Accountants have been urged to take more care in ensuring clients disclose all possible sources of income, especially commonly forgotten capital gains, as the ATO’s data-matching capabilities increase.
Capital gains in sight as ATO data-matching grows
As more information from third-party sources is consumed and analysed by the Tax Office, a corresponding spike in ATO audit activity has been noticed on the ground, according to H&R Block director of tax communications Mark Chapman.
With the ATO calling for taxpayers to “fess up” over errors or mistakes before the agency comes knocking, Mr Chapman believes it is vital for practitioners to help clients understand all their obligations, including the disclosure of all possible sources of taxable income.
Just this week, the Tax Office reminded tax agents to take particular care around capital gains made on shares, property and cryptocurrency, an issue Mr Chapman believes is often missed unless practitioners push their clients.
“Part of the problem is that some accountants assume their clients know as much about tax as they do and that if something needs to be declared, the client will declare it. But sometimes the client just doesn’t know that a certain type of income is taxable,, so unless they are prodded by the tax agent, it simply won’t come up,” Mr Chapman said.
“Classic examples are Airbnb income, where many taxpayers still don’t understand that income received from renting out their property is taxable, and cryptocurrency, where many people dabble in either investing or trading Bitcoins, or other cryptos, and give no thought whatsoever to the tax consequences.
“[Increased compliance action] is flowing through not just into more formal audits but also more targeted ‘please explain’ letters looking into specific claims and even automatic amendments to returns where income has been inadvertently omitted.”
Crypto transactions, in particular, will undergo greater scrutiny than ever before, with the ATO estimating that records relating to between 500,000 and 1 million individuals, who have or may be engaged in buying, selling or transferring cryptocurrency, will be analysed by the agency this tax time.
“With Bitcoin, the common myth persists that investors can take advantage of the $10,000 personal use exemption — which is almost never the case,” Mr Chapman said.
“And if you’re a Bitcoin investor, don’t assume that your transactions are hidden from the ATO because there’s no cash trail; the ATO is now obtaining third-party data from a number of Bitcoin exchanges which they can use to match with your tax return data and track down those who aren’t complying.”