Wealthy property investors facing tax scrutiny as ATO launches new tax compliance guide

Property investors with net wealth of over $5 million will face increased tax compliance scrutiny from the Australian Tax Office (ATO) following the launch of a new online guide aimed at “wealthy individuals and their economic groups with net wealth over $5 million” as well as small and medium-sized enterprises earning between $2 million and $250 million.

"With more than $74 billion of revenue collected last financial year coming from SMEs and wealthy individuals, over a quarter of all revenue collected by the ATO, it is important that we have a good working relationship with clear expectations of each other," said commissioner of taxation Michael D'Ascenzo this week as he launched the new publication Tax compliance for small-to-medium enterprises and wealthy individuals.

This is the first time that the ATO has published detailed information on its approach to managing tax compliance risks for SMEs. 

"Those risks that attract our attention include things like where tax performance varies substantially from business performance, there are inconsistencies in activity statements or spikes in refund claims, or there are large one-off or unusual transactions," D'Ascenzo says.

"By publishing information on how we assess risk and what attracts our attention, we intend to provide more practical certainty for taxpayers.

The publication also details what SMEs and wealthy individuals can expect as part of an audit and review process, how to avoid or reduce the risk of administrative penalties, it also outlines the range of options available in resolving disputes with the ATO.

The ATO says that several characteristics may attract its attention, including:

• tax performance varying substantially from business performance
• inconsistencies in activity statements or spikes in refund claims
• large, one-off or unusual transactions
• tax and economic performance varying significantly from similar businesses in the same industry
• unexplained losses
• a history of aggressive tax planning by individuals or their advisers
• weaknesses in compliance structures, processes and approaches
• tax outcomes inconsistent with the intent of tax law
• lifestyle not supported by after-tax income
• treating private assets as business assets
• accessing business assets for tax-free private use
• not disclosing offshore dealings with overseas entities, especially low-tax jurisdictions and tax havens that allow banking secrecy
• using complex structures and intra-group transactions to minimise tax
• transactions where the tax and economic outcomes are inconsistent
• poor governance and risk-management systems
• distortions and inconsistencies in market valuations and apportionments
• business performance falling outside small business benchmarks (for businesses with turnover of up to $15 million).

About 250 wealthy individuals face a review this year.

The ATO is watching 2,600 wealthy individuals but says there are a potential 3,000 who could also fit into the category.

In its overview of the SME market, the ATO says that “wealthy individuals are behind some of Australia's largest and most successful businesses.

“They employ many Australians and significantly contribute to our economy and tax revenue. They can operate their own self-managed super funds. Many take on a great deal of personal risk to build their businesses.

“Given their positions of influence it is important they do not take unacceptable risks when it comes to tax compliance,” says the ATO.

The guide can be viewed online on the ATO website.