Wealthy People Onto the ATO Radar

1. Rich People

From the Compliance Program we see 3 areas of attack:

Selling Property: Your clients selling real estate and forgetting to report the capital gains.
Big income making employees: Angry public company executives that earn a tonne of money and pay more than ½ of it in tax and try and hide this income through silly strategies (whereas the small business owner also earns a lot of money, but legitimately uses trusts to hose down the highest marginal tax rate).
Superannuation: Your clients claiming inappropriate cost of funding contributions (this was big in the lead up to 1 July 2007) and other superannuation affairs. Failure to have up-to-date documents such as the Investment Strategy and Product Disclosure Statements.

2. Small Business

If your clients’ business is small (turning over less than $2 million) then the ATO looks at:

Company Loans: Have your clients failed to document loans from their company?

Service Trusts: These are common for lawyers, doctors, accountants. Make sure your clients document what they do with a Service Trust Agreement .
Failing (or forgetting) to pay PAYG and superannuation: Although this might be great for your clients’ cash flow, encourage your clients to stay up to date with these payments.
Failing (or avoiding) to bank cheques towards the end of the financial year: If your clients are on a “cash” system they might be delaying the collection of debts, processing of credit cards and banking cheques until 1 July 2008.
Cash economy: virtually every tradesperson you ever meet gives you a “discount for cash”. Tell your clients that this is code for lets steal from the ATO together. The best way they can deal with this is get their cash discount. Then ask for a Tax Invoice. If the tradesperson does not give them one then they should report them to the ATO. Alternatively, your clients could get find the tradespersons ABN from here and generate their own Tax Invoice.
GST: Make sure that your clients are seeking the correct refunds of GST.

3. Medium Enterprises

For enterprises turning over between $2 million and $100 million, the ATO looks at certain issues. For our Platinum Members that paid $99 to upgrade they can read the 7 issues and what to do about them here.

For enterprises which turn over more than $100 million, the ATO looks at:

Good governance: boards need a high level of awareness of tax risk.
Evolving capital markets, including more closely monitoring merger and acquisition activities: particularly those involving private equity syndicates.
Aligning tax and economic performance — including by investigating the characterisation of income and expenses and the failure to account for GST on unique transactions.
International tax arrangements: sharing information with foreign jurisdictions and taking a coordinated compliance approach.
Cross-border crime tax evasion - especially channelling funds to tax havens and using fraudulent expenses from offshore jurisdictions to reduce tax in Australia – Wickenby. Basically if you are rich it is best that you go and live in another country and avoid the horrors of a mischievous and confusing tax system.
Identity crime – typically used by individuals who lodge multiple business activity statements to fraudulently obtain GST refunds to which they are not entitled.
GST: major infrastructure projects and the use of the GST margin scheme.
Accountants, Advisers and Lawyers

For tax professionals, the Compliance Program looks at:

Helping: Our friend the ATO provides improved services to this sector (e.g. someone at the ATO will answer the telephone within 5 minutes, yeah - sure.)
Threat: Carrying the big stick of promoter penalty laws. These laws are drafted so widely that if you client stuffs up you will be liable for their actions if you gave advice.
This is how the threat operates, particularly for accountants. Say your practice has 500 clients. One of them fails an ATO audit. The ATO then “randomly” audits 10 of your other clients. If 3 or 4 fail that audit then the ATO audits all 500 clients until you lose every client and you close down and go work as one of those ethical tradespersons.

The ATO has basically made every accountant doing tax returns an ATO enforcement officer.