Andrew Hosken and Kimberly Schreiber explain how data matching is increasingly used by regulators to select companies for a payroll tax audit.
Having recently joined KPMG after more than 30 years at the Victorian State Revenue Office (SRO) in compliance, policy and technical advice, I’m regularly asked when clients are notified of an audit, “Why us?”
There is a high chance that the various data sets lodged across all sectors have been examined by the revenue office and an anomaly flagged.
That anomaly could be as simple as the difference between the wages confirmed with your workers compensation provider and the revenue office for payroll tax. Or it could be the result of a complex comparison of any number of data sets that have been submitted throughout the course of running the business.
Don’t be mistaken – regulators are using their compliance resources more efficiently than ever. After all, compliance revenue targets are not achieved by auditing where all is in order!
Hence, the ongoing and increased use of data matching to select audit targets and it’s no surprise when success rates from this approach can average 95 percent.
The payroll taxability of payments to contractors has always been a complex issue for taxpayers to deal with. Taxpayers are required to make a decision about the taxability of payments they are making to another business without having unfettered access to the activities of that second business. Revenue office data matching regularly identifies the engagement of contractors and highlights the taxpayer engaging them for further investigation. An audit of contractor payments can be frustrating and expensive. How can a taxpayer be totally certain that the information being provided to them by a contractor they engage supports their exclusion claim?
I’ve seen many instances where a contractor’s story to the business engaging them is based on what the contractor ‘thinks’ that business wants to hear rather than disclosing the detail of their (the contractors) total dealings. These audits are usually time consuming and a successful outcome will often require significant effort from the taxpayer to provide information to support any exclusions.
KPMG’s data analytics capabilities will prove invaluable in situations like this helping our clients quickly work through large amounts of data, including arrangements between principals and contractors, and filtering that data to identify those payments we should be disclosing before the revenue office ultimately catches up.
Looking forward, I expect the revenue offices will continue to use the access they have to data and focus on identifying the low-hanging fruit such as contractor payments, grouping through the matching of Australian Securities and Investments Commission (ASIC) data and in the land tax space, application of foreign ownership surcharges and principal place of residence exemptions.
Rest assured that data matching capability has come a long way in the 30+ years I was with the SRO in Victoria. Through this continued investment in technology by regulators the ability to provide a data driven approach to identifying irregularities makes the old days of manually scrolling through dot matrix printouts searching for a hidden nugget well and truly redundant.