MEDIUM-SIZED businesses, property investors and employers failing to meet their tax obligations are all likely targets of the Australian Tax Office’s beefed-up audit division.
The ATO, which accountants say has been out of the audit business for about 15 years when it comes to smaller companies, has recently been leavening its auditor ranks and is about to put those forces to use.
Some accountants say businesses have been lulled into a false sense of security after the long break from ATO scrutiny and could find themselves facing significant tax penalties.
In a speech earlier this week, Tax Commissioner Michael Carmody said the latest compliance program would build on work the ATO had already done, as well as identifying some particular areas where it would be stepping up its activities.
He said medium-sized businesses, those with turnovers of $50 million or more, would face increased scrutiny.
"We have identified some medium-sized businesses that have declared profits over a number of years but appear to have paid little or no income tax and we will be taking a closer look at this behaviour," Mr Carmody said.
Capital gains tax and rental deductions have also been identified as major issues for individuals in the property market.
"We are improving our education products to help people understand capital gains tax and rental deductions, while at the same time increasing our audit activity of high-risk refunds in this area," Mr Carmody said.
He said high-wealth individuals and large businesses would continue to be subject to extensive risk reviews.
"Of the $6.4 billion raised in liabilities from our compliance work last year, more than half of this was raised from large businesses and high wealth individuals and we will continue our focus on these groups this year," Mr Carmody said.
Barrington Partners partner Roger Sullivan said the ATO had been warning business of increased audits for about 18 months.
"They’ve already been doing focus audits. They’ll look at a group of industries in Kwinana or in South Australia. That’s helped them to get a handle on the compliance issues in that target market," he said.
"Given they haven’t done a lot in the area of audit in the past 15 years, they’ve lulled business into a false sense of security.
"Medium-sized businesses should be dragging themselves out of their lethargy."
RSM Bird Cameron partner Rami Brass said the ATO had upped the ante and would be widening its audit activities.
He said the motor vehicle industry had already been on the receiving end of a GST audit.
In one case, a motor vehicle group found itself in breach of the GST rules for a management fee transfer between its dealers because it did not pay GST on the transfer.
The argument that not paying GST on that particular transaction had not gained the company any competitive advantage and that there had been no leakage from the system – the company did not claim the GST on that transaction back either – did not sit well with the ATO.
"They said they had to protect the integrity of the system and the company faced a penalty over the deal," Mr Brass said.
He said businesses had to make sure that they answered any ATO question promptly.
"They have the right to go to your premises and ask for information," Mr Brass said.
He said one client of his, who operates a hotel and bottle shop, had ignored ATO requests for information and was now looking at having his taxable income increased by about $400,000.
The tax on that increase, Mr Brass said, could be enough to force him to close the business down.
"We’re basically involved in an argument over why his business’s gross profit is lower than the industry average," he said.
