Data matching enables the ATO to compare amounts shown in people’s income tax returns and activity statements with data from external sources such as other government departments, meaning it can quickly identify taxpayers who might not be complying with their tax obligations.
Data matching can also help to identify taxpayers who are not (but should be) in the tax system. If the ATO finds discrepancies it may take follow-up action, including conducting risk reviews and audits.
The ATO regularly undertakes data matching projects related to particular risks, issues or industries. It obtains a variety of data types from a wide range of sources, including:
- investment income information and credit and debit card details from financial institutions;
- property transactions information from state and territory authorities; and
- car registration records from motor vehicle registries.
Specific data matching programs are regularly advertised in the Commonwealth Gazette.
Data matching contractor payments
In April 2016, the ATO announced that it will acquire data from businesses that it visits as part of its employer obligations compliance program during the 2016–2017, 2017–2018 and 2018–2019 financial years.
Data to be collected will include:
- ABN of the payer business;
- ABNs of payee businesses (contractors);
- names, addresses and contact details of contractors;
- dates of payment to each contractor; and
- amounts paid to contractors (including details of whether payments included GST).
It is estimated that records for 25,000 entities will be obtained, including the records of 12,500 individuals.
The program aims to:
- assess the integrity of the information held on the Australian Business Register, to assist the Registrar in developing educational and compliance strategies;
- obtain intelligence to identify risks and trends about contractors who may not be complying with their taxation obligations;
- ensure compliance with obligations for registration, lodgment, correct reporting and payment of taxation and superannuation; and
- promote voluntary compliance and allow better tailoring of educational products and services.
The ATO’s data matching program has been ongoing since the 2008–2009 financial year and has resulted in improved compliance with obligations and additional income tax, GST and PAYG withholding liabilities being raised.
The ATO also has online access to information held by the Australian Securities and Investments Commission (ASIC) and banking transactions captured by the Australian Transaction Reports and Analysis Centre (AUSTRAC).
Industry data
Activity statements provide the ATO with up-to-date trading information on businesses. It uses this information to establish industry benchmarks for a variety of business ratios. Ratios include salary and wage expenses as a proportion of turnover, and the ratio of input tax credits to turnover.
Taxpayers’ performance as reported on their Business Activity Statements (BASs) is compared with the industry benchmarks, allowing the ATO to identify potential audit targets. This is particularly useful for targeting what the ATO regards as high-risk industries, such as building and construction; cleaning; beauty salons; restaurants, cafes and takeaway food; road freight; smash repairers; and taxis.
The benchmarking practice came to the attention of the Inspector-General of Taxation because of concerns about the ATO’s increased compliance focus on small to medium enterprises and high-wealth individuals. The Inspector-General investigated, reporting in 2012 that the main issue of concern was taxation officers’ technical capability. The Inspector-General’s report made a number of recommendations, most of which the ATO accepted. However, the Commissioner of Taxation has successfully used benchmarks in a number of cases.
CASE STUDY Air-conditioning repair small business loses tax dispute
In Re Anjum’s Air-conditioning & Refrigeration Service Pty Ltd and FCT [2016] AATA 433, the Administrative Appeals Tribunal (the Tribunal) affirmed the Commissioner of Taxation’s decision to impose administrative penalties on a taxpayer, made after the ATO identified income tax and GST shortfalls.
The ATO began reviewing the taxpayer’s affairs in March 2013 after informing the taxpayer that its reported income was outside of the “small business benchmarks”. After conducting a cash economy audit, the ATO imposed penalties at the rate of 50%, on the basis of taxpayer recklessness. Total penalties of around $35,000 were disputed in the Tribunal appeal. The taxpayer objected to the penalties and sought review.
The taxpayer accepted that it had income tax and GST shortfalls. It agreed that it had failed to disclose amounts of income from solar panel installation work in the income tax returns for two years (year-ends 30 June 2011 and 2012). The taxpayer also agreed that it had failed to disclose taxable supplies from the same business activities in BASs for the quarterly tax periods 1 July 2010 to 30 June 2012.
However, the taxpayer argued that those errors were honest mistakes, so the penalties should not have been imposed. If they were properly imposed, the taxpayer argued, they should be remitted – that is, cancelled in their entirety or partially reduced. The taxpayer pointed out that it made voluntary disclosures to the Commissioner and therefore deserved reduced penalties.
The Tribunal noted that the case was solely about the imposition and remission of administrative penalties related to income tax and GST shortfalls, an area legislated under the Tax Administration Act 1953 (TAA).
The Tribunal was not convinced that the penalties were excessive, nor that they should be cancelled or reduced. The Tribunal was also not satisfied that the taxpayer made voluntary disclosures. Accordingly, it decided to affirm the Commissioner’s objection decisions. The penalties remained at 50% of the income tax and GST shortfalls.
ATO data sharing with other government agencies
The ATO also exchanges data with other government agencies. For example, it regularly provides taxpayer identity and income information (including details of trust income) to the Federal Department of Human Services, which uses the information to determine eligibility criteria for benefits and to assist in detecting welfare fraud. The Child Support Registrar can access an individual’s employment and investment income to assess child support payment amounts and take garnishee action. These exchanges are authorised by legislation (including the Data-matching Program (Assistance and Tax) Act 1990) and are not in breach of the tax law confidentiality rules (see Div 355 of Sch 1 to the TAA).
