Companies could be in line for random audits as soon as next year under advice being considered by the Tax Office.
The plan, proposed by Australia’s counterparts in the UK and US, is said to provide more credible estimates of revenue.
Inspector-General of Taxation, Ali Noroozi, told parliament’s standing committee on tax and revenue it is “actively considering” the benefits of such a program, but that it would not be popular with taxpayers.
“If they are perfectly compliant, then they are not going to appreciate somebody knocking on their doors and wanting to go through everything,” Noroozi said.
He conceded the program could help minimise the “tax gap” between the amount of tax payable by companies and individuals and the sum of tax actually collected.
Deputy Inspector-General of Taxation Andrew McLoughlin told the committee the Tax Office might consider compensating those picked for audits who were found to be compliant.
“Obviously you do not want people feeling as though they are being shaken down when they are not doing anything wrong whatsoever,” he said.
The GST tax gap is estimated to be $3.1 billion.
Lisa Greig, tax products and services manager at Taxpayers Australia, said the changes will not shock the majority of taxpayers.
“Currently, tax reviews can be triggered based on benchmark data abnormalities or specific tax disclosures. Even then taxpayers can still be complaint. For example, any taxpayer claiming a small business CGT exemption is more likely than not to get a ‘please explain’ letter from the Tax Office. It is just the norm,” she said.
“However, if a taxpayer has a squeaky clean business and operates year on year without any abnormal activity and gets a review letter, then, of course they are going to be miffed. The taxpayer should have the right to a reimbursement claim for any outgoings due to the Tax Office’s fishing expedition.”
Greig said insurance is the best approach for businesses and individuals going forward.
“Our members usually advise their clients to take out audit insurance to cover the costs involved by them in preparing the response to the Tax Office. Sometimes these costs can be up to $10,000, but at least they have an idea to expect the letter.”