tax accountant melbourne

A tax accountant in Melbourne explains ATO data-matching

Published On: May 15, 2023Categories: Accounting, Support

If you are a small business owner or individual based in Melbourne, it is essential to be aware of the different tax-related changes and requirements that apply each financial year.

One significant consideration is how data-matching works with the Australian Taxation Office (ATO). Here, we explain what ATO data-matching involves, how it affects your taxes and how working with an experienced accountant can ensure you stay compliant.

Today, our tax accountants in Melbourne explain everything you need to know about data-matching, and what it means for your taxes.

What is data matching?

Today, our tax accountants in Melbourne explain everything you need to know about data-matching, and what it means for your taxes.

Data-matching is simply the technique the ATO uses to verify your tax claims.

Essentially, many third-party organisations are legally obligated to share information about their employees and customers with the ATO.

The ATO measures this data against your tax return, working backwards to double check whether or not your tax claims are valid.

For example, if you claim a deduction for travel expenses, the ATO may compare that information with information provided by your employer to verify whether or not the relevant expenses were incurred during the course of work.

Simply put, the only reason you’ll ever receive a data-matching letter is when there is a discrepancy between one of your previous tax returns, and the third-party information that the ATO holds.

If you receive a data-matching letter, there may be something wrong with a previous tax return, which you will have 28 days to fix.

It certainly sounds ominous… but it isn’t quite as bad as it sounds – think of it as a chance to correct errors.

Alongside data-matching, understanding other financial areas like defined benefit income streams is also crucial.

The ATO has always used data-matching when evaluating tax claims. Some of the organisations that are required to share data include:

  • Employers
  • Banks
  • Government agencies
  • Insurance companies

Why the sudden increase in letters?

It has been widely reported that this year is seeing a higher rate of individuals being served with letters. There are a couple of reasons for that…

Better software and more computing power

The ATO can’t data-match every single tax return. Instead, it has to allocate its resources carefully, only targeting cases that it believes are more likely to have discrepancies.

Thanks to advances in computing power and data-matching software however, the ATO now has the power to investigate more people and businesses than before.

This happens to coincide with the ATO’s continuing focus on catching tax evaders.

While on the topic of taxation complexities, have you ever wondered about Fringe Benefits Tax (FBT)? Our personal accountant explains what FBT time means in detail.

More data to reference

As you may know, the sharing economy and gig economy are grey areas from a legal and taxation perspective.

Airbnb arrangements in particular have been criticised by the ATO. In the past, some hosts exploited legal loopholes to create arrangements that allow them to evade capital gains tax and GST.

Additionally, many across the sharing economy exploit the relative lack of regulation to earn money using these apps, under-declaring income or failing to declare altogether.

To help crack down on such arrangements, the ATO is now using data-matching to identify people who are earning money through the sharing economy.

With its newfound ability to collate data from “share” services like Uber, Airtasker or Airbnb, the ATO can now identify individuals who are evading taxes in the sharing economy.

What should you do if you get a data-matching letter?

The letter you receive will give you 28 days to rectify the issue. We don’t recommend putting it off.

That’s because ignoring this letter could lead to your tax return(s) being “adjusted based on assumptions”.

While data matching makes these assumptions a lot more accurate than in the past, there’s still a chance you could lose out, or even receive an undeserved penalty.

Let’s use clerical errors as an example.

Say your employer incorrectly processes a couple of pay runs, or forgot some of your deductions, leading to a discrepancy between your tax claim and the data possessed by the ATO.

Similarly, there are other rules and exemptions in taxation that might be unclear, such as the work test exemption explained by our personal accountants.

Another example could be selling shares. Say you sell them for $8,000 at a loss – the ATO might assume it was sold at a profit, and assess your capital gains tax accordingly.

When you get a data-matching letter, the first thing you should do is look at your previous tax return to see if you can determine where the discrepancy lies.

You’ll want to look at whether or not it’s a problem with your tax return, or if a third-party has incorrectly filed data relating to you.

If it’s a problem with your tax return (such as claiming a deduction you’re not entitled to), you’ll have to update your tax return accordingly. Don’t be afraid to employ the services of a tax accountant in Melbourne to help you do this efficiently and correctly.

If the problem lies with a third party, you’ll want to get in touch and get them to correct the error.

personal accountants

What’s the best way to avoid getting a letter?

One of the more frustrating letters to receive is the dreaded data matching letter, which can lead to a lengthy and time-consuming investigation into your finances.

To potentially reduce the chances of receiving such a letter, it’s essential to review all of your records and ensure that they match the figures provided in your tax return.

This includes payment summaries, bank statements, and any other records that have been lodged with the ATO.

In addition, it’s crucial to double-check information provided by your employer or financial institution to ensure its accuracy.

Furthermore, staying updated about other taxations like vacant land tax can make a big difference in how you manage your finances.

When you break the issue down to its most basic level, data matching is all about ensuring that your tax return is accurate, and properly reflects your taxable income.

If you have difficulty keeping up with your taxes, or the idea of redoing a tax return makes your head hurt, get in touch with a tax accountant in Melbourne.

We know EOFY can be a taxing time… in more ways than one! It’s easy for a deduction to get overlooked, or for an invoice to be forgotten when you do your tax return.

This is especially important for business tax returns, which are even more complex. Save yourself the time – let a professional look after your taxes (and help you avoid going back afterwards).

Need a tax accountant in Melbourne?

Bruce Edmunds & Associates is driven to give you the freedom to focus on your life.

Our services give you control over your life and business. In addition to tax accounting, our business and personal accountants also help with:

  • Financial planning
  • SMSF management
  • BAS and IAS statements
  • Strategic planning
  • Succession planning

Operating since 1966, our team or experienced accountants in Melbourne have been empowering individuals and business owners, allowing them to live their best lives, and to take their businesses to the next level.

Whether you’ve received a data-matching letter from the ATO, or simply want to remove the burden of accounting, we can help!

Give us a call today on (03) 9589 5488, or click here to get in contact online.

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