The Australian Tax Office is targeting hundreds more of the country’s richest people as the man who replaced disgraced Michael Cranston takes a more personal approach to high-end tax avoidance.
Under the auspices of the Tax Avoidance Taskforce the team run by Will Day, the ATO’s new deputy commissioner of private groups and high wealth individuals, has been conducting one-on-one interviews with representatives of the top 320 private groups, many of whom appear in the Financial Review Rich List.
It is an entirely different approach for the ATO, which has typically relied on audit and review activity to catch cheats.
Mr Day has permanently replaced Mr Cranston, who quit the ATO after two of his children were implicated in a massive alleged tax fraud. His client group is an exclusive club. There are several criteria, but among them is having more than $350 million in turnover or more than $500 million in net assets.
Soon the one-on-one interviews will roll into the next 1200 below the top 320.
Mr Day is on the look out for things such as large and unusual transactions, the misuse of trusts and lifestyles that do not match after-tax income.
He claims the intensive, early engagement approach will not only lock in additional revenue upfront, but will save the top 320 about $29 million a year in compliance and legal fees over the next decade by keeping them out of court.
“This is a prevention rather than correction strategy,” Mr Day told The Australian Financial Review.
“We’re getting in and discussing issues with the taxpayers before they’ve formed their view on how the tax law applies,” he said.
“We can agree on tax treatment thereby avoiding future legal disputes. The benefit for us is we’re not engaged in those disputes, which saves the community through the ATO’s legal costs.”
The expanded group will get individualised attention because the ATO wants to convince the rest of the population that it has tax evasion under control, particularly in light of the fact it will soon go after work-related expenses and the cash economy.
“Coming specifically out of this program we have a likelihood that there might be some legal dispute in the future but it would be considerably less in this environment than what it would have been under a traditional audit and review type approach,” Mr Day said. “This is the beauty of the prevention before correction approach.”
The revenue authority has been on dispute minimisation path in relation to corporates for several years.
Commissioner Chris Jordan spoke about the success of the approach at a conference in Queensland in November.
“We have very deliberately ramped up our early engagement, greater use of alternative dispute resolution, and support for those who are in dispute,” he said.
“These techniques and interventions have resulted in a 61 per cent reduction in the number of actions proceeding to courts and tribunals.
“Resolving disputes more quickly has reduced time, money and angst – for taxpayers and us.”
But early resolution potentially means collecting less revenue, too.
The ATO’s latest annual report shows that 77 cases with high wealth individuals were settled in 2016.
The ATO position was that they owed a combined total of $237.2 million. In the end it collected $95.5 million, a variance of 60 per cent.
For large businesses, the variance was 49 per cent and $1.3 billion.
With the ATO “aware of community concerns that we are settling the right cases in the right way”, it has has engaged three retired Federal Court judges who assess whether settlements, mostly those with big businesses, are fair and reasonable.
According to the annual report, reviews of five major settlements found the ATO got the right outcome for the Australian community.
Details of those cases and findings will never be made public.
However, the Australian National Audit Office is due to table a report on the ATO’s use of settlements in federal parliament on Wednesday.
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