The Inspector-General of Taxation today launched a review into the Australian Taxation Office’s compliance risk assessment tools used to determine which taxpayers and businesses the ATO targets.
Taxation Inspector-General Ali Noroozi said the ATO’s tax risk assessment tools are “an area of ongoing concern to taxpayers and their advisers” and these concerns have led him to conduct the review.
Noroozi said while risk management is a generally accepted business approach, concerns exist about its accuracy and application.
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“Critically, the ATO uses tax risk assessment tools to risk-rate taxpayers and identify who gets audited and how,” he said.
The ATO uses a wide range of risk assessment tools or processes that are specific to a given market segment or tax.
Individual taxpayers may be affected by the “tax refund integrity program” where refunds are withheld on triggering risk flags or small business benchmarks may be applied.
Noroozi said the review may look at the accuracy, relevance, reliability and appropriateness of the inputs used along with whether the ATO’s compliance activities are in accordance with the identified level of risk.
“Importantly I want to know if the ATO risk tools are doing the job properly and not picking up too many compliant taxpayers in the net,” Noroozi said.
“We need to minimise unnecessary compliance costs which are a burden to both taxpayers and the tax system.”
Paul Drum, head of policy at CPA Australia, told SmartCompany the investigation reflected a desire to understand how the ATO applied risk assessment in a number of cases.
“From our perspective, there are not a swathe of cases that we think have been unfairly selected or targeted. It is about understanding how effectively the risk management process has been applied,” he says.
“It is good to have an independent review of this, as a better tax system is in everyone’s interest.”
Drum says the investigation may have been sparked by compliant taxpayers who feel they have been unfairly targeted.
“It may be there are taxpayers who believe they have been unfairly targeted and so they are wondering how did they ever get on a list and yet they have had to go through a process that can be invasive and chew up valuable business time,” he says.
Drum says he hopes such cases are minimal in number.
“We certainly don’t have cupboard full of submissions from angry taxpayers who have complained about being unfairly targeted,” he says.
The Inspector-General is calling for submissions by November 30, 2012.
Keep up to date with tax matters by tax expert Terry Hayes on SmartCompany.