SMEs deal with the tax system and the ATO in a multitude of ways. It's not always smooth sailing, but there are avenues for SMEs and others to raise issues concerning the administration of the tax system they consider should be examined. One of those avenues is through the office of the Inspector-General of Taxation.
The Inspector-General was established in 2003 and is an independent statutory office to review systemic tax administration issues and to report to the government with recommendations for improving tax administration for the benefit of all taxpayers. The Inspector-General’s reports to government are required to be made public by the government.
While the Inspector-General cannot review tax policy, and does not deal with individual taxpayer matters, his regular reviews are intended to produce improvements to how the tax laws are administered. SMEs might be pleased to know that the Inspector-General also has strong powers to compel production of documents by tax officials and to take evidence from tax officials where this proves necessary.
In that context, the current Inspector-General, Ali Noroozi, has just announced details of his new work program aimed at further improving tax administration. The Inspector-General usually releases his new work programs on a regular basis following consultation with taxpayers and businesses, professional bodies, industry associations and others. So, it represents an important opportunity for SMEs to put before the Inspector-General issues they want addressed.
The Inspector-General says each of his reviews achieves both direct and incremental improvements. While the full benefit of a given review may not always be immediately apparent, Noroozi said he is confident that the incremental changes brought about by the reviews and other complimentary activities he undertakes, over time, will result in enduring improvements to tax administration.
The new work program includes reviews on issues that will be of direct interest to SMEs, including the ATO's use of compliance risk assessment tools, the ATO's administration of penalties, and the ATO's compliance approaches to individual taxpayers.
ATO use of compliance risk assessment tools
The Inspector-General said many submissions he received raised concerns with the ATO's risk assessment tools and their application in selecting taxpayers for audit or other compliance activities. The ATO identifies compliance risk by matching and analysing data and information eg re business performance, activity statements, one-off or unusual transactions, lifestyles not supported by after-tax income, etc. It's an ongoing process.
Noroozi said stakeholders questioned whether a significant number of compliant taxpayers were inadvertently captured resulting in the unnecessary imposition of higher compliance costs. Concerns were also expressed in relation to inaccurate risk ratings by the ATO based on incorrect assumptions or irrelevant factors which taxpayers cannot correct or test due to the lack of transparency of the process.
The Inspector-General's review will seek to determine the effectiveness of these ATO tools in accurately determining the risk of non-compliance, including the role of random audits in developing risk factors or validating compliance effectiveness. Consideration of whether adequate due process is afforded to taxpayers will also be examined, including whether opportunities exist for taxpayers to test the underlying information on which ATO risk assessments are based.
ATO administration of penalties
The Inspector-General said concerns with the sustainability of ATO penalty decisions continue to be raised. In particular, he said questions have been raised as to whether the relevant ATO processes place sufficient emphasis on appropriate evidentiary bases for penalty decisions to avoid unsustainable penalties being used as "bargaining chips" in settlement negotiations. Also, significant compliance costs in disputing ATO penalty decisions are a continuing concern.
The Inspector-General's review will seek to determine the underlying causes for unsustainable ATO penalty decisions and whether improvements can be made to the ATO’s policies, procedures, training and support tools to achieve better outcomes. Noroozi will also aim to examine the fairness of aspects of the penalty regime whilst recognising its role as a deterrent against non-compliance.
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