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Australia Data-Matching Letters Guide

the ATO data-matching letters. The guide covers: the ATO data matching programs (the "third-party data collection") — the ATO collects the data from the third-party sources to verify the taxpayer's income and the deductions; the data sources include: (a) the "employer STP data" (the "salary and the wages, the PAYG withholding" through the "Single Touch Payroll"), (b) the "bank and the financial institution data" (the "interest income" from the "banks, the credit unions, the building societies"), (c) the "share registry data" (the "dividends, the share sales, the capital gains" from the "share registries" and the "investment platforms"), (d) the "government agency data" (the "Centrelink payments, the Department of Home Affairs visa data, the state revenue office data"), (e) the "property transaction data" (the "property purchases and the sales" from the "state and the territory revenue offices"), (f) the "ride-sourcing and the sharing economy data" (the "Uber, the Airbnb, the Airtasker" — the "platform data" reported under the "sharing economy reporting regime"); the discrepancy letters (the "data-matching enquiry letters") — the ATO sends the "data-matching letter" (the "enquiry letter" or the "please explain letter") when the ATO identifies the discrepancy between the third-party data and the taxpayer's tax return data; the letter states: (a) the "nature of the discrepancy" (the "income not reported" or the "income incorrectly reported"), (b) the "third-party data" received by the ATO, (c) the "response deadline" (the "28 days from the date of the letter"); the taxpayer must respond to the letter by: (a) confirming the error and lodging the "amended return", (b) explaining the discrepancy and providing the "supporting evidence" (the "bank statements, the contracts, the correspondence"); the response requirements (the "how to respond to the ATO") — the taxpayer can respond: (a) through the "ATO online services" — the "Respond to the ATO enquiry" option in the myGov, (b) through the "registered tax agent" — the agent responds through the "agent portal", (c) through the "written response" — the letter addressed to the ATO with the full explanation and the evidence; the taxpayer who does not respond within the 28 days may receive the "amended assessment" (the "default assessment" based on the third-party data) and the "penalty" for the non-compliance.

Common Data-Matching Programs

  • Bank and financial institution matching: The ATO matches the interest income data from the financial institutions against the interest declared in the tax return. The banks report the interest for the accounts earning over $1 in the interest per year. The ATO also matches the "dividend data" from the share registries and the "managed fund distribution data" from the investment platforms.
  • Property and CGT matching: The ATO matches the "property title transactions" from the state revenue offices to identify the property sales not declared in the tax return. The ATO also matches the "shares and the managed fund transactions" to verify the CGT calculations. The property data includes the "vendor name, the sale price, the settlement date".
  • Online platform matching: The ATO receives the transaction data from the "online platforms" (the "Uber, the Didi, the Ola" for the ride-sourcing, the "Airbnb, the Stayz" for the short-term rental, the "Airtasker, the Freelancer" for the gig economy). The platform data includes the "gross payments" and the "number of the transactions".

For the CGT reporting and the property tax obligations, see our Capital Gains Tax Guide →.

Managing the Data-Matching

  • Preventive approach: The taxpayer should review the pre-filled data in the myTax carefully before the lodgement. The pre-filled data includes the STP income, the interest, the dividends and the government payments. The correction before the lodgement avoids the data-matching letter after the lodgement.
  • Responding to the letter: The taxpayer must respond within the 28-day deadline. The response should: (a) state whether the taxpayer agrees or disagrees with the discrepancy, (b) provide the supporting evidence (the "bank statement, the contract, the receipt"), (c) propose the specific action (the "amendment, the additional disclosure, the correction").
  • Voluntary disclosure before the letter: The taxpayer who discovers the omission or the error before receiving the data-matching letter should make the "voluntary disclosure" to the ATO. The voluntary disclosure before the ATO contact attracts the maximum penalty reduction of 80%. The voluntary disclosure after the AOT contact but before the audit attracts the 40% penalty reduction.

For the voluntary disclosure and the reduced penalties, see our Amending Your Tax Return Guide →.