ATO's data dragnet targets bank IT shops

Tax Commissioner Michael Carmody has issued a blunt warning to the IT frontline of Australian banks that he expects their full cooperation in data-matching customer bank records with tax declarations as part of a massive crackdown on tax evasion.

The crackdown will target bank customers given so-called low-doc (low documentation) loans, where banks issue mortgages and lending products to customers who do not possess the usual proof-of-income documentation - such as payslips, and group certificates - which banks demand.

Macquarie Research estimates the low-doc funds lend up to $50 billion or about 8 to 12 percent of the total Australian mortgage market, with some estimates as high as 15 percent.

Computerworld understands the IT shops of banks, mortgage brokers and mortgage insurers are all likely to be targets of legal orders to provide the taxman with customer data to compare mortgage repayments with declarations (or lack thereof) of taxable incomes.

On Sunday (July 24) Carmody told the ABC's Inside Business program he intends to start data-drilling bank's low-doc loan records almost immediately. However, the Tax Commissioner diplomatically avoided any overt suggestion that Australian banks may turn a blind eye to tax evasion when risk-assessing their customer's financial data.

Carmody said an initial data-matching exercise - "a targeted examination of high-risk cases" - had netted $23 million in back taxes and fines and was "certainly enough" to warrant a considerable expansion of the data-matching dragnet.

Amazingly, the $23 million was raised from a mere 140 low-doc customers, which the ATO distilled from another batch of 400 low-doc customers its data-matching analysis identified.

Random samples of low-doc customers proved less lucrative, but revealed a profound aversion to filing tax returns.

"Around 350 taxpayers were selected randomly from eight lenders to get a picture of the broader population using these products. This information was obtained using the access powers in the tax law.

"It identified failure to lodge tax returns as a primary concern. Around 50 percent of these people had not lodged returns - the average was three years outstanding," ATO documents obtained by Computerworld reveal.

"What that means is in the coming year, or this year, we will be systematically doing data-matching to check lodgement of returns from people who have applied for and obtained low-doc loans and we'll continue to develop sophisticated risk analysis to identify the ones where we suspect understatement of income is a significant issue," Carmody said.

CEO of the Australian Bankers' Association (ABA), David Bell said his organization "does not have a view on the ATO's data matching program for taxpayers who have low doc loans", but complied with ATO requests for taxpayer data in the form of a "section 264 [Income Tax Assessment Act] notice.

Asked if banks may experience problems in complying with large-scale audits, Bell said the ABA "is unaware of instances where a bank was unable to comply with a section 264 notice due to resource constraints".

However, some banking analysts are cautioning that initially impressive figures from the crackdown may lose some of their lustre when the ATO tries to extract large volumes of low-doc data from banks' siloed CRM systems.

Senior analyst at East and Partners, Paul Bartholomew, said the pain factor for both the banks and the ATO depended on the level of detail the ATO was requesting.

"From what we've seen, not every bank will have CRM that is capable of extracting that sort of data," Bartholomew said, adding that banks used differing criteria for what constituted low-doc.

"It will be quite interesting to see what happens," Bartholomew said.

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