Australian Taxation Office works to claw back money and says it is reducing the ‘tax gap’ in the high-wealth group

This article is more than 6 months old

This article is more than 6 months old

Rich Australians and their businesses are paying about $960m a year less tax than they should be, new Australian Taxation Office data shows.

The underpayment represents about 9.6% of the more than $10bn that 5,000 “high wealth private groups” should have paid in tax in 2016-17, the ATO said.

Included in the group are about 9,000 individuals and 18,000 companies, together with associated trusts, which control $50m or more.

The super-rich, with income of $250m or more, are counted in a separate category that also includes large corporations.

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After clawing back money by issuing fresh tax bills the ATO said it reduced the “tax gap” in the high-wealth group to $772m, or 7.7%.

The ATO deputy commissioner, Tim Dyce, said 90% of the group paid the right amount of tax and most underpayment was due to a lack of understanding of how tax applied in unusual situations, such as selling a family business or handing it down to heirs.

“Generational change is a key focus area of ours, and it has been,” he told Guardian Australia.

“Whenever there is generational change we do encourage them to talk to us and make sure that generates a tax outcome that is one we are comfortable with.”

He also foreshadowed a crackdown on the misuse of trusts through a process called “unitisation”, where entitlements to income that would be taxable are extinguished by issuing units in a trust.

“The interactions between the trusts and the individuals is one area, but that is the same as the interactions between the corporate entities and the individuals behind them as well,” he said.

“Often there are transfers of funds that are linked to loan arrangements … and that’s an area of focus for us.

“We also have unitisation arrangements for trusts that are a focus for us as well, where units in a trust are issued in lieu of debt.”

He said the ATO had more capacity to audit the sector because of increased government funding since 2017.

“What that means for these 5,000 groups is that we’ll be able to knock on every door,” he said.

He said rich Australians have already been told to expect a visit from the ATO.

“It’s not just a superficial interaction, it’s quite a detailed process,” he said.

He said rich people understood the ATO was monitoring the sale of businesses in the sector, both through its own data sources and by reading about them in the media.

“We look for large transactions in this market and we go out and talk to the businesses about them post-transaction but pre-lodgement of the tax return.

“This year alone we’ve actually reviewed through that process $15.5bn in transactions.”

He said the ATO’s access to previously unavailable data from overseas revenue authorities made forms of tax avoidance traditionally popular with rich families more difficult.

Popular techniques in the past have included back-to-back loans, where an Australian purports to borrow money from an overseas bank but is actually drawing on a secret deposit, typically held with a Swiss bank.

“It’s not really a matter of if the taxation office will get access to that information, it’s a matter of when,” he said.

“Most of this population are compliant. We do deal with some deliberate stuff but it’s pretty rare that it’s at the evasion level. We make a point of dealing with it very robustly … it sends an important message.”