How the ATO Uses AI to Keep an Eye on Small Businesses
The Australian Taxation Office (ATO) is employing Artificial Intelligence (AI) to assess small business tax compliance, using custom-built systems to analyse deductible expenses and detect income hidden in the shadow economy.
AI Models for Tax Compliance
Among the AI tools is the ‘Black Economy Omitted Income Scoring Job,’ designed to identify undeclared cash-in-hand earnings and other unreported income. This model assesses the likelihood and potential impact of omitted income in the small business sector and provides guidance for compliance investigations.
‘Small Business Stratified Sampling,’ seeks to identify understated business income, overstated deductible expenses and use big data and AI to identify taxpayers at risk of non-compliance. Other models focus similarly on Goods and Services Tax (GST), Pay as You Go (PAYG) withholding and superannuation guarantees.
The ATO also employs AI to detect inconsistencies between reported income and the lifestyle of small business owners. The ‘Unexplained Wealth’ model assesses discrepancies between taxpayers’ household lifestyle income and industry standards.
AI Technologies in Use
The ATO’s 43 AI models incorporate machine learning algorithms, natural language processing, deep learning, and neural networks. These models are distinct from traditional data analytics methods, as they support decision-making through both supervised and unsupervised learning techniques.
None of the AI models make fully automated decisions, ensuring human oversight remains integral. However, some models generate real-time prompts, alerting taxpayers to potential discrepancies in their tax returns, such as work-related expense claims outside expected ranges.
The ATO employs over 100 specialist data scientists to develop and implement AI models internally.
What Does this Mean for Your Business?
The ATO’s use of AI means small business owners must ensure accurate tax reporting, as AI tools are detecting inconsistencies in income, deductions, and compliance. Keeping thorough records and working with knowledgeable tax professionals is more important than ever.
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