AI and Data Matching: The ATO Joins the Race!
Artificial intelligence (AI) is changing the way businesses operate, and the tax system is no exception.
The ATO is increasingly using AI, data matching and advanced analytics to identify discrepancies in tax returns. This means keeping accurate records and making sure your tax return is complete and correct is more important than ever.
How is the ATO using AI?
In a recent speech at the AI Summit Australia, a Deputy Commissioner of Taxation highlighted the growing use of AI together with the extensive data collected by the ATO.
The ATO is using this technology to do more than simply identify tax fraud. AI can also assist with analysing deductions and identifying income that may not have been correctly reported.
The ATO's approach is to combine:
quality data;
strong analytics;
AI capabilities; and
human judgement.
This allows the ATO to compare information from different sources and identify potential discrepancies more efficiently.
What information does the ATO have access to?
The ATO receives information from a wide range of sources and can match this information against what taxpayers report in their tax returns.
This can include:
employment income;
interest and investment income;
government payments;
capital gains from the sale of shares and property;
foreign employment income; and
payments to contractors in the building and construction industry.
And the list does not stop there.
Passenger movements are also being matched
The ATO has also announced that its passenger movements data-matching program will continue from the 2026–27 to 2028–29 financial years.
The program uses passenger movement information from the Department of Home Affairs to assist the ATO in identifying potentially incorrect tax reporting.
This is another example of how the ATO is bringing together information from different government sources to identify potential inconsistencies.
What does this mean for taxpayers?
Gone are the days when a taxpayer could take a "calculated risk" that an item of income or a questionable deduction might go unnoticed.
With increasingly sophisticated data matching and AI, the ATO has more ability than ever to identify differences between information reported by taxpayers and information received from third parties.
This does not mean that every discrepancy is an indication of wrongdoing. There can be legitimate reasons why information does not match. However, it does mean taxpayers should be vigilant about their tax affairs and maintain proper records to support the information reported in their tax returns.
Our advice
If you are unsure whether income needs to be declared or whether a particular expense is deductible, it is always better to ask before lodging your tax return.
If you think AI and data matching may be relevant to your tax affairs, contact us to discuss your circumstances.
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