- Cutting edge technologies are catching out more Australians, including expats.
- Capital gains tax obligations are catching out a lot of clients.
- From AirBNB to eBay, innocent mistakes are mostly made, but sometimes clients conceal data.
Cutting-edge data-matching technologies are being progressively rolled out and applied by the Australian Tax Office (ATO) to identify and flag more errors with taxpayers.
Even the one million Australians who live overseas can’t feel safe from the ATO’s Sauron-like glare. Liz Russell, a senior tax accountant at Australia’s largest online accounting firm, Etax Accountants, says the focus on cross-matching data with external agencies is achieving higher levels of personal and business tax compliance.
“Back in the old days, there may have just been the banks the ATO was data matching with,” Russell says. “Now they match data on credit cards and debit cards with all financial institutions.”
Over the last few years, the ATO has said its ability to data match is increasing exponentially as computer technology improves. “However, it’s the ability of the ATO to develop linkages with the records held by external agencies that is helping it enforce tax and superannuation obligations,” says Russell.
In the 2016/17 tax year, the ATO cross-checked over 650 million transactions from third parties such as employers and banks to ensure all income is declared and the correct offsets and exemptions claimed. Consequently, 200,000 taxpayers who had apparent discrepancies in the information they reported in their tax returns were contacted and nine out of ten returns adjusted.
The Australian Electoral Commission, the Foreign Investment Review Board, the Higher Education Loan Program (HELP), other government departments and registries, plus the financial services sector, are among external agencies now collaborating with the ATO.
The Higher Education Loan Program (HELP) matching is an interesting working example. Recently, the Australian Government introduced changes relating to HELP and Trade Support Loan (TSL) obligations.
Under these changes, the debt is now calculated against worldwide income. “The ATO is assessing people on foreign income to repay HELP debt, and they have the linkages there with foreign financial institutions and governments so they can quite easily match people living and earning income overseas with their Australian obligations,” says Russell.
Some Australian expats may not even be aware that new legislation has been passed. So when they receive a data matching letter (and a request to repay part of their HELP debt), it will be a shock.
The message for accountants
Because of the new data matching protocols, Trish Griffin, CA, director of Griffin Group Accountants, advises that accountants must have a solid relationship with clients and encourage them to bring all their financial dealings to the table. “As an accounting professional, it’s up to you to talk to the client, analyse their situation, know what questions to ask, and make them aware of the data matching protocols,” she says.
“We find that capital gains tax obligations catch out a lot of people, and it’s only after the land title office submits information to the ATO down the track, that they get a letter from the tax office. So, you must ask questions about the sale of assets such as real estate, shares, whether they have any foreign income and so on.”
Taxpayers can be hesitant about discussing their entire financial circumstances because they view it as a private matter, notes Russell. “But you want an ongoing relationship where clients can easily talk to you about financial matters and where you can draw from them the information you need to know about their finances to ensure they are in the best possible position while remaining compliant with tax legislation.”
If you’re taking on a new client, you need to look at prior financials
Building relationships with new clients takes time - whether you’re an accountant, lawyer or financial adviser. However, there are steps that can fast-track the process and ensure you keep the new client’s tax and superannuation obligations compliant and free of penalties, says Russell.
When a client decides to shift accounting firms, it’s the responsibility of the new and old accountant to make the switch as efficiently as possible. Strict processes and protocols are dictated by professional and ethical standards in Australia and New Zealand. “If you’re taking on a new client, you need to look at prior financials or tax returns and you must ask them about their assets, so that you can make a judgement about their present situation and what questions you need to ask.”
“From the outset, our obligations are to make sure that we assist the client in meeting their tax obligations correctly, while also ensuring they’re in the best financial position from a taxation point of view. We must ask the right questions and make sure the client provides the answers. This enables us as a tax agent to cover our own bases from a professional standpoint as well. That said, 99.9% of the time, clients want you to do the right thing and are paying for your expertise to ensure they do so.”
What if a client holds back information?
If an accountant suspects a client is concealing information, which might grab the attention of the ATO, Russell advises them to act fast. “It may reach a point where, if you can't come to some agreement with the information you are trying to obtain, you can’t accept or continue to act for the client,” she says.
“However, that’s not something that I have had to face in my working life very often. Most clients want to do the right thing and they want to make sure that they are meeting their obligations up front.”
Typically, clients who get data matching letters from the ATO do so innocently because of a business or financial oversight. “They might have sold an asset that they failed to tell you about because they didn’t think it needed to be declared,” said Griffin. “They may be a member of a family trust and didn’t realise they got a distribution. Then the trust tax returns are lodged and matched with the client and suddenly they get a data matching letter.”
To minimise these oversights, Griffin Group conducts an asset review with all its clients.
“We do an asset review of our clients’ personal and business assets,” says Griffin. This annual review gives the Brisbane-based firm a sketch of their clients’ personal and business assets and their spouses, partners and dependents. “It might even be as something as simple as some eBay trading,” says Griffin. “It might start as a hobby, but over time it may grow and all of sudden, we’ve got to ask questions – ‘Oh how is that little hobby going, has it eventuated into something else?’”
“Data matching is Accounting 101 for accountants, however for taxpayers, it sounds like a much bigger issue,” says Russell. “Tax agents deal with it on a day-to-day basis, and we need to make sure the client has a handle on their tax and superannuation obligations upfront to minimise the risk of receiving a data-matching letter from the ATO and to ensure better outcomes.”
Related: Professional Standards (Limitation of Liability) Schemes
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