ATO audit activity predicted to ramp up following budget funding boost

The $999 million provided in funding to the ATO in the federal budget provides the Taxation Office with significant recourses for undertaking compliance activity and taxpayer reviews, particularly for multinationals and larger entities, according to tax lawyer Angelina Lagana, head of tax controversy at Corrs Chambers Westgarth.

On a recent episode of The Lawyers Weekly Show, Lagana said it was interesting that when announced in the budget, the government outlined that most of the funding would be used to support tax compliance scrutiny on multinationals and large taxpayers.

“Almost three quarters of that funding has been specifically earmarked for the ATO’s Tax Avoidance Taskforce,” she said.

Lagana said this reflects the uptick in activity by the ATO [in terms of] regularly reviewing and auditing taxpayers and making sure that the fair share of tax is being paid in Australia.

The additional funding provided to the Tax Office for conducting all of their assurance and risk-based reviews and audits means there will be plenty for tax lawyers to do in assisting clients to prepare for and manage ATO engagements, she added.

At the same time, Lagana said tax legislation is becoming increasingly complex, making it challenging for tax professionals to stay on top of all the constant updates and amendments.

Given the significant funding the ATO has to dedicate to review and compliance activity, Lagana said the ATO is likely to focus on issues such as deductibility of costs, the development of intangibles, taxes on royalty payments for the use of intangibles, and anti-avoidance considerations.

“So having your commercial purpose and most importantly the documents that support your commercial process and commercial purpose are really, really important,” said Lagana.

“I support many taxpayers who are being looked at by the Tax Office and people have moved on, documents are not retained, people with critical knowledge have left the organisation and therefore no one has actually documented commercial purpose. [It’s important] to be mindful of that.”

Commenting on the budget more broadly, Lagana said from a political perspective “it was no surprise” the budget didn’t involve substantial corporate tax reform,

She stated that while tax reform was yet to be addressed by the Labor government and would likely remain improbable, it was long overdue.

Lagana said experts and professionals within the tax and accounting space would continue calling and clamouring for the necessary changes until the conversation was finally addressed on a public, political level.

“I think there’s been a fair bit of concern about the complexity of the tax system, making it difficult for taxpayers to interpret,” she said.