«A report to the Assistant Treasurer Inspector-General of Taxation October 2013 Review into aspects of the Australian Taxation Office’s use of ...»
the IGT will review aspects of the ATO’s compliance risk management with a focus on:
The ATO’s approach to risk management
1. The suitability of the ATO’s risk and compliance management approach and methodology for detecting non-compliance, including the accuracy of the risk assessment processes as predictors of non-compliance.
2. The ATO’s approach to refining the accuracy of the risk assessment processes in light of the results produced in compliance activities.
The relationship between the ATO’s risk assessment processes and compliance activities
3. The proportionality of compliance activities with the level of risk determined by the risk assessment processes.
4. The influence of risk ratings on the conduct of the ATO during compliance activities.
5. The availability of the ATO’s risk mitigation products, such as annual compliance arrangements, to taxpayers.
Inputs into the risk assessment processes
6. The accuracy, reliability, relevance and appropriateness of the inputs into the ATO’s risk
assessment processes, including:
a. validation of inputs before using them for risk assessment purposes or subsequent compliance activity decisions;
b. the basis for choosing such inputs as a taxpayers’ size, industry and turnover; and c. those that should or should not be derived from certain taxpayers’ conduct.
7. The transparency of the ATO risk assessment processes including the inputs used to develop risk ratings.
8. The ATO’s communication of the result of its risk assessment processes to affected
a. opportunities for taxpayers to comment on risk assessments and test the underlying information on which they are based; and b. the ATO’s responsiveness to taxpayers’ request for reconsideration of their risk rating.
SUBMISSION GUIDELINES8.107 The IGT envisages that your submission will be set out in two parts:
views on the ATO’s current use of compliance risk assessment tools; and
Your views on the ATO’s current use of compliance risk assessment tools
8.108 It is important to provide a detailed account of specific ATO practices and behaviours that, in your view, impact upon the appropriateness of the risk assessment and conduct of any subsequent compliance activity.
8.109 We are also seeking examples of ATO practices and behaviours that contributed to a positive taxpayer experience.
8.110 The following questions are designed to assist you in your response.
Q2. Which risk assessment process or tool was used by the ATO in relation to you? For example, large businesses may be subject to the LB&I Risk Differentiation Framework.
Alternatively, individuals and micro businesses may have been subjected to particular data matching or industry projects.
Q4. Was there a clear distinction between the ATO’s risk assessment process and any subsequent compliance activity? If not, please explain why.
Q6. What are your views on the accuracy, reliability, relevance and appropriateness of the inputs currently used in the ATO’s risk assessment processes? What are your
views on inputs such as a taxpayer’s size, industry, turnover, effective tax rate and frequency with which private rulings are sought?
Q7. Are you aware of any instances where the ATO has used inaccurate information about you in assessing your risk? How was this information corrected?
Communication Q8. How well do you understand the ATO’s risk assessment processes? Do you believe these processes are sufficiently transparent that is adequate information available in this area?
Q9. How did the ATO communicate with you on its risk assessment processes? Did
this communication include:
(a) the identification of the risk assessment, rating or hypothesis the ATO used;
(b) the information the ATO relied upon to come to that conclusion with a degree of detail that would enable you to check the accuracy of that information;
(c) the process by which the ATO arrived at that conclusion;
(d) what action you could take to reduce your ATO risk rating; and (e) in the context of proposed or commenced ATO compliance activities, whether the ATO adequately explained the reason why you were selected for the activity?
Q10. Did the ATO:
(a) provide you with an opportunity to query the ATO’s risk assessment, rating or hypothesis and provide further information; and (b) reconsider your rating in light of further information provided?
Q11. Specify any impacts of the ATO’s risk assessment process on you, such as:
(a) compliance costs (including opportunity costs) associated with the process, including those associated with meeting ATO information requests — quantify costs where possible;
(b) effect of the risk rating on the ATO’s communication and ATO officer conduct;
(c) influence of the risk rating on the application of any relevant penalties or interest;
(d) reputational damage resulting from the risk rating;
(e) access to refunds during the risk assessment process; and (f) your review, objection or escalation options.
Q12. Have any of your decisions been influenced by the ATO’s use of certain inputs?
Your suggestions for improvements
8.111 We are seeking your views on improvements that may be made to the ATO’s risk management and related compliance processes in your submission.
8.112 The following questions are designed to assist you in your response.
Q16. Should the ATO conduct random audits of a sample population as a means to establish an evaluation benchmark and assist in refining its risk assessment tools? This would involve some compliant taxpayers being audited. The ATO does not currently conduct random audits but other countries such as USA, Canada and the UK do.
Q17. What relationship should there be between the ATO’s risk assessment processes and its compliance activities?
Q18. Should there be a clear distinction between the ATO’s risk assessment processes and its compliance activities? Please explain your views.
Q20. Are there particular inputs you believe the ATO should consider which may be a useful predictor of non-compliance? Are there particular inputs you believe the ATO should not use? Please explain your views.
Q21. In what circumstances should the ATO only use objectively verifiable evidence?
Q22. What role should ATO officer qualitative or judgement based inputs play in these assessments? Please explain your views.
Q23. How should the different types of information be applied? Should the ATO use only objectively verifiable information first, filtering out certain taxpayers before applying qualitative or judgment based inputs? Should the ATO place different weight on different types of information?
Communication Q24. How can the transparency of the ATO’s risk assessment processes be improved without reducing their effectiveness as a means of capturing non-compliance?
Q25. In what circumstances and how should the ATO communicate the result of the risk assessment to the affected taxpayer? In which cases should it not? Please explain your view.
Q26. Where the ATO communicates the result of the risk assessment process, how frequently should it do so?
Q27. What opportunities should be afforded to taxpayers to comment on, or review, ATO risk assessments?
Q28. In what circumstances should the ATO advise the taxpayer of any changes in behaviour that may lead to a changed risk rating?
Impacts Q29. With a view to minimising any adverse impacts, how should the ATO approach
information gathering and risk assessment? Should it seek to make:
(a) the most accurate risk assessment at first instance, with a commensurate requirement imposed on taxpayers to provide a greater amount of information at an earlier point in time; or (b) the best risk assessment with the information it currently has available, and only request further information in a staged manner?
Q30. When obtaining information pertaining to risk assessment processes:
(a) how often should the ATO request information to ensure information is up to date;
(b) when should the ATO seek the information from taxpayers directly or from third parties; and (c) how can the ATO balance the need for information with the compliance costs incurred by taxpayers or third parties in satisfying ATO information requests?
Email to: email@example.com
8.114 Submissions provided to the IGT are in strict confidence (unless you specify otherwise). This means that the identity of the taxpayer, the identity of the advisor and any information contained in such submissions will not be made available to any other person, including the ATO. Sections 23, 26 and 37 of the IGT Act 2003 safeguard the confidentiality and secrecy of such information provided to the IGT — for example, the IGT cannot disclose the information as a result of an FOI request, or as a result of a court order generally. Furthermore, if such information is the subject of client legal privilege (or legal professional privilege), disclosing that information to the IGT will not result in a waiver of that privilege.
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APPENDIX 2 — ATO LEVEL 0 ENTERPRISE RISKSA2.1 This is a list of the ATO’s Level 0 enterprise risks as reflected in Figure 2 in Chapter 2. The list is not in any order of priority or importance, but is listed alphabetically, and reflects the ATO’s numbering of these risks. It is reproduced here to assist users of screen reading software.
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APPENDIX 4 — CONFIDENCE LEVELS USED IN RISK
ASSESSMENTA4.1 The following illustrates how confidence levels are used in different contexts in qualifying a risk rating. Public Safety Canada has issued the ‘All Hazards Risk Assessment Methodology Guidelines 2012-13’. As part of the risk assessment process,
risk assessors must also indicate their level of confidence:1
Confidence Level and Justification for Likelihood Analysis and Impact/Consequence Analysis For each impact category, assessors must indicate their level of confidence in the estimates they have provided with respect to harm caused by the defined Risk Event Scenario. A confidence level from A to E is used to describe the confidence of assessors in the value they have defined or selected. The degree of confidence in the ratings produced will vary, depending on the availability of data, relevant experience and existing body of knowledge. Capturing the confidence level associated with each rating produced provides a crucial piece of information that helps complete the risk assessment picture.
Confidence levels will be presented, along with final results, to indicate to decision makers where some low or very low confidence assessments may necessitate caution in interpretation. On the other hand, assessments accompanied with high or very high confidence levels will inspire trust in immediate actions required to treat pressing risks.
In addition, any justifications, assumptions and/or references for the various inputs defined by assessors during Risk Analysis should be recorded, along with the rating of each impact category.
Public Safety Canada has issued the ‘All Hazards Risk Assessment Methodology Guidelines 2012-13’, page 24.
A5.1 The following list provides an indication of the recommendations made by the
IGT during recent reviews that related to minimising compliance costs:
A5.2 Review into improving the self assessment system — publicly released 13 February 2013:
A5.5 Review into the ATO’s compliance approaches to small and medium enterprises with annual turnovers between $100 million and $250 million and high wealth
individuals — publicly released 24 April 2012:
A5.6 Report into the Australian Taxation Office’s large business risk review and audit
policies, procedures and practices — released 7 September 2011:
Other compliance program 2012-13 issues:
• Small business and general business tax break
• Private equity exiting Australia
• Immediate deduction for mining, quarrying or prospecting rights
Several characteristics may attract our attention, including:
• tax performance varying substantially from business performance
• inconsistencies in activity statements or spikes in refund claims
• large, one-off or unusual transactions
• tax and economic performance varying significantly from similar businesses in the same industry
• a history of aggressive tax planning by individuals or their advisors
• weaknesses in compliance structures, processes and approaches
• tax outcomes inconsistent with the intent of tax law
• lifestyle not supported by after-tax income
• treating private assets as business assets
• accessing business assets for tax-free private use