Don't make extra income a tax time headache

The Australian Taxation Office (ATO) is increasing its efforts to identify taxpayers who fail to report all their income this tax time, as it strives to recover an annual tax shortfall of nearly $1.4 billion caused by individuals who leave income out of their return.

"Tax lost from under-reported income is a significant cost to the community. While the amounts might be small individually, together they are adding up to a lot," Assistant Commissioner Kath Anderson said.

Ms Anderson said the ATO prefills as much information as possible to help taxpayers to get their income right, but warned that those who deliberately leave out income could face consequences.

"We understand that people make mistakes and can forget to include some of their income. But those who leave out income to avoid paying their fair share of tax should be aware that there can be penalties and interest. Penalties can range from 25% up to 75% of the shortfall, in addition to paying the money owed," she said.

According to Ms Anderson, some Australians don’t realise they need to report all their cash income.

"The most common mistake we see is taxpayers leaving out cash wages. But we are also seeing taxpayers either deliberately or accidentally failing to include income from second jobs, capital gains on cryptocurrency, the sharing economy, the gig economy, and foreign-sourced income," Ms Anderson said.

The ATO is developing advanced analytical tools to analyse the vast amount of data it receives to identify instances where income has gone unreported.

"We expect to process a record amount of information this year. It will not only make tax returns faster and easier for taxpayers, but will also help us identify people who are failing to declare income. Our compliance models have already auto-adjusted more than 112,000 tax returns in July and August, recouping $53 million," Ms Anderson said.

According to Ms Anderson, new information relating to foreign income will enable the ATO to shine a light on Australians who are earning income overseas but not paying tax on it.

"It’s important that everyone pays their fair share of tax, regardless of whether they earned income in Australia or abroad."

The ATO has a number of other information sources that allow it to identify omitted foreign income, including data obtained from AUSTRAC (Australian Transaction Reports and Analysis Centre), FATCA (Foreign Account Tax Compliance Act) and other international exchange of information agreements.

"From analysis of AUSTRAC data, we know that individuals most commonly receive foreign funds from countries including the UK, USA, China, Switzerland, Hong Kong, New Zealand and Singapore. We have been at the forefront of developing a single global standard for the collection, reporting and exchange of financial account information on foreign tax residents," Ms Anderson said.

In addition, from September, the ATO will exchange information with over 100 foreign tax authorities under the Common Reporting Standard (CRS) to identify Australian residents with sources of foreign income. This will supplement data from the tax treaties with more than 40 countries, including all our major trade and investment partners and provide increased information on Australian residents’ foreign income.

"We are concerned that taxpayers may be failing to include foreign income from pensions, employment, investments, business income or capital gains on overseas assets. The collection of this additional data will help us identify people who are deliberately omitting income from their tax return, but will also help those who have several streams of income who find it hard to keep accurate records," Ms Anderson said.

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