How Data Matching Catches Tax Cheats

Fingerprint Scanning TechnologyIf you have ever considered saving on your tax by either declaring a lower income or higher expenses, you might want to think again. The Australian Taxation Office (ATO) has been using data matching for several years to catch tax cheats filing false claims and failing to declare taxable income.

How does data matching work? In a pre-digital age, an audit of your tax return would largely consist of reviewing the amount of income you declared against the amount of income your employer declared paying you. While expenses over certain levels needed documented proof (as they do now), many off-the-record cash transactions were almost impossible to discover or prove if suspected. Now, the vast majority of transactions are digital in nature: bank transfers, credit card purchases, eBay sales or PayPal transactions. And with the advent of more sophisticated tracking software, it is now relatively easy to track your digital footprint across multiple accounts. Consider the login process for most of these platforms. You are required to provide bank account or credit card details in order to provide either access to funds or a location for payment deposits. These details all link back to you.

So now, when you decide to make a little extra cash selling household items (or a lot more cash selling online for a living) through companies like eBay, the ATO can use data matching software to determine who is earning what. The software allows for a high volume of data to be processed quickly, so records that would take an individual years or even decades to review can now be processed in a matter of moments.

In addition to processing tax records (yours and your employers) the ATO is now working with banks, Paypal, eBay and many other companies that provide online sales or transactional services in order to match records with tax payers.

If you are thinking that you only sell a small amount of merchandise, understand that the ATO is reviewing thousands of accounts per year that have transaction totals of less than $10,000, so even small transactions will be noticed. In order to avoid falling afoul of the ATO’s data matching technology, you need to understand that any income you earn is potentially taxable, and needs to be declared. Things like wages and salary, interest on your savings, rental income, share dividends or online sales are all income, no matter how insignificant they might seem.

By Jennifer Lowe

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