ATO benchmarks trap little guy
WHEN I studied tax law in the late 60s or early 70s, it was the old 1936 Act as amended and was at most three-quarters of an inch thick.
A night's reading!
Now, I'm told it's 13,000 pages long - and that doesn't include the case law, ATO determinations, ATO warnings, ATO ruminations and various other examples of ATO verbal diarrhoea.
It's now reputedly the most complex in the world. And it's getting worse.
I have been known to describe it as a cut and paste job, a patch job on legislation that is seldom drafted well enough to enforce its initial goal.
The result is a complex mish-mash of draconian laws, varied and/or qualified by sub-texts whose intention is to stop leakage by people cleverer than the public servants charged with drafting the stuff.
My senior staff each year attend a seminar conducted by the National Tax and Accountants' Association.
It gives us an insight into what the legislators and the ATO heavy hitters are getting up to.
The days when ATO auditors got off their ergonomic chairs and actually wandered the streets looking for the signs of tax avoidance are over.
We are in the "matching" era, the era of cross-referencing. Here's a couple of things affecting businesses that you and your accountant may be unaware of.
The ATO has a long, long history of trying to kill the cash economy, the situation where businesses do not declare their true income.
The trend now is that they assess businesses' declared income against what is called the "industry benchmark" and arbitrarily issue an amended assessment to those who fall outside, challenging the business to prove that their declared income was correct. The worrying thing for business is that the courts are supporting the ATO's approach.
Their argument is that the tax system is a self-assessment system so the onus of proof falls on the taxpayer; if the taxpayer declares a certain income, he should have the paperwork to support its credibility.
My firm has software that tells us whether a business is in peril of failing the ATO benchmarking test. Forewarned is forearmed, while I'm in the mood for clichés.
Crooks do not have my sympathy and I encourage the ATO to chuck the book at them.
The problem is that innocent people who don't conform with what the ATO sees as sacrosanct benchmarks will have to spend valuable time defending themselves against what really boils down to nebulous numbers.
Another example of the ATO using its huge data resources to trap taxpayers is their accessing loan applications.
You guessed it, if you declared a certain level of income in a loan application and that is not matched in your tax returns, you have every right to be concerned.
The ATO is issuing amended assessments which reflect what you told the financier and I'm sure the courts will support them on the same basis - that our tax system is a self-assessment system.
We had a recent experience in our Caboolture office where a small business client was audited. Rather naively I thought, the auditor went about matching bankings with her records which, in this case was a simple cashbook. Why naively? Because true ripper-offerers are never going to bank their ill-gotten gains.
The system really is all about trapping the small players. History shows that they are much more likely to surrender than the big guys with access to highly expensive accountants and lawyers.