DATA MATCHING – BE ON YOUR GUARD
There was an article in the AccountantsDaily on the 22nd of July referencing the linkages between Centrelink and the ATO and the targeting of those incorrectly claiming both social security benefits and JobKeeper payments. This instance is a recent occurrence – fortunately JobKeeper has not been around that long. What has been in place for a much longer time and growing in sophistication all that time is the ATO’s increasingly sophisticated program of matching data to other organisations. For the purposes of this discussion the Centrelink reference is interchangeable for the major banks, other government departments, the land titles offices in each state and so on. There have been dividend and interest matching programs conducted by the ATO that the writer remembers from the distant past – the days of big pizza box sized magnetic tapes being received from the major bank. The matching in those days was difficult; less data was held by organisations and the computing power was negligible.
From an ATO business perspective automated data matching makes great sense. Pre-fill information saves the time and money required by checking the information disclosed in a return. As an indicator or starting point for compliance activity the matched data has no equal. Arguably the ATO may be looking to automate the total audit outcome using these means, and in most cases they may be justified. However, DTC would contest that in many instances there may still be a “slip twixt cup and lip”. Firstly, errors may still occur, secondly there could be a contestable argument that a client may advance even in the face of evidence that is seemingly incontrovertible. A risk hypothesis (a basis for a compliance activity) – would run something like this. “This dividend has not been included in your return, or you would appear to have sold a property but there is no evidence of a capital gain having been returned” – it is not automatically an adjustment or an assessment amended in the Commissioner’s favour. We will return to this later.
Accountants and tax agents are on the receiving end of the continuing data matching push. This point was made very clearly at a recent CPA webinar conducted by Accountancy Insurance. This specialist insurer, who covers close to 200000 client groups, therefore has a significant amount of data to support their arguments. Two very experienced Directors of the firm related to listeners that an ever-increasing factor driving ATO audit insurance claims was the instance where the driver was a data connection made between a third party and the ATO. Speaking of drivers, the use of Vic Roads camera information was used in a recent compliance activity I was involved in; why was a business vehicle being used extensively on the weekend and was that use reflected in the logbook?
DTC would suggest that most accounting firms are no longer surprised when the ATO data matching are issues “please explain within 14 days or we adjust your return” correspondence or an ATO auditor comes knocking. For a range of reasons the client may not have informed the adviser that income was derived from a certain source. There is every chance that you will need to sort it out. Sometimes the client may even suggest or infer that this is your fault! “You should have told me that I received this interest and you should have included it in my return.”
Accountancy Insurance are also a very useful means of protecting your clients across all ATO generated issues, including those that may arise unexpectedly.
IS IT ALWAYS CORRECT?
Data matching can still point to the wrong person or match an owner of a property incorrectly. Most of the time this can readily be contested. Sometimes the data matching is partially correct. Interest can be recorded against individual clients but has been declared in the self-managed superannuation fund or trust and in most instances this will be accepted as reasonable by the ATO, with the proviso that the records be updated to reflect the correct income recipient.
IS IT AN AUTOMATIC ADJUSTMENT TO YOUR CLIENT’S ASSESSMENT?
DTC suggests that even if the initial data match is accurate the outcome from the ATO’s standpoint may be a Risk Hypothesis, not an adjustment. This is fair, there is a case to answer. Sometimes the ATO compliance team are reluctant to accept this. These are more complicated issues and so require a greater level of consideration.
For example, a rental property, especially that which is not currently tenanted, is supposedly actively advertised by all available means in order to claim deductions. (A situation common in holiday destinations.) This may suggest that several real estate agencies are engaged in putting the property before the market. Conversely this role may be performed by on on-line agency. The example considers property owner A going through the motions of making a property available through one agent (channel) where property owner B is actively pursuing a rental but happens to be using one channel. In both instances the client purportedly uses one advertiser. In the first instance the ATO views client B as not ensuring the property is available for rental for the nominated period and unfortunately is sometimes unremitting in mistaking a hypothesis for an adjustment.
As we have suggested in the great majority of cases the ATO is correct and can lead directly to a debit amendment or a soundly based risk hypothesis. To actively manage client expectations then and reduce your stress it may be useful to consider or research where these differences are occurring. From that point incorporate relevant example-based questioning could be included in the firm’s tax preparation interview instructional material – e.g. how many shares do you own? did you sell any? did they pay dividends? This approach would be like that suggested by the Tax Practitioner Board earlier in the year and that we commented on. The TPB guidance pointed to a questioning process which we highly commend.