Focus for the year ahead
The release of our Compliance program 2011-12 last month outlines key risk areas for us in the year ahead and the strategies we will be using to reduce these risks. Our compliance work, which includes both assistance and enforcement, supports and protects honest taxpayers and their agents.
An area of continued focus for us this year remains work-related expense (WRE) claims. As our ‘100 People’ analysis shows over recent years WRE claims have grown by around four per cent with eight million people claiming around $16 billion in deductions. We will be paying close attention to claims made by real estate employees, carpenters and joiners, earthmoving plant operators and flight attendants. We are finding some common mistakes in these occupations relating to claims for car and travel expenses and incorrectly claiming home office, mobile and internet expenses.
We recently wrote to around 116,000 people employed in these occupations to tell them about the types of things they can claim legitimately and about the help and assistance we have available to get their claim right. This is an example of our ‘prevention is better than cure’ strategy.
Update on benchmarks
This year, we will also continue to use our small-business benchmarks, helping us identify businesses that may be avoiding their tax obligations.
The benchmarks have given rise to considerable feedback from your profession, which has led to improvements to the program. For example, based on feedback we have simplified our phone reviews by reducing the number of questions from 40 to around 10.
Agents have also told us that they wanted to be made aware of any communications we make to their clients, so we will now first contact tax agents if their client has nominated them as the contact. We are also in the process of extensively testing our letters with both agents and business owners to ensure our messages are hitting the mark.
As you know these benchmarks are set out as a range to cover the many differences that can occur in the running of individual businesses – for example location, or strategies based on low margins and higher turnover. Most small businesses want to do the right thing. We have only identified around 46,000 small businesses that are sufficiently outside the range sufficiently for us to ask why. The next step is to look at the operation of the particular business to determine whether there is any under reporting of income. In some of the cases that we have already examined, the business claims to have no records to prove or disprove the bona fides of their business performance.
By law, businesses need to keep sufficient records to explain their tax position and they bear some responsibility of providing a reasonable explanation of their circumstances, particularly if they cannot reconcile their personal expenses with their sources of income. If there is good reason to be outside the benchmark and the business records confirm this, generally no further action is taken.
The small-business benchmarks are an important way small business can compare their performance against similar businesses and check they are meeting their obligations. For those businesses that are genuinely struggling to survive, they can provide a reality check as to the viability of the business. We at the ATO are empathetic to the needs of struggling businesses, and have worked with organisations such as beyondblue to facilitate access to people who may be able to help at a personal level.
Towards a greater level of understanding
Getting to know more about your profession, including understanding how the behaviours of its members influence the willing and proper participation of others in Australia’s tax and superannuation systems, will be a focus for us in the year ahead.
Working with the profession we hope to be able to develop a framework that will allow us to better target our information, products and services as well as better targeting our compliance approaches.
New system in place
Finally, as you know, last year we replaced our 30-year-old national taxpayer system, the largest undertaking in our history and possibly the largest in Australia, involving over 32 million accounts. Any major change of this nature inevitably has short-term impacts, including an even longer bedding-in period.
For us, the challenge was even greater as we entered into new contracts for centralised computing, managed network services and end-user computing.
Together these changes, which position us well for the future, can give rise to instability in the short term. Apologies for this, but we have been working hard and are quietly confident that we will have a successful tax time 2011.
