Coupled with an upcoming federal election in Australia1 and a focus on decreasing the size of the federal budget deficit, the Australian Taxation Office (ATO) has been increasingly active with its GST compliance activity.
This increased level of ATO compliance activity primarily involves GST assurance reviews, risk reviews and audits which have focused on specific technical issues and integrity of business systems. As such, taxpayers operating in Australia (including non-residents) should:
- Be acutely aware that the ATO is increasingly active in ensuring that taxpayers are complying with their GST obligations.
- Proactively review their GST risk management policies, processes and procedures in preparation for potential ATO compliance activity.
Risk differentiation framework
To maximize its limited resources the ATO utilizes a risk differentiation framework (RDF), similar to those adopted overseas, to assess, identify and target taxpayers most at risk of non-compliance. Under this approach, the ATO uses a number of different quantitative and qualitative measures to determine its view of a taxpayer’s risk of non-compliance to categorize them into four quadrants: higher risk, key clients, medium risk and lower risk.
This risk rating then determines how the ATO approaches each taxpayer. In respect of GST, taxpayers are currently in the process of being informed of their most recent risk rating and the ATO has moved quickly, in combination with various data matching techniques, to begin selecting taxpayers for various levels of GST compliance activity.
Key GST focus areas
Key GST focus areas outlined in the ATO’s Compliance Program include the following:
- Using data matching and information sharing to verify GST refund claims and detect taxpayers who do not comply with their GST obligations. This has been most often used to select, in real time, taxpayers for GST compliance activity.
- Reviewing the integrity of a taxpayer’s business systems, processes and procedures to ensure the accuracy of GST being reported. The ATO has been extremely active in this area and is increasingly using computer assisted verification techniques to assist their compliance activity.
- Assessing taxpayers in the property sector for the appropriate GST classification of property transactions, application of the special margin scheme provisions and denial of GST credits for acquisitions in relation to property sales.
- Assessing taxpayers which make financial supplies and M&A transactions to ensure GST credits for related purchases have been appropriately denied.
- Reviewing the GST treatment of international transactions and import goods (including online transactions).
The ATO is increasingly active in ensuring that taxpayers comply with their GST obligations. Taxpayers operating in Australia (including non-residents) should review their GST risk management policies, processes and systems ahead of any compliance activity.
1 The Prime Minister has announced that the federal election will be held on 14 September 2013.