Proctor : July 2017
20 PROCTOR | July 2017 Shares Much like the real property transactions data- matching program, the ATO’s stated purpose of the share transactions data-matching program is to ensure that taxpayers correctly meet their taxation obligations in relation to share transactions. These obligations include registration, lodgment, reporting and payment responsibilities. 15 Since 2006, data relating to the sale and purchase of shares dating back to 20 September 1985 has been obtained from share registry service providers to enable cost base and capital proceeds calculations. This data has been compared with information included in income tax returns and matched against other ATO records to identify taxpayers who may not be complying with their taxation obligations on the disposal of shares and similar securities – particularly in relation to CGT. 16 The data obtained by the ATO in respect of taxpayers include: • full name • full address • holder identity number • shareholder registry number • entity name • entity ASX code • purchase date • purchase price • sale date • sale price • quantities of shares acquired or disposed of • corporate actions affecting shareholders (for example, corporate reconstructions) • broker identity • transaction codes • entity type • direction indicator (buy or sell).17 The ATO estimates that it will receive data on more than 61 million transactions under its data-matching program. It is estimated these transactions will identify about 3.3 million individual taxpayers. 18 ATO’s remarks With its data-matching programs kicking strong, the Commissioner of Taxation, Chris Jordan, explained at the Senate Estimates hearing that, over time, the data on transfer of title of a property will be “very useful” to the ATO, “as will stock exchange information regarding share trading”. Commissioner Jordan proceeded to explain that “one of the potentials of this blockchain technology is to identify a person associated with an asset”, which would be useful to the ATO “because then you would have all the share trading activity”. 19 Commissioner Jordan recognised that, together with the Land Titles Office data, this would cover, for most taxpayers, capital gains made on shares or on real properties. What are the consequences for reporting your CGT incorrectly? ATO investigations The data-matching programs assist the ATO to identify risks of incorrect reporting or anomalies in a taxpayer’s income tax return. Where the data-matching software flags areas in a taxpayer’s reported information for attention, the ATO may choose to commence an investigation (usually in the form of a risk review and/or an audit) into the taxpayer’s tax affairs. This often commences simply with a request for information concerning such transactions and may quickly escalate into a full audit of a taxpayer’s tax affairs for a four or more year period. Shortfall in primary tax payable Given the complexities within the CGT regime, and the current system whereby taxpayers generally self-assess their taxable positions, there is an inherent and foreseeable risk that the CGT liability may be reported incorrectly, such that a shortfall in the primary tax payable may be discovered on ATO review. Not only can an investigation by the ATO be an arduous and unpleasant experience for a taxpayer, when a shortfall is discovered there can also be significant monetary consequences. On discovery of a shortfall, the ATO will issue the taxpayer with an amended assessment requiring them to pay the shortfall within 21 days, and likely impose a penalty of at least 25% of the shortfall amount of the tax that otherwise would have been payable, as well as interest, compounding until paid. As is usually the case with ATO investigations, the taxpayer may not be aware of the existence of any shortfall until discovery by the ATO at a later date. By this time, any gain received to pay that liability may have already been expended. Alternatively, the CGT liability may have arisen pursuant to the operation of the tax legislation in a way which was unintended by the taxpayer, with no monetary gain actually received by the taxpayer to pay that CGT liability. ATO investigations – managing your risk Documenting your position At all times, taxpayers bear the onus of proof in evidencing their income tax (including CGT) positions. The ATO bears no onus in establishing that the amended assessment made after an investigation is correct, and can issue amended assessments for the amounts on which in the ATO’s judgment (based on the evidence available to them) tax ought to be levied. 20 Therefore, the onus is on taxpayers to maintain appropriate documentation and evidence which support the tax positions they take – even where that position may seem reasonably straightforward or non-contentious. The importance of collating robust evidence contemporaneously or as operations are carried on is emphasised. By the time notification of an ATO investigation is issued, some months or years may have passed, making it difficult to locate robust evidence. With an increased time gap, there is a greater likelihood that relevant witnesses or decision-makers may have left the taxpayer’s business, greater probability of loss of memory or knowledge of the relevant events, increased costs to locate documents, and increased possibility of inadvertent destruction or non-retention of the relevant documentation. As nerdy tax dispute resolution fanatics, there are few things which are more satisfying than the ability to furnish the ATO with a robust, comprehensive, pre-collated file of documents which evidences the positions adopted by the taxpayer and the reasons for adopting those positions, when the ATO comes knocking. Justifying your position retrospectively There are a myriad of CGT concessions, rollovers and exemptions available which enable taxpayers to negate in whole or in part a CGT liability – for example, the same asset rollover. An interesting feature of the CGT provisions is that the choice to rely on these concessions, rollovers and/or exemptions is merely reflected in the way the taxpayer lodges their income tax return for the relevant year. There is no other form to submit or notification to be made to the ATO in respect of applying the concessions, rollovers or exemptions. 21 When a taxpayer has neglected to make a choice in their income tax return, it may be possible for the taxpayer to amend their return to ‘choose’ to apply a concession, rollover or exemption, or to amend the return to ‘undo’ such a choice.22 In each instance, the period for doing so is usually four years after the return is lodged (for a company) or an assessment is issued (for all other taxpayers). Taxpayers who seek to amend their return outside this period may need to ask the Commissioner to exercise his discretion to allow the ‘choice’ to apply the concession, rollover or exemption. Understanding the law is one thing; understanding the evidence required to support a tax position adopted is an entirely different proposition. Expert advice from tax dispute professionals should be sought when the ATO comes knocking.