DISHONEST property investors can rest comfortably this summer because the Tax Office’s campaign to catch them appears to be in disarray.
The Auditor-General, Ian McPhee, is so concerned about the Tax Office’s inability to collect and assess land titles data that he has urged it to reassess its whole capital gains tax compliance strategy.
The capital gains tax project began with much fanfare in July 2004 with promises to electronically match land titles and share market data with millions of individual tax returns.
The Tax Office has highlighted its strong focus on property investors in each of the past three compliance plans. But an Australian National Audit Office report shows only one (unnamed) state has handed over data in an automated form.
Much of that data proved useless because it did not contain sufficient information to identify the taxpayer. “One state revenue office was the main source used to identify real property disposals for administrative action during 2005-06,” the report said.
“It is clear the absence of key identification data significantly reduces the proportion of individuals disposing of real property that can be readily matched to the ATO database.
“It is important the ATO assess, prior to the project’s end date of June 30, 2008, whether automated data matching and case actioning is the most appropriate strategy for [capital gains tax] compliance in the individual market segment,” it said.
In his report, Mr McPhee said the land titles data might be more useful if investors were asked to provide their tax file numbers or give their birth details.
He also urged the Tax Office to consider requiring taxpayers to file more detailed capital gains tax information on their tax returns.
In its official response, the Tax Office claimed that the Auditor-General was “broadly supportive of the approach adopted and the achievements the Tax Office has made since the capital gains tax project began”.
It highlighted 32 new “educational products”, 9500 audits and revenue adjustments of $40 million. It conceded, however, that the data-mining strategy should be re-assessed. “The Tax Office will adopt in full, the seven recommendations made by the [Australian National Audit Office],” it said.
For some investors, paying capital gains tax on property has been an optional exercise since the tax was introduced in 1985.
The audit report says the Tax Office had no comprehensive plan to identify and catch capital gains tax cheats from 1985 to 1997.
It made “isolated attempts” to measure non-compliance in the six years from 1997 to 2003, but with a miserly compliance budget. In 2003-04, the Tax Office budgeted just $0.3 million to catch capital gains tax cheats.
But it became alarmed that evasion might be rife when, despite the property boom, the number of investors declaring capital gains plunged by a quarter in the two years to 2002-03.
From the Sydney Morning Herald