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Imperfect Compliance: Digital Payments and Data Matching in Tax Disputes

Law as stated: 25 March 2022 What is this? This episode was published and is accurate as at this date.
In this episode, Andrew Davidson of Davidson Tax Law explores what the ATO is doing in the digital payments and data-matching space.
Substantive Law Substantive Law
Andrew Davidson
Davidson Tax Law

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1 hour = 1 CPD point
How does it work?
What area(s) of law does this episode consider?Tax law, data-matching and cryptocurrency.
Why is this topic relevant?The meteoric rise of cryptocurrency has caused difficulties for regulators the world over – especially regulators working in taxation such as the Australian Taxation Office (ATO).

Developments in data-matching processes aim to increase the visibility of the ATO into taxable events in the digital payments space to permit the verification of information shared in a self-assessment.

What are the main points?
  • Tax disputes are disputes which arise between taxpayers and the ATO or a state-based tax authority. The most obvious example of which is a dispute in relation to the amount of tax payable by a taxpayer.
  • The ATO has broad powers to require the provision of information to them by a taxpayer or a third-party about a taxpayer’s financial affairs.
  • The ATO employs data-matching techniques to verify information provided to them on a self-assessment. Such techniques are not new, and have been used by the tax office in a variety of settings for a while.
  • In 2019, the ATO commenced a data-matching program focused on the digital payments space. This program looked at data stored from 2014 onwards. The ATO’s data-matching program looks to match taxpayers with transactions on cryptocurrency blockchains.
  • The ATO may not have visibility into transactions taking place on a decentralised cryptocurrency exchange, but they do have visibility on what funds are moving into and out of bank accounts.
What are the practical takeaways?
  • Take tax obligations seriously. The ATO takes a taxpayer’s compliance with taxation obligations very seriously.
  • Early engagement is the key to better outcomes. Early engagement with the ATO or a specialist adviser is seen by the ATO as taking tax obligations seriously.
  • Where a taxpayer is seen by the ATO to not be compliant with their tax obligations, it is more likely to use the range of powers available to it to ensure compliance.
  • No two tax practitioners or practices are the same, and early career practitioners should work in a variety of tax practices to understand how different practitioners think.
  • Andrew notes that to achieve the best outcomes, you need to know the right person to seek tax advice from, whether that be a lawyer, an accountant or a barrister.
Show notesThe ATO Practice Statement LA 2008/6 Fraud or evasion

The ATO project called ‘Reinventing the ATO’

The live Bitcoin transaction tracker