According to the ATO, the purpose of data-matching is to ‘maximize voluntary compliance’ and ‘to deter, detect and address non-compliance’. In recent years, the ATO has, in particular, targeted industries in the ‘cash economy’ in its effort to ensure fairness and transparency in tax collection.
The way the tax system works in Australia is based on what the ATO calls a system of “self-assessment”. What that means on the surface is that the ATO relies on everyone providing all the information the ATO needs to work out how much tax we will pay. The data we provide to the ATO is accepted by default as being relevant and complete and the ATO does not check the figures on everyone’s tax return.
But we all know the ATO will check up on the facts and the current weapon the ATO uses is what is called “data matching”, which is as its name suggests and involves comparing information that the ATO has been given with data that other government or financial bodies hold. Small Businesses should be aware that the ATO is extremely active in its data-matching compliance program, with improvements in technology and the increasing incidence of online transactions, the ATO can cross-check our information quickly and efficiently.
The ATO can, and will, check your bank accounts, cross reference payments against an ABN and confirm missing income from your tax return. If anyone deliberately tries to hide undeclared income and the ATO’s data matching process reveals discrepancies, then the ATO will take further action which may include an audit, penalties and, in extreme cases, imprisonment. In 2009 alone the ATO’s data-matching program collected an extra $260 million in tax revenue.
Agencies that carry out data-matching must comply with the Privacy Act 1988 (Privacy Act). Some data-matching between certain agencies to detect incorrect payments is also subject to the requirements of the Data-matching Program (Assistance and Tax) Act 1990 (Data-matching Act) and relevant guidelines.
Sources of Data
The ATO has the legislative power to acquire data from the following sources:
- Australian Securities and Investment Commission
- Banks, Financial Institutions & Investment Bodies (CBA, NAB, Westpac, ANZ, etc.)
- Credit/Debit Card Providers(American Express, Diners Card, MasterCard, Visa)
- Online Sale Websites(eBay Australia, Trading Post Australia)
- Share Registries (ASX, Computershare, Link Services)
- Government Agencies (Centrelink, Child Support Register, Medicare)
- State & Territory Revenue Offices
- Industry Bodies(Qld Building Services Authority)
- Motor Registries
What type of data is collected?
Many different types of data are collected by the ATO and the scope of the agency’s investigation is growing. Australian banks and other institutions that provide your information to the ATO are legally required to do so – and now the ATO is extending this reach overseas as well. So nobody should imagine that his or her financial affairs are a secret with the ATO.
Some examples include data collected on:
- credit and debit transactions from merchants
- online seller transactions (>$20,000)
- income received from shares
- share disposal transactions
- motor vehicle sales, transfers and registrations
- reported Centrelink income
- government assistance payments received
- industry benchmark information
- Industry licensing information (eg. Building industry)
- Purchase information from suppliers (eg. Building industry, Coffee industry)
If you’re in the wrong, you can fix it.
The ATO offers “voluntary disclosures” if you’ve done the wrong thing and you want to own up to it. Your tax accountant can offer advice on amending your tax return to reflect your actual income (although, it’s better to just do it the right way to begin with.) ATO data matching technology is here to stay, which will become another reason that Australians choose to get tax agent’s to help lodge their annual returns correctly.