How the ATO uses data matching

The ATO’s ability to match and use data is very sophisticated.

It collects information from a number of sources, including banks, other government agencies and industry suppliers, and also obtains information about purchases of major items, such as cars and real property.

This information is then compared against income and expenditure that businesses and individuals have reported to the ATO.

The ATO uses this information to identify businesses that:

  • Have told the ATO they no longer operate when they still do;
  • The ATO thinks are operating outside of the system;
  • Are cash-only, or mainly deal in cash transactions; and
  • Under-report their real income.

Example: Unrealistic personal income leads to unreported millions
The income reported on their personal income tax returns indicated that a couple operating a property development company didn’t seem to have sufficient income to cover their living expenses. The ATO found their company had failed to report millions of dollars from the sale of properties over a number of years. A large portion of unreported income had been lost through gambling and significant funds had been sent to an overseas bank account. The couple and their related companies had evaded paying tax of more than $4.5 million.

They had to pay the correct amount of tax based on their income and all their related companies, and also incurred a variety of penalties, including:

  • administrative penalties (a minimum of 75% of the tax assessed on the returns that had not been lodged); and
  • false and misleading statement penalties (because of their intentional disregard of their tax obligations and lack of cooperation during the audit).

Example: Data matching uncovers hidden income
A Melbourne restaurant owner was found to have discrepancies between the business’s reported income and the data the ATO received from their bank.

The owner was given the opportunity to let the ATO know if they had made any errors before the commencement of an audit, so after consulting their bank and tax agent, they advised that the business had failed to report their entire turnover.

Following discussions, the business owner made a voluntary disclosure correcting the business’s tax returns for three financial years, resulting in unpaid tax of over $750,000.

The ATO accepted this as reasonable because, based on the small business benchmarks, it was equivalent to other businesses in the same industry with the same turnover range.

Example: Failing to report online sales
A Nowra court convicted the owner of a computer sales and repair business on eight charges of understating the business’s GST and income tax liabilities.

The ATO investigated discrepancies between income reported by the business and amounts deposited in the business owner’s bank accounts, and found that the business had failed to report income from online sales.

The court ordered the business owner to pay over $36,000 in unreported tax and more than $18,400 in penalties. The owner was also fined $4,000 and now has a criminal conviction.

Get it in writing and get a receipt
The ATO also notes that requesting a written contract or tax invoice and getting a receipt for payment may protect a consumer’s rights and obligations relating to insurance, warranties, consumer rights and government regulations.

Consumers who support the cash economy by paying cash and not getting a receipt, risk having no evidence to:

  • claim a refund if the goods or services purchased are faulty; or
  • prove who was responsible in case of poor work quality.