Compliance program 2016–17

We collect revenue to help fund the future for the people of NSW. A key element of this is our compliance program which ensures the integrity of the tax and benefit systems we administer.

Our compliance approach aims to:

  • encourage and assist customers to comply
  • detect and deter non compliance
  • provide a level playing field and minimise business disruption.

Encourage and assist customers to comply

We have a range of information and tools available to ensure customers understand their obligations and the benefits they are entitled to. These include:

  • forms, factsheets, seminar notes and revenue rulings

  • interactive webinars

  • tax and duties calculators

  • online services for easy lodgement and payment

  • dedicated payroll tax customer account managers to help new customers during their first year of registration

  • a free subscription service where you can register to receive email alerts about our latest changes.

We also provide telephone support to assist customers across all our taxes and benefits.

Tax update seminars are held in metropolitan and regional areas to inform businesses, solicitors, accountants and professional advisers of changes and issues relating to the legislation we administer.

Detect and deter non-compliance

Our compliance program takes a targeted, risk-based approach to focus activities on areas of highest potential for non-compliance and minimise disruption for business.

We use data analytics and risk assessment processes to identify customers that may be non-compliant in their tax obligations or benefits and grants eligibility. These processes use specialist analytical software to review customer data sourced from over 50 external agencies, including the Australian Taxation Office (ATO), WorkCover, the Australian Securities and Investments Commission (ASIC) and Rental Bond Board.

Our audit and investigation projects focus on:

  • identifying and contacting individuals or businesses not currently registered within the tax system, but who are likely to have a liability

  • identifying customers who may have understated their liabilities through a program of desk and field audits

  • identifying customers who do not satisfy the eligibility requirements for benefits and grants

  • ensuring customers with an obligation to lodge returns do so in a timely manner.

Information exchange with ATO

We regularly exchange information with ATO in accordance with the Memorandum of Understanding signed by ATO and all state revenue offices. Our shared use of information and data includes:

  • using Business Activity Statement (BAS) data to identify those businesses which should be registered for payroll tax

  • matching business wages, salaries data, and fringe benefits tax data from ATO to identify variances for payroll tax

  • identifying discrepancies in property related sales for duties and exemptions for land tax

  • identifying first home benefit recipients who may not have met the eligibility and residency requirements through rental and tax return information.

ATO uses our information to:

  • identify businesses who should be registered for pay as you go (PAYG) withholding tax

  • identify discrepancies in property related sales relevant to income tax, goods and services tax, fringe benefits tax, and capital gains tax

  • support their compliance activities in relation to the Foreign Ownership of Land Register.

If you have state tax payroll liabilities and need to lodge a payroll tax return, then you will also need to withhold tax from payments to employees and provide superannuation. You should check your federal tax and superannuation obligations by visiting www.ato.gov.au.

Specific compliance activities

We aim to complete our audits and investigations with the highest possible standards of integrity and least inconvenience to our customers. Our ‘Investigations’ factsheet provides customers with information about the audit and investigation process, their rights and obligations, and avenues of appeal if they are dissatisfied with an assessment of liability.

We use a number of compliance activities within each of the tax and benefit programs we administer.

Duties

Our duties compliance program focuses on individual transactions and Electronic Duties Returns (EDR) clients who assess documents on behalf of customers.

Initiatives to ensure duties compliance in 2016–17 include:

  • conducting audits on EDR clients to ensure the accuracy of assessments and that their systems and procedures adhere to the Directions for Using Electronic Duties Returns (the directions)

  • identifying transactions where duty has not been paid or underpaid

  • reviewing high value property transfers

  • identifying and investigating transfers of motor vehicle registrations where the correct value has not been used to calculate the duty payable

  • reviewing and investigating property transfers with a dutiable value over $3 million and liable to premium property duty where the correct amount of duty may not have been paid

  • reviewing and investigating recipients of the New Home Grant where information available indicates that the grant has been paid to ineligible applicants

  • reviewing and investigating landholder lodgements
  • investigating referrals for landholder transactions where the correct duty may not have been paid

  • reviewing and investigating exemptions and concessions, including corporate reconstructions

  • reviewing and investigating transactions involving Surcharge Purchaser Duty.

Common errors for duties include:

  • not aggregating transactions under section 25 of the Duties Act 1997

  • not following EDR procedures as described in the directions

  • the use of valuations which may not reflect accurate dutiable values when processing a transaction

  • failing to declare the correct dutiable value when transferring the registration of a motor vehicle

  • practitioners processing vacant land transactions as off-the-plan

  • not including Goods and Services Tax (GST) in assessing liability for duty on conveyances.

Case Study

Miss Jones received a duty exemption for the purchase of a property. Through external searches we identified that a rental bond was lodged for the entire residency period.

Miss Jones had signed a statutory declaration listing the occupancy dates. Our investigations concluded that she went to great lengths to make it appear as if she had resided in the property, including asking the tenant to sign a statutory declaration stating that she used the tenant’s ute to move furnishings and white goods to the property. Utility bills supplied to us were in Miss Jones’ name, however our investigation uncovered an arrangement where the tenant paid the bills. Miss Jones continued to provide false and misleading documentation to us throughout the investigation, which proved Miss Jones did not meet the criteria under section 76 (1) of the Duties Act 1997.

As a result, we issued a Notice of Assessment to repay the duty, together with interest and penalties.

First home benefits

Our first home benefits (FHB) compliance program focuses on ensuring that first home buyers benefiting from the First Home Owner Grant (FHOG), First Home Plus (FHP), First Home—New Home (FHNH) and FHOG (New Home) schemes satisfy the eligibility and residency criteria. All first home buyers who receive benefits under the various schemes are matched against information held by third parties, to determine that they have met these requirements. Applicants who are found not to be ineligible for the schemes are required to repay the benefits back to us, which may include additional penalties and interest.

Initiatives to ensure first home benefits compliance in 2016–17 include:

  • identifying and investigating applicants who fail to meet the residence requirements

  • verifying information provided by customers against third party data to identify undeclared spouses, prior ownership, understated duty amounts and inconsistencies between property transfers and FHOG applications

  • ensuring applications under the FHOG (New Home) scheme meet all requirements, particularly with regards to contracts made in accordance with options which may have been granted during the transitional period

  • continuing to audit financial institutions who process applications on our behalf to ensure that appropriate system and processing controls are in place

  • investigating anonymous disclosures reported through the Compliance line.

Common errors for first home benefits include:

  • FHB recipients leaving the property vacant for at least 6 months while renovating, and claiming that they have occupied the property as their principal place of residence (PPR)

  • FHB recipients leasing the property under a residential tenancy agreement that grants a right of exclusive occupation of the property to the tenant. In most cases, the landlord (i.e. the FHOG recipient) does not have permission to occupy it as their PPR, and hence will not be able to satisfy the residence requirement

  • FHB recipients not having a clear understanding of what constitutes occupying a property as their PPR. Living in a property on a ‘temporary or transient’ nature generally will not satisfy the residence requirement. The onus is on the recipient of the benefits to prove that they have continuously occupied the property as their PPR during the required residency period.

FHOGS Case Study

A caller contacted our Compliance line to report that Mr Smith, who had received the $15,000 FHOG, had been privately renting out the property since purchasing it. The caller stated Mr Smith had attempted to hide the fact that he wasn’t living at the property by having all his mail delivered to the property.

Mr Smith signed a statutory declaration claiming he had resided at the property during the required residency period, and supported this with utility bills, however his bank account statements showed regular cash deposits. We visited the property and spoke to the tenants who confirmed they paid the cash deposits to Mr Smith. The tenants claimed Mr Smith lived with them in the property as they were friends. Further investigation showed the property only had 2 bedrooms, and we confirmed the tenants were residing in the grant property without Mr Smith.

The Chief Commissioner was not satisfied that Mr Smith met the residence requirement under s12 of the First Home Owner Grant (New Homes) Act 2000. Mr Smith had to repay the $15,000 grant as well as an additional penalty.

Land tax

Our land tax compliance program focuses on the application of exemptions and thresholds, and the identification of land owners who have failed to register for land tax.

Initiatives to ensure land tax compliance in 2016–17 include:

  • identifying and contacting liable landowners who have not registered with us

  • identifying and auditing land owners who receive the benefit of multiple thresholds because of their failure to provide information relating to aggregation

  • investigating and contacting customers where information available to us suggests claims for exemptions are incorrect, with particular focus on PPR and primary production land (PPL)

  • contacting lessees of Crown land who may not be aware of their land tax liability or fail to comply with their obligations

  • using duties purchase transactions to identify customers who hold land on trust

  • identifying and auditing related companies who are claiming the benefit of multiple thresholds and/or reduced tax rates by failing to declare group structures

  • reviewing and investigating customers that are liable for the Foreign Investment Surcharge. This may include existing customers and new property owners.

Common errors for land tax returns include:

  • not advising that a property which has claimed a PPR exemption is leased

  • incorrectly claiming a PPL exemption where land is used as a hobby farm or otherwise not for profit

  • not listing ownership by a trust, or incorrectly listing the type of trust

  • not declaring company group structures

  • not advising of a change in land use

  • not advising all land holdings, including part interests in land.

Land Tax Case Study – Unit Trust

A company purchased land in a unit trust. As the trust was not registered on the deed of title, we only had information that the land was held by the company. An assessment was issued based on this information in the company’s name.

Data matching against external data identified the land was held in the trust and the customer was investigated. As most trusts don't receive the threshold, we needed to determine the type of trust to see if it was liable.

After reviewing the trust deed, we found it to be a special trust and should not be receiving the threshold. We issued amended assessments with a further liability.

Land Tax Case Study – Primary Production Land

Mr and Mrs Brown own a small acreage property but do not reside there. The property is rented to tenants who also keep a small number of grazing livestock on the property. The Browns lodged a PPL application due to the tenants having some livestock on the property. We reviewed the application and determined that the rental aspect of the property was the dominant use and therefore they weren’t entitled to the PPL exemption.

Parking space levy

Our parking space levy compliance program focuses on ensuring that liable property owners have correctly paid the levy.

Initiatives to ensure parking space levy compliance in 2016–17 include:

  • investigating property owners to validate their methods for determining concessions

  • investigating registered customers where it appears that the customer is overstating exemptions, including clients who continually claim large exemptions

  • identifying and contacting owners who have not registered with us for parking space levy.

Payroll tax

Our payroll tax compliance program focuses on identifying and contacting liable employers who have failed to register with us for payroll tax purposes, and investigating registered customers who appear to have understated their wages.

Initiatives to ensure payroll tax compliance in 2016–17 include:

  • continuing to audit unregistered businesses where there may be a liability to pay payroll tax

  • investigating businesses where we believe taxable wages have been understated

  • conducting specific reviews where we believe the fringe benefits component has been under-declared

  • identifying employers who are claiming the benefit of multiple thresholds by failing to declare group structures for payroll tax

  • reviewing all refund requests and investigating high value requests and anomalies

  • targeting non-complying employers in various industries including construction, IT, real estate, security, labour hire, and cleaning

  • targeting employers who fail to declare payments to contractors that are liable for payroll tax

  • continuing to improve case selection models, and utilising new technology, to identify non-complying customers

  • following up employers who fail to lodge their monthly and/or annual returns on time.

Common errors for payroll tax include:

  • not registering when total liable wages exceed the NSW threshold

  • not including all liable wages in the total wages calculation, including apprentice/trainee wages, superannuation, and taxable fringe benefits

  • incorrectly classifying employees as contractors – in certain cases 'contractors' may be considered to be 'employees' under the Payroll Tax Act 2007

  • not declaring fringe benefits

  • incorrectly listing group status, including not registering a related entity such as:

    • holding subsidiary relationships

    • common control relationships (through shareholders/directors/beneficiaries or any combination of these)

    • common use of employees

  • not declaring interstate wages

  • incorrectly claiming an exemption for certain wages

  • classifying arrangements for the provision of labour as arrangements for the provision of services

  • not including in liable wages, the benefit to employees arising from the grant of shares and/or options

  • late lodgement of monthly or annual returns.

Payroll Tax Case study – Grouping

Mr and Mrs Adams own and operate 2 real estate agencies. They are the only directors and shareholders of both companies. Both businesses employ staff in NSW and individually each business has wages less than the payroll tax threshold.

We investigated the businesses, and determined that they should be grouped for payroll tax because of common shareholding and directorship. We issued payroll tax assessments to the businesses based on the aggregate total of the wages.

Payroll Tax Case study – Contractors

We investigated a building company that engaged a significant number of contractors. The company was unaware that some contractor payments may be considered liable, and thought that if a contractor obtained an ABN and was not paid wages, the company would not be liable for payroll tax.

Our investigation found that 15 contractors should have been included as taxable wages as they did not satisfy any of the 9 exemptions available. We found that these contractors were mainly sole traders and companies with 1 employee that did not engage labour and worked the entire financial year providing labour to the building company. These contractor payments were included as taxable wages for payroll tax.

Insurance duty

Our insurance duty compliance program focuses on ensuring that insurers have paid the correct duty on their policies.

Initiatives to ensure insurance duty compliance in 2016–17 include:

  • verifying insurers have correctly classified their insurance policies as general or life insurance

  • verifying insurers have applied the correct rate to calculate the duty 

  • identifying insurers who have incorrectly calculated the duty on their insurance policies

  • monitoring insurance policies placed with overseas or unregistered funds

  • following up insurers who fail to lodge their monthly and/or annual returns on time.

Common errors for insurance duty include:

  • Incorrect classification of Type A and Type B risks for general insurance products
  • Incorrect classification of policies between life and general insurance
  • Incorrect methods of apportionment used in cases where a single policy covers risks in multiple jurisdictions
  • Exemptions being claimed for exempt insurance products and exempt insurance clients where not eligible.
Insurance Duty Case Study - Incorrect Classification and Rates

A common error amongst general insurers is classifying plant and machinery policies as motor vehicle insurance duty. Motor vehicle insurance duty is deemed to be Type B insurance and insurance duty is payable at a rate of 5% of the premium.

Recent compliance audits have identified insurers are including items of plant and equipment, that are not permanently attached to the primary vehicle or a trailer, as motor vehicle insurance. These items should not be considered motor vehicle insurance and duty should be calculated as Type A insurance, payable at 9% of the premium.

If a Plant and Equipment policy includes items of equipment that meet the definition of motor vehicles and other items that are usually removed for use, from the vehicle or trailer, the insurer must apportion duty as both Type A and Type B insurance.

Health insurance levy

Our health insurance levy compliance program focuses on ensuring that organisations providing health benefits to NSW contributors have correctly paid the levy.

Initiatives to ensure health insurance levy compliance in 2016-17 include:

  • verifying the correct levy has been paid

  • verifying any exemption that has been claimed

  • investigating interstate funds that have contributors resident in NSW or using the services of a NSW registered agent

  • following up funds who fail to lodge their monthly returns.

Mineral royalties

Our mineral royalty compliance program focuses on ensuring that leaseholders in NSW have correctly paid royalty.

Initiatives to ensure mineral royalty compliance in 2016-17 include:

  • verifying that royalty has been calculated in accordance with the regulations

  • verifying that foreign exchange gains and losses have been returned correctly

  • checking that deductions claimed are allowed and returned in the correct period

  • following up customers who fail to lodge their monthly and/or annual returns on time.

Other information

Prosecuting evasion and fraud

We are serious about prosecuting deliberate evasion and fraud to ensure NSW taxes and benefits are fair and equitable.

During 2016-17, we will continue to investigate and prosecute serious matters of non-compliance by:

  • conducting extensive data matching with third parties to ensure customers comply with their obligations for taxes and benefits

  • investigating suspected cases with a view to prosecution

  • instigating prosecution action against customers who deliberately provide false and misleading information concerning their tax and benefit liabilities

  • initiating prosecution action for failure to comply with formal notices requesting information

  • publicising prosecution outcomes to raise awareness.

Focus on Phoenix activity

We are a member of an interagency Phoenix Taskforce that aims to establish a coordinated approach to identifying individuals and entities who engage in fraudulent phoenix activity in order to avoid obligations, such as state and federal taxes and employee entitlements. The Taskforce allows for the sharing of information across jurisdictions so that strategies can be developed to minimise revenue loss.

Computer Assisted Verification for Payroll Tax

If you maintain electronic financial records, Revenue NSW will consider the use of Computer Assisted Verification (CAV) techniques to analyse these records when conducting payroll tax audits and investigations. These techniques will not be appropriate in every case.

The benefits of using CAV when conducting audits and investigations include:

  • providing electronic information to Revenue NSW minimises disruption to your regular business activities as it reduces the time Revenue NSW investigators spend on your premises and improves case turn-around times
  • it is cheaper and more efficient to provide information electronically, and there are fewer requests to supply paper copies of transactions and reports.

Compliance line

We encourage customers to make voluntary disclosures if they find they have understated their liability. When a voluntary disclosure is made, a reduced level of interest is imposed compared to those cases where the understatement is identified as a result of our action.

We also investigate anonymous disclosures from members of the public. Confidentiality is assured and we welcome any information about non-compliance relating to the taxes, duties and grants we administer. Anonymous disclosures can be reported to the Compliance line.

Summary of our 2015–16 compliance results

As part of our compliance results for 2015–16, we:

  • conducted 342 duties investigations and audits identifying over $1.1 million in additional duty

  • conducted audits of 2,491 EDR transactions, identifying over $190,000 in additional duty

  • investigated 268 landholders which resulted in 75 new liabilities and identified $51.8 million in additional duty and land tax revenue

  • investigated over 22,200 landholders that were either not assessed for land tax or had incorrect exemptions applied. This resulted in 15,500 new liabilities and identified $177 million in additional land tax

  • audited 5,315 registered payroll tax customers which identified $175 million in additional payroll tax revenue

  • contacted 2,433 employers not registered for payroll tax that our data matching suggested may be liable. Of these, 2,340 were found to be liable which identified $86.8 million in additional payroll tax revenue

  • completing analysis on 517 cases, CAV has saved investigators an average of 89% of time that they would have otherwise spent conducting the analysis of the customer provided data

  • completed 165 First Home Owner Grant investigations, which resulted in 73 recipients having to repay the grant with a value of $873,169, including penalties

  • completed 147 First Home Plus and First Home—New Home investigations, which resulted in 63 duties exemptions or concessions being repaid. The cancellation of these exemptions and concessions resulted in $935,626 in additional duty, including interest and penalties

  • conducted 43 Insurance Duty investigations identifying over $10 million in additional revenue

  • completed 12 Health Insurance Levy investigations identifying over $990,000 in additional revenue

  • successfully prosecuted 6 matters for serious offences under the First Home Owner Grant (New Homes) Act 2000, Oaths Act 1900, Crimes Act 1900 and the Taxation Administration Act 1996. Sentences imposed for these offences included, good behaviour bonds, Community Service Orders and over $10,000 in fines.

For more information on our compliance activities, contact us.

Phone
1800 806 592*
8.30am - 5.00pm Monday to Friday
Email
 

Last updated: 6 September 2017