Whitings Chartered Accountants

Chartered Accountants			23rd May 2022, 3:18 PM

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Useful Information

2003 ATO Audit Targets

- For Individuals
- For Businesses

ATO Audit Targets for Individuals

In 2003, the ATO will be gearing up towards a shift from their education role to a compliance/audit focus. The ATO has received an injection of $1.5billion in funds over the next four years in order to do this. Below we will summarize the key ATO audit focus areas in relation to claims made by individuals.

Overclaiming Work-Related Expenses

Work-related expenses such as car, travel, uniform, laundry and self-education expenses make up 57% of claims made by individuals. An 11% increase in the amount claimed by individuals in the 2001 year has raised concern for the ATO and as a result, they will be asking 135,000 individuals to verify their deductions by completing a work-related expense schedule.

Overclaiming Rental Expenses

A significant increase in rental property expense claims relative to the increase in rental income collections has resulted in the ATO deciding to select 10,000 taxpayers to provide more details about their claims in 2003.

Overclaiming Interest and Dividend Deductions

The ATO has identified that excessively large refunds are often associated with large interest and dividend deductions. As such, the ATO will review 6,600 of these claims and 5,800 high-risk refunds to identify fraud and aggressive tax planning.

Non Reporting Interest and Dividend Income

The ATO's advanced matching system will automatically check the amounts entered in your return against over 100 million transactions from banks and other institiutions, making it a fairly obvious audit target. It is important for taxpayers to maintain sufficient records (eg, bank statements and dividend statements) to ensure they can properly identify the correct amounts of interest and dividend income.

Not Reporting Capital Gains on Shares and Properties

The ATO is concerned that many taxpayers are not recording capital gains on the sale of shares and real estate. In this regard, the ATO will be comparing 8,000 returns with rental property sales and share trading data such as company share registries.

ATO Audit Targets for Businesses

Superannuation Guarantee Obligations

The ATO has highlighted that up to 10,000 employers are not making any superannuation guarantee contributions at all, and around 240,000 employers are making small errors. As a result, up to 500,000 employees may not be receiving their correct entitlements.

The ATO will be undertaking the following strategies to minimise the level of non-compliance. They are:

auditing 15,500 employers & contacting 50,000 who are at risk of being non-compliant
checking more than 10 million payment summaries against surcharge and income data
expecting to audit around 200 who refuse to provide information
investigating all cases where employees notify the ATO that super has not been paid for them

Likely Audit Targets for Debit Loans

Loans made to shareholders or their associates that eremain unpaid as at the end of the year, are generally treated as assessable dividends to the shareholder/associate, unless the loan falls within specified exclusions. Based on the ATO's disturbing findings in this area so far, there is no doubt that the ATO will be commencing full-blown audit activity in this area very soon.

GST Compiance Activities

It has been made clear that the ATO is stepping-up its GST compliance/audit activities. in 2001-2002 alone, the ATO conducted 50,000 field verification visits and 73,000 telephone-based compliance checks which generated $363 million in additional GST revenue and $100 million in other tax revenue. This means that these kinds of activities are sure to be stepped-up and the ATO's increase in GST compliance staff by about 350 this year is a clear indication of this. It is the ATO's plan that one in ten businesses is subject to some form of GST audit.

Some of the more common errors found are:

many businesses may not be accounting for the GST in relation to the disposal of capital assets
many cash basis GST taxpayers are still claiming full input tax credits (upfront) under a hire purchase agreement
some taxpayers, particularly GST registered sole traders and partnerships, are not apportioning their input tax credits and are not making adjustments to those claims, for acquisitions that are partly private and partly business

The Cash Economy

The non-disclosure of cash transactions, particularly between businesses and consumers, is a major issue for the ATO and this will be very high on the Tax Office's priority list in the forthcoming year.

The high-risk industries now being scrutinised include:

building and construction
taxis
hairdressers
clothing and textiles
cafes, restaurants and takeaway outlets
cleaning services
pubs, clubs and taverns
road freight services
the security industry
the tourism industry

Other Targets

fringe benefits
capital gains
making under the table payments to employees & contractors
manipulating the insolvency rules