Have you Purchased a Luxury Car, Boat or Racehorse in the Last 5 Years?

Before you go out and purchase a luxury boat, car or thoroughbred horse – be aware the Tax Office are watching. In fact, their ‘lifestyle assets data-matching program’ involves gathering data from more than 30 insurance companies for these types of assets where the value is equal to or exceeds nominated thresholds.

The ATO have indicated that the classes of assets under review might be expanded as they identify and obtain data from other general and specialist insurers.

The ATO's lifestyle assets data-matching program has actually been in place since February 2016 and under the program, they collect data on insurance policies for these types of asset. They have data from the 2015/16 year up to and including the 2019/20 year. The data includes the policy holder details (name, address, phone number, date of birth) plus the insurance policy details (policy number, start and end date, asset insured, physical location of the asset etc).

It is estimated that records of approximately 350,000 individuals will be obtained each financial year and the purpose of acquiring the data is to allow the ATO to identify potential tax evasion and fraud against the Commonwealth including:

• taxpayers accumulating (or improving) assets with insufficient income reported in their tax returns to show the financial means to pay for them
• income tax and capital gains tax (CGT) - taxpayers disposing of assets and not declaring the revenue and/or capital gains on those sales
• goods and services tax (GST) - taxpayers may be purchasing assets for personal use through their business or related entities and incorrectly claiming GST credits
• fringe benefits tax (FBT) – taxpayers may be purchasing assets through their business entities with no apparent connection with their business activities, but rather applying those assets to the personal enjoyment of an associate or employee giving rise to a fringe benefits tax liability
• self-managed super funds (SMSFs) may be acquiring assets but applying them to the benefit of the fund's trustee or beneficiaries.

The ATO are required to comply with strict laws to protect your privacy when they collect data from other agencies and organisations for the purpose of their data matching programs. These laws include the Privacy Act 1988, the secrecy provisions of the Income Tax Assessment Act 1936 and the Taxation Administration Act 1953.

Why Lifestyle Assets?

The ATO claim that matching external data with tax return data ensures that people and businesses comply with their tax and super tax obligations. According to the Deputy Commissioner of Taxation Deborah Jenkins, luxury and lifestyle items like private jets and yachts could indicate a discrepancy between someone’s real financial situation and what they might report in their income tax return. Ms Jenkins said, “If a taxpayer is reporting a taxable income of $70,000 to us but we know they own a three-million-dollar yacht, then this is likely to raise some red flags.”

“What we may discover is that some people have been declaring a level of income that simply does not add up when we compare it to the value of their assets like art, yachts, or aircraft.” She said the data could also help the ATO identify taxpayers who have made capital gains on the disposal of certain assets without declaring it, or those who bought the items for their own personal use only to declare it as a business asset and claim the GST credit.  “With high value assets like fine art, there can be some significant capital gains made when these assets are sold, and capital gains tax may need to be paid on the sale or disposal of these items,” she said.

Of course, if you own and insure assets in these categories that are valued over the prescribed thresholds there’s no cause for alarm if your taxable income or other sources of funds support the purchase. If you suspect you’ve made an error in your return, we recommend you contact us today.

This article forms part of our Business Accelerator Magazine. Download the latest edition HERE or browse other articles from this edition below:

• Are You Losing Sleep Because of Your Business?
• Bushfire Support for Small Business
• Thinking of Selling Your Business?
• What are the Tax Consequences of Different Business Structures?
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