Are Australian Companies Ready for the 2013 ATO Crackdown?

Friday, February 8, 2013, AM | 5 Comments

In September, 2012, the Australian Tax Office announced a crackdown on dubious tax return claims will follow, come the end of the 2012-2013 fiscal year. And while that ending is some six months away, the measures implemented since by the ATO showed they really meant business this time.

In September, the ATO blocked tax returns for over fifty thousand people, whom it suspected were over-claiming refunds, or doing so through fraudulent means.

The same authority had received over 5.45 million tax return forms for the 2011-2012 fiscal year, from July 1 last year until mid-September.

By comparison, that’s around 261,000 more returns than they had received during the same span of time in 2011. Consequently, the amount of refunds they issued also went up by $40 million, to a whopping $9.76 billion.

While Australia’s current tax return system determines circa 12.4 million people to file for tax returns per annum, the same system is also complex enough to generate well over 50,000 blocked refund claims. Of these, 11,000 were refuted until September, following check-ups for information provided by third-parties.

At the time, 6,900 had been solved, and the remaining 32,000 were still on hold. For the 2011-2012 fiscal year, 109,000 income tax refund claims were refuted on account of fraud or over-claiming.

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Almost eighty thousand of these had to be manually reviewed, in order to avoid unlawful refunds of around $200 million. The introduction of an electronic income tax refund filing system is easing things up on the ATO, yet their mission of ensuring the proper functioning of the taxation system remains a complex one.

In 2011, the ATO announced it would make sure that start-ups in Australia are also correctly handling their tax obligations as employers. At the time, Frank Klasic, employment taxation partner with Deloitte, was warning entrepreneurs to expect thorough check-ups from the ATO.

Small new companies, concerned with cutting overheads by renting out office space temporarily rather than signing a lease, outsourcing their labor force, and virtualizing their operations, would be best advised to consult with their tax advisor, in order to make sure everything was in good order with their taxation payment.

Klasic explained that the taxation office would most likely look into the situation of the companies’ fringe benefits tax, which can be checked on retrospectively, for as much as six years back or longer.

Withholding PAYG would likely be a point of contention, as would the super guarantee (which can be audited for even far longer spans of time in the past). Since most companies in question would be undergoing their first ATO check-up ever, the procedure would likely be a long and complex one – with penalties to match. Klasic explained that a mistake worth $50,000, repeated over the course of six years could come to cost a company $300,000, at a 75 per cent penalty rate.

Come 2013, the ATO seems to be addressing the issue in similar turns. According to tax counsel Paul Stacey, with the Institute of Chartered Accountants in Australia, businesses should be making absolutely sure they are taking the best care they can of paying their taxes in full.

Stacey explained that, while penalties start at 25 per cent, they can still go up to 75 per cent – displaying thoroughness in dealing with taxation matters might reduce those penalties, if push comes to shove.

The ATO has announced that it would be focusing on construction and building companies, which means that all businesses who work with contractors should make sure that they are receiving employee treatment, as well as being accounted for as staff. Contractors who are employees need to have taxes deduced for their wages, which, in turn, need to be paid to the ATO.

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