Jamie Roberts
Introduction
In the 2013–14 Budget, the Australian Government committed to provide the Australian Taxation Office (ATO) with a further $145.7 million over the forward estimates to fund two separate tax compliance initiatives.[1] These two measures are expected to yield an additional $989.2 million in revenue over the same period.
These measures are in addition to a wider suite of compliance initiatives which have provided the ATO with substantial amounts of money over the previous few years. Although the importance of sophisticated compliance programs cannot be underestimated, it is unclear why these particular measures specifically require additional funding to be provided to the ATO – especially since the ATO is already expected to allocate resources to combat the most significant compliance risks within the tax and superannuation systems.
Nevertheless, if the expected yield on investment is able to be realised, the relatively small outlay to fund these two measures may nonetheless be appropriate.
Targeting the misuse of trusts
The first measure will allow the ATO to specifically direct resources to investigate those individuals and entities which may use trust structures to inappropriately minimise their tax positions. This measure will fund the operation of a Trust Taskforce which, in conjunction with Project Wickenby, is designed to respond to instances of aggressive trust-related tax avoidance and evasion. [2]
This measure is in response to ‘[e]merging evidence [which] … shows a significant increase in the level of trust-based non-compliance’.[3] This funding will enable the ATO to examine the use of trusts to hide income, mischaracterise transactions, and otherwise conflate amounts of trust income – all of which are techniques that individuals and entities are known to employ to minimise their tax.
This compliance initiative comes during a time when the Australian Government has been actively seeking to modernise how trust income is taxed. The Assistant Treasurer and Minister Assisting for Deregulation has previously acknowledged that the taxation of trust structures ought to be much simpler and more streamlined, and in October 2012 he released an options paper canvassing a variety of reform options in this space.[4]
One of the key policy objectives enunciated in this options paper was that tax liabilities in respect of trust income should always attach to the entities that receive the economic benefits from the trust.[5] This is an acknowledgment that individuals and entities are currently able to exploit trust structures for income (and therefore tax) purposes, and that reform is needed to redress this inequity in the tax system.
Until such reforms are settled and implemented, there is little doubt that robust compliance activity is needed to crack down on the misuse of trust structures. This measure ought to enable the ATO to effectively target all those parties involved in improper tax minimisation through trusts, and either protect or recover a very large amount of money ($379.0 million over the forward estimates) that would have otherwise escaped collection as consolidated revenue.
Enhancing third party reporting and data matching
The second measure will provide the ATO with additional funding to expand its data matching and third party reporting capabilities. The ATO acknowledges that its main tool for detecting non-compliance with the tax law is the analysis and matching of information which it receives from taxpayers and third parties (such as financial institutions).[6] This measure is aimed at strengthening the reporting systems which the ATO already has in place, and establishing new reporting systems as required.
The ATO intends to develop and utilise reporting systems that will monitor, among other things, the payment of government grants, the sale of real and intangible assets, sales through merchant debit and credit providers, the distribution of partnership and company moneys, and the payment of interest income. Targeting these particular areas of compliance is expected to result in a $610.2 million gain to revenue over the forward estimates.
As mentioned above, there have been other instances in recent times where the ATO has been provided money to facilitate particular compliance-related activities. For example, $58.3 million (through to 2014–15) was provided to the ATO in the 2011–12 MYEFO to improve its data matching capability to ensure better compliance with the tax system. This measure was expected to yield $436.4 million over the same period.[7]
It is unclear if and how this earlier measure interrelates with the current budget measure, given that they essentially serve a similar purpose, over a similar time period, and each is estimated to contribute significant and separate amounts of money to consolidated revenue. Notwithstanding this, if further gains to revenue are available, this additional funding may nonetheless be warranted.
[2]. Project Wickenby is a multi-agency taskforce which, since 2006, seeks to protect the integrity of Australia’s financial and regulatory systems by preventing people from promoting or participating in the use of tax havens; Australian Taxation Office, Compliance program 2012–13, July 2012, p. 33, accessed 21 May 2013.
[5]. Taxing trust income – Options for reform, op. cit., p. 7.
[6]. Compliance Program 2012–13, op. cit., p. 2.
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