Accounting Tax Workpapers
15-Oct-2020 By - team

Is ATO able to see my bank account?

You may have heard that ATO data matching technology is now being used in Australia. The ATO launched the system to shine a light on people who have undeclared income missing from their tax returns, opening a new opportunity to catch people out and collect more tax from Australians who may understate their income.

If you make cash deposits in your bank account, it is more likely that you will get audited by the ATO. Therefore, before you make any significant cash deposits in your bank account, you should get legal advice on your tax obligations under the law.

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You might have seen the recent spate of media freedom advertisements as part of the Your Right to Know campaign. The prime-time advertising states that the Australian Tax Office (ATO) can take money from your account without you knowing. The question is, do you really know what powers the ATO have?

The ATO is one of the most powerful institutions in Australia with very broad and encompassing powers. Over the last few years, the approach has been to work with taxpayers to ensure that the tax they owe is paid. But this level of understanding only lasts so long, and they will take action where taxpayers are unwilling to work with them, repeatedly default on an agreed payment plan, or don’t take steps to resolve the situation (these steps include an expectation that you go into debt to clear your tax debt). And, there are also circumstances where the ATO can swoop in where they believe there is a need to secure assets such as bank accounts if there is a risk of disposal or flight risk.


Unexplained cash deposits in your Australian bank account

If you regularly make cash deposits in your personal or business bank account in Australia, it is essential that you get legal advice to ensure that you are correctly complying with your tax and record-keeping obligations.

This is important because unexplained cash deposits in your bank account can be treated as income by the ATO and you may end up with a very large tax bill and heavy penalties by the ATO.

Ignorance of the tax laws is not a defence. You must understand and comply with your legal obligations in Australia. If you fail to do so, you are likely to get a big fine from the ATO. Also, in more serious matters, the ATO may prosecute you criminally. Therefore, this is an important issue that you should get legal advice on.


The ATO can get access to your Australian bank statements

The ATO has strong legal powers to access your personal bank information. Those powers allow the ATO to get your Australian bank statements directly from your bank. Therefore, any cash that you have deposited in your bank account may be subject to review and audit the ATO.

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Reporting of cash transactions of $10,000 and more to AUSTRAC

Australian Transaction Reports and Analysis Centre (AUSTRAC) is an Australian government agency that monitors financial transactions to identify money laundering, organised crime, tax evasion, welfare fraud and terrorism.

All cash transactions of $10,000 and more must be reported to AUSTRAC within 10 days. This includes cash deposits of $10,000 and more in your Australian bank accounts.

For a tax audit, the ATO is able to get access to all reports made to AUSTRAC for cash transactions of $10,000 and more. Therefore, any significant cash transaction that you have made in Australia may be subject to review and audit the ATO.


Reporting of suspicious cash transactions to AUSTRAC

If you make suspicious cash deposits in your bank account and the bank forms a reasonable suspicion that is doing so to commit tax evasion or another crime, then the bank must report the suspicious bank deposits to AUSTRAC within 3 days.

For example, if you make regular cash deposits of $9,000 in your bank account, your bank is likely still to report those transactions to AUSTRAC as suspicious cash transactions, even though each deposit is under than the $10,000 threshold.


Unexplained cash deposits in your overseas bank accounts

If you are an Australian resident for tax purposes, then you need to pay income tax to the ATO on your worldwide income. Therefore, any cash deposited in your overseas bank account may be relevant to your Australian tax obligations to the ATO.

If you need to make a voluntary disclosure to the ATO about your foreign income or unexplained cash deposits in your overseas bank accounts, you should get legal advice from an experienced tax lawyer and act quickly before an ATO audit. Otherwise, the penalties are likely to be much higher after the ATO as started an audit of your tax affairs.


The ATO can get access to your foreign bank information

The Common Reporting Standard (CRS) is a new legal requirement for the automatic exchange of financial account information between your foreign bank and the ATO. The new laws came into effect on 1 July 2017. The first exchange of information occurred in 2018.


Under the CRS, your foreign bank is required to report the following information to the ATO regarding your foreign bank account:

  • Name
  • Address
  • Taxpayer Identification Number (TIN)
  • Date and place of birth
  • Account number
  • Name and identifying the number of reporting financial institution
  • Account balance or value as of the end of the relevant calendar year (or another appropriate reporting period)
  • The details of any accounts closed in the relevant calendar year (or another appropriate reporting period)
  • Depending on the type of the account, information regarding dividends, interest, capital gains etc


If there is any inconsistency between the information reported by your foreign bank to the ATO and the information that you have personally reported to the ATO about your foreign income, the ATO may audit your tax affairs to investigate the discrepancy.


Voluntary disclosure to the ATO for unexplained cash deposits

If there are any unexplained cash deposited in your bank accounts, you should get legal advice on making a voluntary disclosure to the ATO about your tax affairs and deal with any tax issues as soon as possible before a formal audit by the ATO. This is likely to give you the best outcome with the ATO and minimise the heavy penalties.

You only get one shot at the voluntary discourse. Therefore, it is important to get it right, and it would be best for you to engage an experienced tax lawyer to prepare and submit the voluntary disclosure to the ATO.


Finding of fraud or evasion by the ATO

If the ATO makes a finding of fraud or evasion against you for unexplained cash deposits in your bank account, then there is no time limit or restriction on how far the ATO can go back and audit you. For example, the ATO can audit all of your tax affairs for the last 10 or 20 years and issue you with a very large tax bill for that period.

To avoid that situation, you must get legal advice on your tax affairs and meet your tax obligations in Australia.

In the modern technology age, you can’t hide from the Tax Office; it’s watching every dollar you earn and spend.

The ATO can now match Australians’ tax returns with personal data collected from banks, employers and other institutions, to work out whether there’s undeclared or missing income and whether expense claims have been incorrectly reported.

The new data-matching system introduced to reduce tax evasion has already seen an increase in complaints from taxpayers and small businesses that might not be declaring all of their revenue, particularly those suspected to be operating cash systems.


How does it work?

The Tax Office uses a two-stage process to match external data it collects with its existing records.

First, the ATO pulls data from your bank and other financial institutions, including overseas bank accounts. It also pools data from health insurance funds, business activity statements, super accounts and state property information. And more recently, the ATO has extended its reach overseas and has started matching data about Australians with overseas bank accounts earning interest as well!

It then compares all of this data against the information provided in a tax return. If there’s undeclared income or something doesn’t match up, the Tax Office will know and will then open an audit investigation.

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How can you make sure you, or your business, are in the clear?

We’ve compiled a list of tips on how to remain in the ATO’s good side:


Stay on the books

Don’t take on a cash job without declaring it. The ATO has access to your and your employer’s bank data, as well as almost any other data it needs, so it will see all deposits, super contributions, withdrawals and interest you earn.

Make sure everything is “on the books” and declared as income in your tax return. The Tax Office will cross-reference your bank account against your ABN and note any missing income from your tax return.


Declare overseas cash

If you have an overseas bank account, you should declare any interest you receive. In 2016, it was likely the ATO will be paying close attention to any Australians who are not declaring their income from overseas accounts on their tax return.


Freelance is not (tax) free

For those with additional income sources, such as renting out your room on Airbnb, driving with Uber, or providing freelance services, you are not exempt from declaring income. Don’t fall into the trap of thinking that, because it’s relatively new, the growing sharing economy sector is passing under the radar. It’s not.


Keep property income on the level

Don’t under-report your property income or over-report your deductions. The ATO is assessing data from 1985 to 2017 to make sure the property dealings by businesses and individuals are in compliance with tax laws.


Which bank(s)?

At this time the following banks will be asked to provide details of their customers –

  • Australia and New Zealand Banking Group Limited (“ANZ”)
  • Bank of China (Australia) Limited
  • Bank of China Limited
  • Credit Suisse AG
  • Deutsche Bank Aktiengessellschaft
  • HSBC Bank Australia Limited
  • Hongkong and Shanghai Banking Corporation Limited
  • Investec Bank (Australia) Limited
  • Macquarie Bank Limited
  • Rabobank Australia Limited
  • Rabobank Nederland
  • UBS AG
  • Citibank, N.A.
  • Citigroup Pty Limited


(Did you just have a sigh of relief when you didn’t see your bank (they are the primary ones people use who have multinational financial affairs)? Well just because your bank isn’t currently on this list please don’t think you and your affairs can’t fall onto the ATO’s radar. The ATO undertakes many programs to obtain information. While your bank may not be part of this particular one, it doesn’t mean they haven’t previously been asked to provide information nor that they won’t work in the future!)


What will they do with the data obtained?

The information they obtain from the banks will be electronically matched with various data already held by the ATO in an attempt to identify any non-compliance.

The program is called the Banking Transparency Strategy, and the ATO advises its objectives are to:

  • Assist the ATO to build an understanding of taxpayer behaviour in international dealings, develop compliance profiles and improve fraud detection models
  • Identify taxpayers who are not reporting all of their income
  • Identify Australian resident taxpayers who may be outside the tax system
  • Increase transparency of the worldwide dealings of Australian resident taxpayers
  • Help to develop and implement administrative strategies to improve voluntary compliance through education, audit, lodgement enforcement and debt collection activities
  • Promote voluntary compliance and strengthen community confidence in the integrity of the tax system.


Here are just a few of the ATO’s powers to ensure that tax owing is collected:

  • Issue a garnishee notice to someone holding money on your behalf – for example, a bank. For salary and wage earners, the ATO can require your employer to take part of your salary and pay it to them until your tax debt is paid. This is generally limited to a maximum of 30% of your salary. If you are a business, the ATO can go as far as accessing your merchant facility if you have credit owing.
  • Director penalty notice – Directors can personally incur penalties equal to their company’s unpaid PAYG withholding liabilities or superannuation guarantee charge. The Government wants to expand this to cover unpaid GST liabilities as well. If this debt is not paid, the ATO may issue a director penalty notice to start legal proceedings (and withhold any refunds due to the director).
  • Direction to pay super guarantee – if employers receive a direction to pay superannuation guarantee, any outstanding Superannuation Guarantee Charge must be paid within the period specified. It’s a criminal offence not to comply with this notice and may result in enforced penalties and/or imprisonment.
  • Impose a freezing order – for example, on your bank accounts. That is, without notice, the ATO can freeze and then if required, strip your accounts, particularly where they believe you have alternative sources of income. This freezing order cannot be initiated by the ATO but must be granted by a court.
  • Issue writs or warrants of execution, or warrants of seizure and sale. For example, they can force you to sell certain assets to pay your tax debts.
  • Winding up – liquidate your company or bankrupt you. Most taxpayers don’t believe how strongly the ATO will act. The ATO can commence winding-up procedures before any dispute is decided. In 2017-18 the ATO bankrupted 470 taxpayers and wound up 1,282 entities. The ATO would argue that in many cases, the wind-up forces the inevitable and prevents further debt being incurred either to the ATO or other parties.


The message is, make sure you are on top of your paperwork. If the ATO has queries or suspects something is not right, you need to be able to respond. The longer you take, or a lack of evidence, will only escalate the situation.

So, can the ATO take money out of your account without advising you first? With the support of the courts, absolutely and a whole lot more.

If you’re struggling to stay on top of your payments, we always encourage you to be proactive – talk to your tax agent and have them contact the ATO on your behalf to negotiate a payment plan.


Remember your obligations

We take this opportunity once again to remind all our Clients that as an Australian resident taxpayer you are required to disclose all income you earn (or have some entitlement to whether directly or indirectly) from anywhere in the world. Equally, even if you do not earn income on them, if you have or control (directly or indirectly) assets outside of Australia you are generally required to disclose their existence in your tax return (even if there is no tax to currently paying concerning them).

The ATO has been operating “Project DO IT: disclose offshore income today” since March this year whereby taxpayers have been asked to come forward and voluntarily disclose unreported foreign income and assets in exchange for many benefits including avoiding steep penalties and the risk of criminal prosecution for tax avoidance.


Guest post by : team Form -

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