Tax office warns about $40 million in tax rorts following Queensland floods

The Commissioner of Taxation has warned small businesses that have received grants or payments relating to floods or other natural disasters that it is cracking down on any income that is not declared.

Speaking at the NAB National Business Summit Commissioner Michael D'Ascenzo told the audience the Australian Taxation Office was investigating $40 million in claims using data matching.

"There is a level of non-compliance there," D'Ascenzo said.

"An area where we are expanding our use of information matching is in relation to the receipt of taxable government grants and payments.

"This includes grants made direct to individuals and businesses, as well as contractor payments to individual and business entities from all three levels of government.

"In relation to these types of payments, we matched records from more than 10,800 taxpayers in 2011-12 and identified businesses not reporting correctly through undeclared income or overdue returns, raising more than $40 million in liabilities."

"Following severe flooding in Queensland and natural disasters elsewhere in Australia, the public have been very clear that they have no tolerance for misuse of funds intended to rebuild communities affected by natural disasters."

A spokesperson for the ATO told SmartCompany the commissioner's reference to $40 million relates to data matching across all government grants, not just the flood areas.

"It's not necessarily fraud, it could be people just did not realise they had to declare that income," the spokesperson said.

"The flood regions were a focus because there were some dodgy operators up there on the rebuild."

D'Ascenzo said by working with other agencies such as the Department of Climate Change and Energy Efficiency, the ATO was able to identify a government grant, of $200,000 that was not declared.

"Further information from the Department of Human Services highlighted the same taxpayer had also received a disability support pension, at the same time," he said.

A spokesperson for the ATO says the office is using data-matching to identify and follow up businesses that are not correctly reporting taxable grants and other payments from federal, state and local levels of government.

"This includes grants that are awarded to micro businesses and contractor payments made to micro businesses across the three levels of government," she says.

In 2011-12 the ATO matched records from more than 10,800 taxpayers, and identified businesses not reporting correctly through undeclared income or overdue returns raising more than $40 million in liabilities.

Deepti Paton, tax counsel at the Tax Institute, told SmartCompany that taxpayers who had made honest mistakes in relation to government grants were on the radar of the ATO as well as deliberate fraudsters.

"The law in this area is not easy and it is something that people in that situation need to take professional tax advice on," she says.

"The ATO is very wise to ensure compliance with the rules because these payments are intended to benefit people who need them and should be treated a certain way under the tax laws.

"It's in everyone's interest that everyone complies with these laws, which is not to say that non-compliance is intentional, as it is easy to get it wrong."

Paton says problems arise as this is an area that most taxpayers are not used to dealing with.

"Obviously we have had a lot of natural disasters recently, so a lot of the taxpayers... may be in this situation for the first time," she says.