Why the ATO is checking your Facebook page
If your Facebook feed is full of photos of lavish holidays and luxury cars but you cry poor at tax time, the tax office could have you in its sights, writes Sharyn McCowen.
The ATO is turning to improved data tracking methods as well as less conventional monitoring tactics to tighten the net on people with perceived wealth, says a leading tax specialist.
Individuals and businesses have been on high alert since the federal government announced last year its intention to raise $1 billion in new revenue from tax audit activity.
"Don't be under any misconception, the ATO is actively monitoring individuals through their social media pages, whether their kids are registered in private schools, their motor vehicle registrations and property search titles," says Murray Howlett, tax partner with chartered accountants Pilot Partners.
"With businesses they're looking for any inconsistencies in your tax filing records, whether your GST filings reconcile with your income tax filings and whatever else they can find on the public record."
Technology had made it easier for the tax office to track spending habits, including cross-border and e-commerce transactions, and many people are being caught out.
"The ATO's data tracking and interpretation capabilities have improved exponentially over recent years and they're looking to make sense of the data," says Howlett.
Taxpayers should assume the ATO has access to banking records, property titles, credit card records and even who paid their child's school fees.
The easiest way for it to cross-check is via its own records or those maintained by another government body, he says.
"For example, we know that the ATO monitors records of land and vehicle ownership, particularly when changes in ownership occur. In more recent times we are starting to see them employ more abstract methods to perform their checks.
"For example, they have run a program where they contacted private schools to understand who was paying the school fees for the students that attend.
"There was also a story doing the rounds last year of a tax audit undertaken on the basis of a seemingly wealthy lifestyle being promoted in a person's social media that appeared unsustainable based on the income recorded in their tax returns.
"I have also sat in on ATO audits where they have mentioned the number of garages at a house or business address following a street-view search on Google maps."
On one occasion, a client of Howlett was asked about the cost of renovations to his house that never occurred, after the ATO sourced draft plans submitted to the local council for approval years earlier.
Tax specialists are seeing an increase in the number of ATO inquiries stemming from these apparent inconsistencies, says Howlett.
"When they do arise, the ATO arrives with a 'please explain' letter which makes it the taxpayer's problem to prove where the money came from to avoid a tax bill."
Howlett's advice is to promptly respond to any query from the tax office.
"If the data does shows an inconsistency you need to be able to respond quickly to the tax office and explain why there's a difference," he says.
"As a general rule, be able to anticipate a query from the ATO and have the ability to shut it down swiftly. Responding quickly and appropriately sends a clear message to the ATO that you have strong systems in place."