How the ATO plans to hit the wealthy: Luxury cars, trusts and offshore tax schemes are in its sights

The Australian Taxation Office has set its sights on the wealthy. As part of its 2012-13 compliance program, the ATO says it will be carefully examining “highly wealthy individuals” – and will ramp up its monitoring and auditing practices.

This will include a higher focus on luxury cars and trusts, to determine whether wealthy individuals are escaping their tax obligations.

“Australia’s wealthiest individuals often have complex business structures which can create opportunities for sophisticated tax planning,” the ATO said in the compliance plan.

“We utilise innovative data matching and risk modelling to support our comprehensive understanding of the relationships, arrangements and tax risks within these business structures.”

So what will the ATO be targeting this year?

Highly wealthy individuals

The ATO identifies anyone with a net worth above $30 million as “highly wealthy”. This year, the ATO will be targeting more of these people in order “to help them understand our compliance approach”.

Right now, the ATO monitors the compliance of 2,600 of these individuals, but it will start reviews and audits that cover more than half of those the ATO believe are high risk.

The tax office is concerned that lifestyles are being funded without relying on income in a conventional taxable form, and also that business assets are being used for private purposes.

The tax man will be scouring plenty of resources, too – including tax returns, ASIC documents, land title, motor vehicle and share registries, investment data and intelligence, and referrals for overseas tax agencies.

Just a little wealthy

The ATO will also be targeting individuals with a net worth of between $5 million and $30 million – there are about 70,000 people in this category.

Throughout the year, the ATO will conduct reviews of major business transactions to ensure everything has been performed legitimately. About 120 reviews and 50 audits are expected.

Unexplained wealth

The ATO will be using its data matching and other analysis tools to determine whether profitability and tax performance is outside the industry norm.

While it admits there can be reasons for these deviations, “larger disparities usually warrant further investigation”.

For example, unusually large expense claims and ongoing business losses could attract some attention. And if you have net worth higher than $5 million, the ATO will be looking to see whether your wealth lines up with the performance of your private companies.

“Based on our ability to estimate the net wealth of individuals controlling private groups, we may also contact these individuals to explain growth in personal wealth that appears inconsistent with tax performance or the information supplied to us.”

Luxury cars

The ATO says it will contact 45 micro businesses in relation to the luxury car tax, as well as 45 SME taxpayers to examine the importation and use of “quoting” by purchasers of luxury vehicles.

Project Wickenby

The Wickenby project is designed to catch wealth flowing into “targeted secrecy jurisdictions”, or money hidden offshore. Many of the individuals caught using these types of transactions are wealthy and, so far, it’s been a success – in the past six years Wickenby has raised $1.3 billion in liabilities and $600 million in collections.

This year, Wickenby will continue to source intelligence from different areas, progress with casework for about 300 audits and reviews, and take follow-up action including 20 comprehensive risk reviews and audits, as well as a targeted letter campaign.