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08 Dec 11 HOT TOPIC – Refund Integrity Checks

For the past few weeks, a number of our members have written in to Taxvine Member Feedback in relation to refunds withheld by the ATO to carry on refund integrity checks. As noted in earlier editions of Taxvine, we empathise with taxpayers for whom these refund integrity checks have caused hardship. We also empathise with the frustrations of tax agents in not being able to relay a reason for the delay in issuing the refund to their affected clients.

We raised this issue with the ATO at the last meeting of the ATO’s Tax Practitioner Forum (on 4 November 2011). As reported last week, the ATO undertook to provide detailed statistics in relation to the common reasons for withholding refunds, and the resolution of returns where refunds have been withheld.

These details (as provided by the ATO) are set out below for your information.

Update on performance

  • Since 1 July 2011, we have stopped over 94,000 returns with total refunds of around $390 million believed to include overstated claims or to be potentially fraudulent. Of these returns over 34,000 returns have been prepared and lodged by registered tax agents (total refunds of $146 million).
  • To date, over 29,500 reviews have commenced or are currently with compliance officers with the review letters about to issue. Nearly 19,000 reviews relate to tax agent lodged returns.
  • At this stage, results show that over 80% of stopped returns have been adjusted prior to notices of assessment issuing[1]. This has resulted in a reduced refund or an increase in the amount of tax payable. In many instances a penalty has also been imposed.
  • We use various risk models in our systems to identify these returns. Each return stopped has been identified as containing some information that requires verification prior to issuing a notice of assessment. As data supplied by other parties continues to become available (such as payment summary information from employers) we regularly re-examine these returns.
  • To date we have released over 17,600 returns where we have been able to verify the information contained in the return that was unavailable at the time of lodgment (that is, without provision of additional information/substantiation).
  • For those returns where this type of verification is not possible we are issuing review letters to taxpayers or their tax agents asking them to provide supporting documentation for their claims and where appropriate a satisfactory explanation as to how their claims relate to their income-earning activities.
  • We have listened to feedback from tax agents to our client service representatives and we have responded by removing some work-related expense labels (when the total claim is less than $300) from the income tax review.

Common issues that we have identified

Some of the common issues identified include:

  • understated income or taxpayers claiming fictitious PAYG Withholding credits without working for an employer
  • overstated or fraudulent deductions
  • non entitlement to claimed rebates and/or offsets, for example spouse offset, education tax refund and refund of franking credits  
  • non entitlement to a Medicare levy exemption
  • non residents claiming to be residents for tax purposes
  • instances of identity takeover.

We have also been effective in engaging intermediaries. Our alerts have resulted in some “dob-ins” from registered tax agents, some of which have been confirmed as identity takeover. These have included agents with large client bases such as H&R Block.

When can you expect your refund?

Once all relevant information and supporting evidence has been received we will endeavour to complete all reviews within four to six weeks of the reply due date on the audit letter. If you have not received your notice of assessment, or you have had no contact within six weeks from the reply due date, please call 13 28 61 requesting the progress of your return.

Members who would like additional detail in relation to the above should contact us at Tax Policy.


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