others who meet their tax
responsibilities on time, we will be taking firm action against those who fail to work with us to pay their tax debts’. So if you are a small business owner reading this then double-check exactly what your commitments are for this financial year.
NOT SO SUPER
And a general warning for all employers: any organisation, regardless of its size, which fails to meet its superannuation guarantee obligations WILL hear from the ATO this year. They will be devoting resources to ensure that all superannuation responsibilities are fully honoured.
SO A FEW TIPS
1. If you are unsure of your personal position, see an expert. Visit an accountant or tax agent and don’t hide anything from them. Lying to your tax agent is like hiding an injury from your sports coach. Eventually you will be caught out and it won’t effect the agent one little bit.
2. When you do choose a tax agent, make sure they are registered. Only a registered tax agent can charge a fee to prepare and lodge your return.
3. If you are using a tax agent for the first time, or are going to use a different agent this year, you must contact them by Monday 31st October 2005.
4. There are also more than 1,700 volunteers trained by the Tax Office who are now available at 1,000 community centres around Australia to help low-income earners prepare their tax returns free of charge. These volunteers have been trained to help people with straightforward tax returns, baby bonus applications and those eligible for franking credits who don’t have to lodge a return. This free service is in it 17th year and the ATO has to be complimented for this initiative that helps about 70,000 people a year. If you think that these volunteers could help you then this service is available until the end of October. Call the Tax Office on 13 28 61 for further details.
5. The ATO has a website (http://www.ato.gov.au) which I think accountants will keep secret for as long as possible. The site hosts a do-it-yourself personal tax return and does almost everything for you. Even if you have a reasonably complex tax return, this site steers you through ever step of the way. It advises, it calculates, it explains the sort of deductions you are entitled to and even gives you hints on how to claim extras that you wouldn’t have thought about yourself. It offers advice on subjects like capital gains and losses, work-related expenses, and provides links to Tax Office rulings. You can also download welfare payment data provided by Centrelink which you may need to include in your return. Finally, it tells you what you owe, or what you will get as a likely return. It is similar to the software what most tax agents use themselves and it is free to download. Simply go to www.ato.gov.au follow the prompts to download ‘e tax 2005’. Once you have finished, simply lodge your completed return online and you are off the hook. If you are lodging your own return it must be lodged by 31st October 2005.
6. If you are claiming deductions for donations to charity, you must ensure the organisation is a registered deductible gift recipient (DGR) which can be checked on the Tax Office website.
7. If you are really worried, ring the Tax Office itself. They are not as scary as people think, and will generally do as much to help as possible. Call 13 28 61 between 8.00am and 6.00pm weekdays with any questions about income tax.
The larrikin days of snubbing our noses at authority are one step closer to vanishing. Rationally speaking this is a good thing, but I can’t help thinking that it is another part of our Australian lifestyle to add to the ‘vanishing Australian’, and an Australia that is quickly becoming long gone. Nevertheless, don’t do anything silly with your tax this year. Big Brother is watching and you WILL be seen. See you round the traps.