Are the ATO fishing for money? We are currently seeing a trend from the ATO today whereby they are relying not only on the use of positional papers but are also heavily reducing their own work by pushing the onus of responsibility back on the taxpayer to prove their position in relation to any queried tax position. We have observed this on three occasions within Brisbane and on several occasions at the Gold Coast offices (I have not queried the other offices to date). Now while I don’t see a significant problem with the ATO requesting a taxpayer to provide supporting documents to reinforce their claims in relation to the application of tax laws or the declaration of income, I do have a significant problem when the ATO makes no attempt to understand a clients position, or simply relies on the hope that a client will just give in to them and pay the additional tax they have determined – is this attitude falling inline with the common knowledge that tax officers are being paid bonuses on how many taxpayers they can catch-out and how much additional tax they can raise and collect?
On the 3 occasions I am aware of –
1. The taxpayer was an individual – nurse – who used a tax agent and claimed, on the tax agents advice (not anyone in the BBW Group), a large number of deductions – some of which where very unlikely to meet current legislative requirements to be deductible. When the ATO identified her for audit, we took over the job and immediately declared to the ATO the deductions that we did not think she could claim. The ATO disallowed almost all deductions. We subsequently provided further support to our claims and once again the ATO denied all claims. Ultimately we lodged an objection and the matter was overturned in our favor. It was very clear that all the claims we had made were reasonable and well supported – the ATO was simply crabbing money and hoping the taxpayer would not object – which she almost did not (out of fear of reprisal), however we convinced her to try.
2. Two taxpayers operated a trust (husband and wife) – some years it made losses and some it made profits – overall, over the last 5 years it has operated at a loss. The taxpayers have declared nil income in each of the years in their individual names. The Trust has now been liquidated. The ATO undertook an audit of the individuals and asked for copies of all personal bank statements, loan statements and credit cards. While it is clear the client has been living off the home loan, the ATO have sent position papers stating they are to be assessed on all monies that have come into their accounts from all sources with no adjustment for money going out of the accounts (he would move the gross income of the trust to his loan account and then back out to pay off business expenses in the trust) – simply put they wish to assess them on nearly $1.5m – when clearly they earned nothing and lived off loans secured on their home. This matter remains unresolved, however the ATO have stated “…this is just our position (18 pages), this is not the conclusion of our audit, we just want to know what you think…”!!
3. The final one is a super fund – long story short, a position has been put to the ATO regarding loans for a geared commercial property where the ATO feel that one of the loans was used by the super fund to undertake improvements on the commercial property – when in fact the loan was used by the tenant (related to the SMSF) to undertake the improvements (fit-out) of the commercial property, not by the SMSF. The ATO’s current stance is to ignore all information provided and argue the fund is non-complying, but will allow the fund to complete an enforceable undertaking to sell the property and pay out all loans – a little hard to pay out a loan using super funds money when the loan is clearly in the name of and part of a related party – however the ATO’s approach is for us to prove otherwise and to take it to an objection level.
So, this is clearly a very dangerous stance from the ATO and one which we must warn clients about – it would be in the best interests of all clients to be seriously considering audit insurance.