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ATO starts issuing "certainty" letters

Friday 29 January 2016

The ATO announced on 6 October 2015 that it will commence a “certainty letter” initiative through which it will send letters to approximately 500,000 taxpayers informing them that their 2015 tax returns are finalised.

The aim of this initiative is to provide certainty to taxpayers who have met their tax obligations for the 2015 income year. Only select taxpayers who meet the following criteria can expect to receive the letters. Broadly these taxpayers have:

  • straightforward tax affairs;
  • a good lodgment and compliance history;
  • lodged their income tax return through myTax, e-tax or a tax agent;
  • taxable income of less than $180,000;
  • derived income only from salary and wages, allowances, Australian Government allowances, interest and dividends; and
  • claimed deductions for work-related expenses, interest, dividend deductions, gifts, donations or the cost of managing their tax affairs.

As this is only a pilot program, not all taxpayers who meet the above criteria will receive a certainty letter. It is noted that the ATO considers taxpayers with straightforward affairs as those with no links to other entities. This means that certain taxpayers (such as beneficiaries of trusts) would not expect to receive a “certainty letter”. Regardless of whether the letter is received, all taxpayers are still required to maintain accurate and detailed tax records for their 2015 tax returns.

The ATO has indicated that it will use sophisticated data-matching techniques and third party sources (eg banks and other financial institutions) to carry out routine checks on the information disclosed in the 2015 tax returns prior to issuing the letters. Accordingly, taxpayers who receive certainty letters should not be subject to further review or audit for their 2015 tax returns, unless the ATO later becomes aware that there may have been fraud or evasion. In such circumstances, the certainty letters will be void.

This pilot program will cover the 2015 tax return only and therefore does not preclude the ATO from undertaking an audit on earlier income tax returns. Furthermore, the certainty letters do not prevent taxpayers from amending their 2015 returns. However, once a return is amended, comfort letters may be reconsidered. The ATO will also still retain the discretion to amend returns in cases of fraud or evasion. As such, while certainty letters may provide some comfort as to taxpayers’ standing with the ATO, they do not provide 100% certainty in all situations.

Take home messages

Whilst this initiative is welcomed because of its aim to provide taxpayers with greater certainty in relation to their tax obligations, this is only a pilot program and not every taxpayer who meets the criteria will receive a letter. Those who receive the letter will have “peace of mind” in relation to their 2015 tax obligations. On the other hand, taxpayers who do not receive a certainty letter should not worry as this does not mean that there is necessarily anything wrong with their tax return.

It remains to be seen how the letters will operate in practice, particularly if the Commissioner will change his position on the issued letter when taxpayers amend their 2015 tax return or if the Commissioner relies on the concept of fraud or evasion to invalidate the certainty letter. It would appear that, depending on the success of the pilot program, this initiative could potentially become part of the ATO compliance program.