The performance report for the IGT is divided into two sections:
- Reviews conducted and reports publicly released An outline of publicly released reports and a brief description of reviews in progress during the financial year ending 30 June 2012; and
- Outcome 1 - Improved tax law administration - taxpayer benefit The role of the IGT, key strategies, specific outputs and related performance.
The following table lists the reviews conducted during the 2011–12 financial year, as well as the reports publicly released during that period.
|IGT Reviews||Status as at 30 June 2012|
|Review into the ATO's large business risk review and audit policies, procedures and practices||Publicly released|
|Review into the ATO's administration of class rulings||Publicly released|
|Review into the ATO's compliance approaches to small and medium enterprise with annual turnovers between $100 million and $250 million and high wealth individuals||Publicly released|
|Review into the ATO's use of early and alternative dispute resolution||Submitted to the Minister but not publicly released|
|Review into the ATO's use of benchmarking to target the cash economy||Final stages of completion|
|Review into improving the self assessment system||Final stages of completion|
For general descriptions of each of these reviews, please refer to the sections that follow.
Review into the ATO's large business risk review and audit policies, procedures and practices
This review was completed and submitted to the Minister in the 2010–11 financial year. However, it was publicly released by the Minister during the current reporting period. A key underlying theme arising in this review was the significant unnecessary compliance costs and disputes as well as the lack of due process arising from the ATO's self-imposed timeframes for completing risk reviews and large business audits. To enhance the review process, the IGT convened a consultation forum consisting of large business representatives and ATO management to provide for direct and candid exchange of issues and concerns. The report contains a range of recommendations directed at improving the ATO's compliance approaches including its risk hypothesis identification, project management, accountability, information gathering approaches, audit and risk review processes, position papers and, interest and penalties treatments. There are 28 recommendations in this report. The ATO has agreed fully to 22, two in principle, one in part and disagreed with three.
Review into the ATO's administration of class rulings
This review arose out of concerns that class rulings sometimes take too long to issue and sometimes are not issued at all. Stakeholders asserted that ATO processes for dealing with class rulings are not well known to potential applicants and can involve poorly targeted requests for information. Overall, it was observed that the class ruling system was a useful element of the tax system, while also acknowledging that there are areas for improvements. The review found that a special class ruling process, the 'priority class rulings' process, delivered more effective outcomes by ensuring key ATO personnel were involved early on. However, only a small proportion of class rulings are produced under this process due to resource constraints. A key recommendation was that the main principles of this process be extended to the production of all class rulings. The review also made a number of other recommendations to address transparency, communication and timeliness concerns. The ATO agreed with all eight recommendations made in this review.
Review into the ATO's compliance approaches to small and medium enterprises (SMEs) with annual turnovers between $100 million and $250 million and high wealth individuals (HWIs)
Taxpayers and their advisers cited unmanageable and, at times, unnecessary costs and workloads caused by the ATO's approach to its compliance focus on all SMEs in the $100 million to $250 million turnover range, including HWIs. Concerns related to the level of commercial awareness, the type of ATO staff conduct and the quality of ATO engagement on technical issues. This review concluded that many of the concerns identified would be resolved by improving staff technical capability and as a result many of the recommendations in the report were directed at achieving this objective. Other identified areas for improvement included initial ATO compliance decision making, project management, transparency and better ATO management of information. During the review, the ATO agreed to replace its Wealthy and Wise booklet, which focused on HWIs, with a booklet to cover its compliance approaches to the entire SME and HWI market segment. This is a major initiative which should provide these taxpayers and their advisors with better understanding of the process and a means of holding ATO officers to account where expectations are not met. There are forty-one recommendations in this report. Some reinforce the work that the ATO had already begun whilst others are more distinct but complimentary to that work. The ATO has agreed with thirty-eight of these recommendations, partly agreed to two and disagreed with the other.
Review into ATO use of early and alternative dispute resolution (ADR)
This review was undertaken as a result external stakeholders' concern that, at a practical level, the ATO was not making sufficient use of ADR despite its high level commitment to earlier engagement to resolve disputes. The Commissioner of Taxation also requested that this review be undertaken. The review found that approximately 90 per cent of applications for review in tax matters at the Administrative Appeals Tribunal are resolved prior to hearing. This indicated that there was significant opportunity for greater engagement to resolve disputes earlier and reduce unnecessary costs for taxpayers and the ATO alike. The report contains certain recommendations which are aimed at:
- bringing early engagement and ADR to the forefront of ATO dispute resolution efforts and only litigating cases which turn on genuine and fundamental disputes as to law and where there is a public benefit in having the matters judicially determined;
- the ATO publishing clear statement of expectations of taxpayers and ATO staff when engaging in ADR as well as enhancing the skills and understanding of both parties of the different types of ADR; and
- identifying opportunities for continuous improvement through implementing processes to enable feedback to be provided regarding the use of ADR in the tax dispute context.
A major recommendation, with which the ATO disagreed, is aimed at addressing the perceived lack of independence in the objection process and empowering the ATO's in-house legal services function to assess matters independently of the audit arm and determine whether a matter should be abandoned, otherwise settled or proceed through to litigation. The report made 22 recommendations, of which the ATO agreed with fourteen, partly agreed to four, agreed in principle with two and disagreed with one. The remaining recommendation was directed at the Government.
Review into the ATO's use of benchmarking to target the cash economy
In this review, the IGT is investigating whether benchmarks are an appropriate tool for identifying the potential underreporting of income and for the calculation of default assessments. The IGT is also investigating whether the ATO's expectations in relation to micro and small business record keeping are clearly communicated and reasonable. The IGT can make more comment on this review when the report on the review is publicly released by the Minister. The report of this review is expected to be submitted to the Minister in July 2012.
Review into improving the self assessment system
This review arose out of stakeholder concerns that although the self assessment system has its benefits, the ATO's recent administrative approaches were more akin to a quasi-full assessment system without an apparent commensurate reduction in risk. The key areas examined in this review include:
- the advice framework;
- compliance approaches;
- the penalty and interest regimes; and
- tax law complexity and the ability to administer the law in a pragmatic manner.
The IGT can make more comment when the report on the review is publicly released by the Minister. The report of this review is expected to be submitted to the Minister in August 2012. More details on progress of reviews and access to publicly released reports are available on the IGT website.
The role of the IGT is to improve the administration of the tax laws for the benefit of all taxpayers. Key strategies to achieve Outcome 1 are:
- undertake community consultation, research and other processes to identify and prioritise areas of tax administration that can be systemically improved;
- call for submissions to review and stimulate input by, for example, issuing terms of reference and similar materials;
- maintain a positive public profile for the IGT through participation in conferences and seminars;
- build on approaches that increase the ATO's involvement and contribution to review processes and outcomes;
- selectively engage external expertise and undertake overseas comparisons to enhance capabilities and objectivity for appropriate reviews; and
- review identified areas and provide independent advice and recommendations to Government on improvements to the administration of the tax laws.
The IGT's two outputs derive from the statutory requirements. These outputs involve the:
- identification of systemic issues for inclusion in the work program, and
- provision of independent advice to Government on the administration of the tax laws.
The scope of the work program is determined by the IGT. However, the IGT Act also provides that the Minister may direct that a matter be included on the work program, and that the IGT considers requests to conduct reviews from:
- the Minister (separate from the direction provision);
- the Commissioner of Taxation;
- a resolution of either House, or both Houses, of the Parliament; or
- a resolution of a committee of either House, or both Houses, of the Parliament.
The Commissioner of Taxation has statutory independence in his administration of the tax laws. The IGT does not hold any powers to direct the Commissioner of Taxation in the administration of the tax laws. The way in which the IGT's advice to Government contributes to the achievement of the outcome of improved administration of tax laws takes several forms. First, the provision of advice to Government may be policy in nature and lead to legislative change to address an identified systemic issue. Second, and more commonly, the Commissioner of Taxation may independently address a systemic issue identified by the IGT in the review issues paper and terms of references or during a review itself, or otherwise following the release of a review report by the Minister. Third, improved administration of tax laws can also be achieved without formal advice to Government but by direct day-to-day interaction between the IGT and the ATO.
The IGT is in constant dialogue with the broader tax community. Issues are regularly raised by stakeholders through this dialogue. The IGT then works through these issues and assesses what action is required. Some issues are more appropriately addressed by other government agencies and these are referred on. Issues that are then considered appropriate are placed on the potential work program list - this process is discussed in more detail in the next section.
The IGT engages with the broad-based tax community to identify and prioritise those issues or topics on the potential work program list that provide significant opportunity to improve the administration of the tax system for all taxpayers. This prioritisation process means that the work program as finalised is a smaller sub-set of the potential work program. Topics on the potential work program list, not included on the final work program, are maintained on the IGT reserve work program list. Topics on the reserve work program list may be elevated onto the active work program, where opportunity and resource availability combine to allow review. The IGT periodically refreshes his work program to ensure it remains focussed on the community's main concerns. In this respect, the IGT will commence consultation on his work program for 2012 and 2013 in the first quarter of the next financial year. The topics for future review will be announced following this consultation. The new work program must be flexible in actioning specific reviews to take account of competing priorities that may arise due to various factors. Ministerial direction is a factor. The IGT may be directed by the Minister to undertake a review. The Minister has previously directed the IGT to undertake several reviews, including the Review into delayed or changed ATO views on significant issues (the so-called 'U-turns' review) and the Review into the ATO's Change Program. Government agency review is also a factor. This arises where other agencies announce or consider reviews that may have a degree of overlap with proposed IGT terms of reference. In maximising resource efficiency it may be better to defer reviews to take advantage of other agency outputs or insights. Resourcing is another factor. A review is also very difficult to pin-point as to timing and scope due often to the bespoke nature of each undertaking and the priorities afforded by various parties and the small nature of the IGT office. The IGT actively seeks to mitigate the tension between the need for flexibility and undue delay through regular project management review. The IGT also consults directly with the Commonwealth Auditor-General and the Commonwealth Ombudsman in finalising the work program. Work program details including updates can be located on the IGT website.
The next step is to action the specific review and thereafter finalise that review by reporting to the Minister with findings and recommendations thereon. To action a specific review, the IGT publishes terms of reference for the review along with submission guidelines or consultation plans and invites submissions from interested parties. These materials are available on the IGT website. Following the receipt of submissions, the IGT obtains relevant information and considers the issues arising. Views are formulated and discussed with the ATO and other interested parties. This ensures that recommendations for improvement are evidentiary-based and consider relevant stakeholders' views. Descriptions of the review action that took place during this financial year are set out in the 'Reviews conducted and reports publicly released' section above.
Reviews in progress at the start of, or commenced during, the financial year
At the start of the 2011–12 financial year, the following three reviews were in progress:
- review into the ATO's administration of class rulings;
- 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; and
- review into improving the self assessment system.
- An additional two reviews were commenced during the year:
- review into ATO use of early and alternative dispute resolution; and
- review into the ATO's use of benchmarking to target the cash economy.
By year end, the following three reviews were finalised, with reports of those reviews sent to the Minister:
- review into the ATO's administration of class rulings (completed on 28 September 2011);
- 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 (completed on 16 December 2011); and
- review into ATO use of early and alternative dispute resolution (completed on 25 May 2012).
The IGT review reports are performance outputs that are discussed in section 1.1.2 below.
Reviews in progress as at the end of the financial year
The IGT has two reviews in the final stages of completion as at 30 June 2012. As the reviews are in progress the IGT is not in a position to report details on findings or recommendations at this time. These reviews are:
- review into the ATO's use of benchmarking to target the cash economy; and
- review into improving the self assessment system.
During the 2011-12 financial year, the IGT has attended and participated in a number of conferences and seminars, consistent with our key strategy of maintaining a positive public profile (both domestically and internationally). Attendance and participation in these various engagements has also allowed the IGT to undertake comparisons with our foreign counterparts, which have enhanced our capabilities and objectivity. The key speaking engagements undertaken during the 2011–12 financial year are set out in the table below. DateOrganisationType of functionLocation
|2 August 2011||University of Sydney||Master of Taxation Presentation||Sydney|
|12 August 2011||CCH Australia||Corporate Tax Managers (CTM) Network Luncheon||Sydney|
|1 September 2011||Victorian Bar Association||Seminar||Melbourne|
|22 September 2011||Financial Services Accountants Association||Tax Day||Sydney|
|18 October 2011||Corporate Tax Association (CTA)||GST Conference||Sydney|
|15 November 2011||Ernst & Young||Annual Asia Pacific Tax Symposium||Singapore|
|21 November 2011||Association of Accounting Technicians||National Tax Forum||Sydney|
|29 November 2011||Macquarie Tax Group||End of Year Dinner||Sydney|
|1 December 2011||PricewaterhouseCoopers||Roundtable||Brisbane|
|2 December 2011||The Tax Institute of Australia (TIA)||Luncheon||Brisbane|
|14 December 2011||Blake Dawson||GST Client Luncheon||Melbourne|
|10 February 2012||CCH Australia||CTM Network Luncheon||Sydney|
|28 February 2012||Institute of Public Accountants (IPA)||Discussion Group||Newcastle|
|29 February 2012||Uniting Bookkeepers Pty Ltd||Network Dinner||Newcastle|
|14 March 2012||CCH Australia||CTM Network Luncheon||Sydney|
|21 March 2012||Melbourne Tax Discussion Group||Roundtable||Melbourne|
|24 March 2012||Iranian Australian Professional Accountants Group||Iranian New Year Event||Sydney|
|3 April 2012||Atax, University of New South Wales||10th International Tax Administration Conference||Sydney|
|18 April 2012||CPA Australia||Central Coast Discussion Group||Gosford|
|19 April 2012||CEO Forum Group||International CFO Forum||Sydney|
|26 April 2012||TIA||Private Business Tax Retreat||Gold Coast|
|31 May 2012||IPA||Women in sole practice Discussion Group||Sydney|
|7 June 2012||CCH Australia||CTM Network Luncheon||Brisbane|
|7-8 June 2012||The Law and Society Association||2012 International Conference on Law and Society||USA|
|14 June 2012||Ernst & Young||Tax Directors Luncheon||Melbourne|
|18 June 2012||CTA||Convention||Sydney|
|21 June 2012||Ernst & Young||Tax Directors Luncheon||Sydney|
|29 June 2012||Centre for Business Taxation, Oxford University||2012 Summer Conference||UK|
The IGT provides independent advice to Government. The nature of this advice is primarily provided via review reports that are given to the Minister. It may also take the form of direct briefing to the Minister - see Division 2 of the IGT Act. The review reports detail IGT findings and outline recommendations for the improvement of the tax system's administration. Review reports are given to the Minister after providing the Commissioner of Taxation with the opportunity to make a submission - see section 25 of the IGT Act. Once the Minister receives the IGT report, it must be published either by tabling in both Houses of the Parliament or otherwise, within 25 sitting days of receipt — see section 11 of the IGT Act.
The following information sets out the action taken in relation to IGT review reports.
Reports with the Minister as at the start of and during the financial year
At the start of the 2011–12 financial year, the following report was with the Minister:
- review into the ATO's large business risk review and audit policies, procedures and practices.
During the 2011-12 financial year, the following three reports were sent to the Minister:
- review into the ATO's administration of class rulings;
- review into the ATO's compliance approaches to small and medium enterprise with annual turnovers between $100 million and $250 million and high wealth individuals; and
- review into ATO use of early and alternative dispute resolution rulings.
Reports publicly released by the Minister during the financial year
The three reports publicly released by the Minister during the 2011-12 financial year, are as follows:
- review into the ATO's large business risk review and audit policies, procedures and practices;
- review into the ATO's administration of class rulings; and
- review into the ATO's compliance approaches to small and medium enterprise with annual turnovers between $100 million and $250 million and high wealth individuals.
Copies of publicly released reports can be obtained from the IGT website.
Report remaining with the Minister as at the end of the financial year
The report remaining with the Minister as at the end of the 2011-12 financial year is as follows:
- review into ATO use of early and alternative dispute resolution rulings (publicly released on 31 July 2012).
Historically, the Commissioner of Taxation has accepted fully or in part most of the review recommendations published since the inception of the IGT until 30 June 2011. This trend continues for reviews published in 2011–12, with the Commissioner of Taxation accepting fully or in part 73 of the 77 recommendations made towards the ATO - refer to Table 3 below. The outcomes of these reviews, combined with feedback from community stakeholders and the ATO, provide clear evidence that the role of the IGT is achieving its objectives and is improving aspects of tax administration for the benefit of all taxpayers.
|IGT Review||Number of recommendations accepted fully, in part or in principle by the ATO||Number of recommendations to Government||Number of recommendations disagreed by the ATO|
|Report into the ATO's large business risk review and audit policies, procedures and practices||28||0||3|
|Review into the ATO's administration of class rulings||8||0||0|
|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||41||0||1|
The IGT received an unmodified audit report on the 2011–12 financial statements from the Australian National Audit Office. These statements can be found in Part 4 of this report. The IGT ended 2011–12 with a surplus of $373,762 compared with a surplus of $221,220 in 2010–11. The increase included recognition of revaluation adjustments to assets and certain provisions. The IGT's net asset position increased accordingly. The agency has sufficient cash and reserves to fund its liabilities as and when they fall due.