In the tax office sights

The department has sophisticated tools at its disposal to track down tax cheats.

The department has sophisticated tools at its disposal to track down tax cheats.

More than 1500 people have been prosecuted by the Tax Office in the past year as it steps up its efforts to track down tax cheats.

More than 1100 individuals and 400 companies were prosecuted for tax and superannuation offences such as failing to lodge a tax return, making false or misleading statements, and illegal early access of super.

"We have a range of measures in place to ensure we detect and deal with those who evade their obligations," the tax commissioner, Michael D'Ascenzo, says. "This includes information sharing and working with other government agencies, and also with overseas counterparts and AUSTRAC."

A tax partner at HLB Mann Judd Sydney, Peter Bembrick, says one area that the Tax Office has "a big push on" is assets held overseas.

"The Tax Office has increased its data matching with overseas tax authorities and getting data from overseas financial institutions," he says. "We're seeing it ask questions about what sort of funds people hold overseas and whether they earn any income from them."

Bembrick says another area in the regulator's sights is contractors, and whether they are genuine contractors or should be regarded as employees.

The Tax Office says it has gathered evidence of sham arrangements, where individuals are incorrectly set up as contractors and may not report all of their income or may unfairly access welfare benefits. On the other side of the coin, they may be missing out on entitlements such as workers' compensation and compulsory super.

Bembrick says split loans are another focus. These involve loan arrangements where interest on an investment loan (which is tax deductible) is capitalised while loan repayments are used to pay off a non-deductible personal loan such as a mortgage. Despite long-standing rulings, Bembrick says the fact that they are still on the Tax Office's radar suggests products that don't satisfy its requirements are being marketed.

The Tax Office also provides a guide to its targets in its annual compliance plan. Work-related expenses are a perennial on the list. The Tax Office says such claims have increased about 16 per cent since 2007 and are one of the largest categories of claims made in tax returns.

Occupations selected for close attention this year include real-estate employees, carpenters and joiners, earthmoving plant operators and flight attendants - though investigations are not just limited to these areas.

The Tax Office says the most common ways in which people get their expenses wrong include having insufficient documentation to support motor vehicle and travel expenses, and incorrectly claiming home office, mobile phone and internet expenses.

One of the main tools used by the Tax Office is data matching or cross-referencing information in tax returns against at least 500 million transactions reported by other parties.

This includes information on employment, welfare and investment income, property and share dividends and disposals, employee share schemes, super and health insurance policies.

If your income is more than $1 million you're also likely to be singled out for closer scrutiny. More than 2000 high earners have had their returns reviewed in the past four years and about 60 per cent had them corrected.

The Tax Office says it is paying particular attention to their use of closely held entities, such as charitable trusts and self-managed super funds.

Other items selected for closer scrutiny include calculations of net capital gains and losses, deductions for contributions to self-managed super funds, claims for large revenue losses, non-disclosure of partnership and trust distributions, alienation of personal services income, non-commercial loans with related entities, and under-reporting of employment benefits, including participation in employee share schemes.

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