We have had a number of enquiries lately where our clients have been contacted by the ATO advising that they have failed to declare some interest income on their income tax return.
Quite often they don’t know how the ATO got that information, or what action they need to take?
If you have received a similar letter from the Australian Taxation Office, do you know why and what you need to do?
It is important that the Australian Taxation Office (“the ATO”) makes sure that we, as taxpayers, are declaring all our income.
To do this, they work with a wide range of organisations to obtain data relating to taxpayer information. Organisations such as federal and state government agencies, like ASIC, Medicare, Department of Human Services, and the state motor vehicle registries and land titles office.
The ATO also receives information from a range of private organisations, such as banks and financial institutions, stock exchanges and share registries, employers and businesses in the building and construction industry, just to name a few.
This means that your bank is required to report to the ATO details of all interest paid to you during the year, as well as any tax they may have been required to withhold.
The ATO then uses the data they have collected and match it against the income you have declared in your income tax return.
Where there are discrepancies the ATO will issue a notice to you advising of the failure to declare income.
If you simply forgot to include the interest income, then the ATO will issue you with an amended assessment. They may also charge interest and/or penalties, depending on the size of the oversight.
However, if you think the ATO is wrong or you can explain the error, you can object to the assessment. For example, if the interest was income of a partnership and declared in its tax return, then you can contact the ATO to explain the situation. It’s advisable to do this before they issue an amended assessment.
It is also important to note that most recently, the ATO have received details of all share trades since the introduction of Capital Gains Tax, and will begin data matching against capital gains data reported on income tax returns.
If you would like more information of this topic contact your Findex adviser for assistance.