ATO’s warning to agents: stop ‘grave digging’ for GST refunds
Advisers who aggressively hunt down old tax claims to collect contingency fees will attract regulator scrutiny.
Large market advisers who bend the rules to maximise claims for goods and services tax will attract increased scrutiny from the ATO, senior officials have warned.
In a speech to practitioners, deputy commissioner Rebecca Saint and senior director Virginia Gogan said the ATO would act quickly to stamp out advisers’ dodgy practices, including those engaging in “grave digging”, or seeking out past GST claims that were overlooked or missed by clients.
While retrospective GST claims were legal, ATO was concerned some advisers were pursuing aggressive claims without proper documentation or in direct contradiction to published guidelines.
“We have long been concerned with the exercise of ‘grave digging’,” the pair said at the Tax Institute’s recent national GST conference.
“We have an even greater level of concern when there is a lack of substantiation and taxpayers seemingly are not advised of the legal and compliance risk associated with the activities.”
“These business models bring high levels of risk for businesses.”
Of particular concern were advisers working on a contingency basis by receiving a percentage of recovered GST refunds, which the ATO said created incentives for high-risk behaviour.
These arrangements were most commonly associated with advisers working on retrospective input tax claims as well as those engaged “independently” to conduct data testing for the justified trust program.
“Engaging an advisor on a contingency fee basis in these circumstances represents a clear conflict of interest and cannot be independent,” Saint and Gogan said.
“The solution is not to put in place arrangements that seemingly separate the ‘grave digging’ activity from the independent data testing engagement.”
The warning comes after the ATO published statistics for the top 100 and top 1,000 groups last month.
Saint and Gogan said about 40 per cent of compliance reviews among the top 1,000 resulted in voluntary GST disclosures, with nearly one-third of these companies also having reported GST errors in prior reviews.
In the top 100, about 44 per cent of completed reviews also “had issues or concerns with the correct reporting of GST obligations”.
“Notwithstanding improvements in governance and tax control frameworks, we continue to see a significant rate of voluntary disclosures of GST errors with the root cause being deficiencies in governance controls and systems,” they said.
Many errors were immaterial but in some cases resulted in substantial corrections and penalties for failure to take reasonable care.
“If the ATO is to lessen the intensity through the justified trust program, we need to be confident that businesses have got appropriate processes in place to address these issues,” they said.
As a result, they said tax advisers played an “important role” in helping large taxpayers meet their obligations, echoing the earlier comments of Commissioner of Taxation, Rob Heferen.
“The ATO has been focused on the role of advisers in supporting large business,” they said.
“We are agnostic as to which adviser a business may choose. However, if an adviser is directly linked to possible facilitation and promotion of tax schemes or is influencing their clients to adopt high-risk tax positions, we will take action.”
“We want to actively support the vast bulk of advisors that are doing the right thing and prevent those operating in the grey space from gaining a commercial advantage.”
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