The letter you don't want to receive – ATO cracks down on dodgy tax returns

If you end up receiving this letter in the mail, then don’t ignore it as you could be in trouble. The ATO has started cracking down on dodgy tax return claims in order to take back $1.1 billion in revenue. Which means, many Australians can expect to receive ‘data matching’ letters this year.

The letter can be sent for several reasons. Maybe the tax payer forgot to include a PAYG summary, or maybe Centrelink payments that are classed as income were not declared.

“The first point is don’t panic,” said Etax senior tax agent Liz Russell.

“It means that someone has lodged a tax return that the ATO believes may not contain all the information or may contain incorrect information. The ATO is fed information from different institutions and then they do a data match with the tax return.”

But regardless of why you were on the receiving end of this letter, don’t ignore it. The implications of doing so could mean that your tax return may be “adjusted based on assumptions”, which could end up losing you “hundreds, if not thousands of dollars”.

But not every tax return goes through the process of being data-matched. The ATO compares tax returns through hi-tech data analysis with those lodged by people who share similar circumstances to decide whether the claim is suspicious.

“If a refund from their perspective looks reasonable within the occupation and range, they’re probably not going to spend a lot of time chasing something up because it’s not cost-effective,” she said. “They’re certainly doing anything that falls outside the expected ranges.”

While more people were receiving these letters, it doesn’t mean that the number of people doing the wrong thing has increased. But rather, the ATO now has access to improved technology. “Computer systems are getting much more sophisticated every year,” she said. “They’re [not] matching all tax returns because there would be a lot more letters.”

According to Ms Russell, many people were not aware that the ATO can audit returns from two or three years after it is lodged. And if you end up finding this letter in your mailbox, you have 28 days to respond – so contact them as soon as possible.

“If they don’t hear from you in that time they will reassess you no matter what, so you have to do something if you don’t believe it’s correct, and even if it is correct and you’ve done it inadvertently, you should contact the ATO to see if any penalties are reduced,” she said.

When it comes to the ATO determining a penalty, there are two methods that are used. They can either apply penalty units which are at $210 each, or they use a formula which is determined by how severe the breach is.

If you aren’t cautious enough, the formula can result in a penalty of 25 per cent of the amount owed, with recklessness sitting at a penalty of 50 per cent and intentional disregard at 75 per cent.

“The data matching I think works in the taxpayer’s favour to some extent, because a lot of institutions are getting info to the ATO earlier all the time, the ATO will actually correct your return without telling you,” she said. 

Article created in partnership with Over60