What’s attracting the ATO’s attention this tax time?

Enhancements in technology and data matching mean the ATO is able to detect people and businesses operating outside the tax system this tax time.

The ATO are keeping a watchful eye and looking out for behaviours, characteristics and tax issues that may raise questions and attract their attention.

Behaviours that may attract the ATO’s attention

• Tax or economic performance that is not comparable to similar businesses
• Low transparency of your tax affairs
• Large, one-off or unusual transactions, including the transfer or shifting of wealth
• Aggressive tax planning
• Tax outcomes inconsistent with the intent of the tax law
• Choosing not to comply or regularly taking controversial interpretations of the law, without engaging with the ATO
• Lifestyle not supported by after-tax income
• Accessing business assets for tax-free private use
• Poor governance and risk-management systems.

Other areas of concern…

Research and development

• Claiming R&D tax incentive on business as usual expenses that are not covered by eligible R&D activities
• How entities apportion overheads between eligible R&D activities and other non-R&D activities
• Payments to associates
• Whether or not expenses have been incurred

Fringe benefits tax

• Situations where an employer-provided motor vehicle is used for private travel of employees. This constitutes a fringe benefit and needs to be declared on your FBT return.

Note! There are circumstances where this benefit may be exempt, such as where the entity was tax exempt or the private use of the vehicle was exempt.

Self-managed super funds

• Significant management and administration expenses
• Incorrect calculation of exempt current pension income
• Incorrect treatment of related party transactions
• Personal services income diverted to SMSFs
• Incorrect treatment of non-arm’s length income

Trusts

What attracts the ATO’s attention is a complying superannuation fund (generally an SMSF) that receives income distributions from a trust where the distributions result from:

• the exercise of a discretion of the trustee
• the fixed entitlement was not acquired on arm’s length terms
• the fixed entitlement was acquired using a loan from a related lender and is not on arm’s length terms
• there are loans between related parties which are not on arm’s length terms which have facilitated the acquisition of assets within the trust
• the rate of return received by the superannuation fund from its investment is not consistent with an arm’s length return.

Lifestyle assets and private pursuits

The ATO is focusing on assets and private pursuits that generate deductions or are mischaracterised as business activities. Some of these include:

• private aircraft ownership or activities
• art ownership and dealings
• car or motor bike racing activities
• luxury and charter boat activities
• enthusiast or luxury motor vehicles
• grape growing and other farming pursuits
• horse breeding, racing and training activities
• holiday homes and luxury accommodation provision
• sporting clubs and other activities involving participation of the principals or associates of principals of private groups.

Tip! If you’re concerned about your tax or super position, speak to your tax adviser or the ATO. You can correct a mistake by making a voluntary disclosure.