Letters are being sent out to Australian taxpayers who have fallen foul of the ATO's data-matching system. Don't fret if you get one.
Receiving one of these letters doesn't mean that the taxman is coming to to destroy your existence - it just means that something doesn't line up with your tax return and you're being given a chance to fix it.
What is ATO data matching?
The Australian Taxation Office (ATO) collects over 650 million pieces of data from organisations that have a legal obligation to report your tax information, organisations such as: banks, employers, health insurers and government agencies.
They also collect 'special purpose acquisition data' from other sources to address special projects or risks. Basically the ATO is looking at places where people are likely to have income and that includes services like Airbnb.
"This tax time we have increased our investment in our analytics capability and we will be closely scrutinising more returns than ever before for missing income. We use our sophisticated analytics to match data provided by third parties with what taxpayers report to us on their return," says Kath Anderson, ATO Assistant Commissioner.
This data is used to form a picture of people's expected tax returns to pre-fill tax returns and spot any false or erroneous claims. That's where these ominous sounding letters come in.
An increasing number of discrepancies are being addressed with around 250,000 letters sent in the last year. The ATO can also adjust returns before they're finalised to speed up the process.
"During July this year we have already adjusted over 50,000 returns to include missing income before we finalised the return. This provides a much better experience for our clients as they don’t receive a refund and then later receive advice of an adjustment. Of course, we can only do that where we have the information at the time. For others, we will need to follow up later."
Data matching letters are typically sent out a year after the claim has been filed and will give details about the discrepancy between your filed claim and the ATO's records.
You will be told the financial year that the discrepancy occurred, the nature of the discrepancy and how to contact the ATO if you wish to dispute it.
What to do if you receive a letter
"If you are contacted by us, don’t panic. We will work with you to help you understand your obligations and get your affairs right," says Anderson.
It's important to read the letter and address the problem immediately.
"Ignoring letters from the ATO means we often need to make decisions based on the information we have, this will often result in debts and penalties that otherwise wouldn’t happen where you can explain and talk to us about the discrepancy we are looking into."
Either you can accept the discrepancy or dispute it. Accepting the discrepancy is simple, the data matching system will automatically reassess your tax return in 28 days if no action is taken after the letter is sent. However interest on outstanding money owed and penalties may apply so you should still contact the ATO in order to address these as soon as possible.
If you believe that you've filed your taxes correctly and that the letter was sent in error, you can contact the ATO using the details on the letter with evidence of your claim. Supporting documents typically include PAYG summaries for income or receipts and other proof for deductions.
Each year, the Australian Tax Office sets its focus on particular areas they'll be honing in on as they review tax returns and where we're trying to reduce our taxes. This year is no different with cryptocurrency earnings, money made from new platforms like Uber, home office expenses and work-related claims on their hitlist.
You will be notified in writing if any debt or penalties apply as a result of this data matching.
"For most clients the result is a debt owed to the ATO, and also interest on the amount they owe," says Anderson.
"Where we suspect the omission of income was a deliberate decision and potentially a way of avoiding tax we allocate the case to our compliance staff, who not only look at missing income, but all parts of the return. Clients who have deliberately not reported income often have penalties imposed as well, which can be as high as the 75% of what you owe."
These penalties can be subject to relief at the ATO's discretion. Relief does not apply if you've received penalty relief in the last three years or have been convicted of tax fraud or evasion.
"Our best advice is to avoid issues by taking a little extra time when you prepare your return."
If you think you've made a mistake when filing your taxes, you shouldn't wait for the ATO to get in touch with you. Hop onto MyGov or contact your tax agent to make an amendment.