ATO Tax traps List

The Australian Tax Office (ATO) often focuses on specific behaviours, characteristics and tax issues that are suspicious and can lead to investigations. Due to enhancements in technology, the ATO has expanded its data matching capabilities which have improved the ability to identify incorrect reporting in tax returns. The ATO has released a list of behaviours and characteristics that may attract their attention, including:

• tax or economic performance is not comparable to similar businesses

• low transparency of tax affairs

• large, one-off or unusual transactions, including transfer or shifting of wealth

• a history of aggressive tax planning • tax outcomes inconsistent with the intent of tax law

• choosing not to comply or regularly taking controversial interpretations of the law

• lifestyle not supported by after-tax income • treating private assets as business assets

• assessing business assets for tax-free private use

• poor governance and risk-management systems

One area of particular focus is incorrectly claiming franking credits or not applying appropriate governance to a franking credit balance. The ATO is concerned with the following arrangements:

• where there is a substantial increase in franking credits as this may indicate the taxpayer has entered into an inappropriate arrangement to take advantage of franking credits.

• Using an entity that has a concessional tax rate, such as a super fund, is often incorporated into these arrangements.

The ATO continues to focus on compliance issues associated with self-managed super funds. In particular, the Tax Office is targeting:

• significant management and administration expenses.

• incorrect calculation of exempt current pension income.

• non-arm’s length transactions involving companies associated