The Australian Taxation Office (ATO) has faced stern criticism from the Australian National Audit Office (ANAO) over the manner in which it handles its Capital Gains Tax (CGT) responsibilities and the fact that the amount collected from small business almost halved in two years.
As well, the Auditor-General’s report has pointed to the fact that the ATO is sending thousands of letters to taxpayers relating to CGT which are based on third party data about which there are “known problems”.
It has also pointed to the ATO’s compliance activity being heavily focused on real property while shares and other types of property have been largely overlooked.
The ANAO report said that while the ATO’s general approach to the administration of CGT was sound, there had been a heavy reliance on taxpayers’ voluntary disclosures of CGT liabilities in their annual tax returns.
“Insufficient attention has been given to addressing the limited effectiveness of compliance activities for individual and small business taxpayers that have not met their CGT obligations,” it said. “As a consequence, there has been a considerable reduction in the revenue raised from specific CGT compliance activities directed at individual and small business taxpayers in recent years. This aspect of CGT administration requires closer consideration by the ATO.”
“Despite the known problems with third-party data, the ATO sends letters to thousands of individual taxpayers each year, questioning the accuracy of their declarations of CGT,” the ANAO report said. “The outcome of this correspondence can be that the taxpayer contacts the ATO and clarifies their situation to the satisfaction of the ATO, or the ATO amends their assessment.”
The report said the ANAO’s sample of 322 letters sent to individual taxpayers found that most did not result in further action by the ATO (59 per cent) and that many (almost half) of the amended assessments were subsequently reversed.
“This largely reflects a lack of accuracy of information in these letters, which impacts on the taxpayer’s experience and the ATO’s prospects of securing appropriate revenue. On this basis, the ATO would benefit from evaluating the effectiveness of its CGT bulk letter compliance strategy for individual taxpayers,” the report said.
