New data reporting regimes for tax compliance will extend ATO's reach

Data-matching by the Tax Office is now a well entrenched feature of the Australian tax landscape. It seems that almost not a week goes by without an announcement of some new Australian Tax Office data-matching project.

Data-matching is not about to stop. In fact, it will expand and a new proposal from the government will see new reports submitted to the Tax Office. Oh joy – another report to be done!

In November last year, the government announced its intention to proceed with the 2013-14 budget proposal by the former Labor government to improve tax compliance through third party reporting and data-matching. The proposal is designed to improve taxpayer compliance by increasing the information reported to the ATO by a range of third parties through the introduction of new reporting regimes. It is also proposed that this additional information would allow the ATO to offer an enhanced pre-filling service to taxpayers. The proposal is currently scheduled to commence from July 1, 2014 (although first reports would not be due to the ATO until after July 1, 2015).

In last year's federal budget, the former Labor government announced it would provide funds to the ATO to improve compliance for taxpayers by expanding data-matching with third party information.

Treasury has now released a discussion paper on the proposal. It notes that some of the elements of the proposal can be implemented by the ATO changing its administrative practices whereas others would require tax law changes. The paper only relates to those elements requiring legislative change.

This would involve the creation of new third party reporting regimes in relation to:

• sales of real property – To implement this proposal, the ATO would need to receive the following type of information for each real property transaction: vendor and purchaser name; vendor and purchaser address;  vendor and purchaser date of birth (for individuals); vendor and purchaser Australian Business Number or Australian Company Number (for entities); property details, including ID and address; property type (eg residential, commercial, new residence or vacant land); contract date; settlement date; and  consideration and any other costs and charges. The reporting of property information would not necessarily be restricted to an annual report. The likely reporting entities could be State and Territory Land Titles and Revenue Offices;

• sales of shares and units in unit trusts – Sales of shares in companies and units in unit trusts may give rise to income tax (including Capital Gains Tax) consequences. Initially, the proposed reporting regime would apply to transactions for shares in companies listed on a recognised stock exchange. However, going forward, the paper says it may be possible and necessary to bring sales of "private company" shares within the reporting regime. To implement the reporting proposal, the ATO would need to receive the following type of information in relation to each share transaction: shareholder's name, address and date of birth (if applicable); shareholder's Tax File Number, ABN or ACN (if applicable); TFN withholding tax code; "non-resident indicator" in respect of the shareholder; company name and Australian Securities Exchange code, and the CHESS and internal registry reason codes; shareholder's account holding number (Share Reference Number/Holder Identification Number) (if applicable); acquisition and disposal dates, prices and quantities; incidental costs (such as broker's fees); and any capital returns or payments and the associated dates. Those most likely to have ready access to the required information would be the "market participant" executing the transaction, the clearing house provider used by the market participant to facilitate the transfer, and the Share Registry maintaining the company's share register (particularly in relation to "off-market" transfers);

• sales through merchant debit and credit services – To implement this proposal, the ATO would need to receive the following type of information: merchant name, address and ABN or date of birth; all monthly purchase/sale amounts from credit card and debit card transactions; and all monthly cash out amounts. The reporter would be the entity that provides the payment facilities to the merchant. Traditionally, this has been financial institutions that operate in Australia’s payment system and are attached to card schemes (eg financial institutions and banks providing such services). However, the expansion of the e-commerce market has impacted the methods consumers use to purchase goods and services. Under this proposal, where an entity provides merchant payment facilities for debit and credit payments, they would need to report to the ATO; and

• taxable government grants and other payments – To implement this proposal, the ATO would need to receive the following type of information for each grant or payment recipient: ABN (for grants and payments made to businesses); TFN or date of birth (for grants made to non-business individuals); full name; address; gross amount paid; total GST (if applicable); BSB and account number; and other contact details such as phone number or email address. All government entities including federal, state, territory and local government bodies that make grants and payments are likely to collect some of this information.

In respect of the above, the ATO would initially seek to receive annual reports and then seek to move to quarterly, monthly or "real time" reporting.

The paper sets out a preliminary set of law design principles that could form the legislative basis for the new reporting regimes. However, it notes that the final form of any draft legislation would depend on the final form of the policy design and this, in turn, will be informed by the outcomes of the consultation process. Accordingly, the government says it is seeking feedback on policy issues and, in particular, and SMEs should take note, the compliance cost impacts of the proposed reporting regimes.

The proposed reporting regimes would be designed so that in most cases third parties would only need to provide information to the ATO that they receive or record in the ordinary course of their business or operations. That's fine, but it doesn't mean a third party won't incur costs in reporting the new information. However, as an effective third party reporting regime depends on the ATO being able to match the reported data to the relevant taxpayer, some additional identifying information may be required.

For individuals, the minimum amount of identifying information needed to provide high confidence identity matching for tax purposes is their name, address and either date of birth or TFN. However, it is important to note there are tax and privacy law restrictions on requesting, recording and using TFNs which would need to be taken into account when considering the use of TFNs in these proposed reporting regimes. For business taxpayers (including individuals in a business), the minimum information is name, address and either an ABN, ACN or TFN.

Whilst it is likely that many of the proposed reporting entities currently collect an entity's unique identifiers in the ordinary course of their activities, there may be some that do not. The paper says these entities would be required to collect this additional information and report it to the ATO under the proposed reporting regimes.

SMEs should note that comments on the Treasury paper are due by March 11, 2014, with details on the Treasury website.

The range of data being collected by the Tax Office is ever expanding. Businesses should not underestimate the use to which this data will be put. It's trite to say, but Big Brother is alive and well – even if that data does help with the pre-filling of tax returns.

Terry Hayes is the editor-in-chief of tax news reporting at Thomson Reuters, a leading Australian provider of tax, accounting and legal information solutions.

This article first appeared on SmartCompany.