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Episode 60

Imperfect Compliance: Digital Payments and Data Matching in Tax Disputes

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
25 March 2022
Andrew Davidson
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