How the ATO is matching info to catch out tax cheats

About 300,000 Australians who may have made purchases of luxury cars, private jets, yachts, thoroughbred horses and artwork are being warned by the Australian Taxation Office (ATO) to declare all their income or they could face a review or audit.

“This isn’t a game of Monopoly where you can roll the dice and avoid the income tax box,” ATO assistant commissioner Tim Loh told ABC News.

“We’re getting data from various sources, and we’re using data and analytics to run eyes over the data to see if we can find information where people aren’t declaring their income or overstating their deductions.”

The ATO has extended its lifestyle assets data-matching program for the 2020-21 financial year through to 2022-23.

This will allow the agency to obtain insurance policy information for assets including motor vehicles with values of $65,000 and above.

The ATO will also get records of thoroughbred horses valued at $65,000 or more, marine vessels worth $100,000 or more, fine art worth $100,000 or more per item, and aircraft valued at $150,000 or more.

By obtaining data from 25 insurance providers, the agency expects about 300,000 individuals to be identified each year.

The ATO will be able to hold that data for a period of five years, allowing it the ability to go back some years to cross-check information during a potential audit.

“What we are trying to do is marry that up with what income they [the taxpayer] is declaring,” Mr Loh said.

How data matching income with assets works

Tim Loh sitting in a foyer in deak grey suit
ATO assistant commissioner Tim Loh says the ATO is using data from insurers to cross-match what taxpayers declare on their tax returns. (Supplied)

Mr Loh said the information would allow the ATO to identify those who were being dishonest and declaring insufficient income in their tax returns despite accumulating assets.

He said if the person was declaring a very small amount of income relative to their assets, that would raise a “red flag” that would likely prompt further questioning.

He gave an example of a person buying a $200,000 boat but only declaring $25,000 in annual income.

“We’re going to be asking questions pretty quickly [if] someone isn’t declaring all their income in their tax return,” he said, adding it could result in an audit.

“We want people to do the right thing – it’s really important that the taxpayer correctly meets their obligations.”

The ATO logs more than 600 million transactions annually from a wide range of public and private third-party sources.

The extension of the lifestyle assets data-matching program comes as the ATO increasingly relies on data matching to ensure people are meeting their tax obligations in relation to other areas, including on crypto currency.

Alistair Kroie Bitcoin Image
The ATO is increasingly relying on data matching to ensure people are meeting their tax obligations in relation to a range of areas including on cryptocurrency. (Source: Alistair Kroie, ABC)

ATO casts ‘wide net’
CPA Australia senior manager of tax policy Elinor Kasapidis said lifestyle assets data matching went well beyond just wealthy people.

Elinor stands with hands on hip wearing a black dress
Elinor Kasapidis says the data-matching program could catch out many Australians, not just the super wealthy. (Supplied)

“The monetary thresholds are set low enough to capture large numbers of taxpayers with money for discretionary spending,” Ms Kasapidis said.

“This approach casts suspicion over a wide net of Australians.

“Arguably, the ATO has become too focused on catching people out and not enough on facilitating the transfer of information to taxpayers.”

She said to ensure better compliance, the ATO could refocus efforts on increasing pre-filled information in tax returns.

“Putting the taxpayer in control of the data is a better way to achieve tax compliance,” she argued.

“Australia is becoming increasingly digitalised. The ATO’s access to digital information is only going to grow. We’re not saying don’t capture information from third parties but, rather, use it to help taxpayers accurately report their tax liabilities.”

Ms Kasapidis said there was also a question about “where we as a country should draw the line on the ATO’s access to information”.

“The government is heavily motivated to promote revenue collection and unlikely to draw a line in the sand,” she said.

While it was “good that tax evaders have fewer places to hide”, she asked, “how much access to information is too much?

“At what point have we created big brother?”

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