4.1 Technology is changing the very fabric of our society – the way business, work and communication are conducted and even how social interactions are managed.
4.2 This chapter considers opportunities, challenges and insights presented by digital disruption in the Australian context and particularly for the tax profession. It is also necessary to consider other relevant parties, such as their clients, who may be affected given the wide ranging impact of digital disruption on society as a whole.
4.3 Clients of tax professionals are diverse and include businesses, not-for-profit organisations and individuals. The manner in which these clients choose to engage and the services they require are central to any future planning or projections by the tax profession, government and its regulatory or administrative bodies including the ATO.
4.4 Accordingly, in this chapter, digital disruption is discussed in terms of the following themes:
- social and community expectations including the services and support that the ATO and tax professionals would be required to provide;
- future tax workforce and capabilities; and
- the ATO’s application of emerging technologies and its impacts.
Social and community expectations and their impact
4.5 Many tax professionals have observed the benefits that technology can deliver. In particular, larger tax practices have embraced technology and automation to reduce costs and improve efficiencies. They believe that automation has allowed them to deliver services beyond the traditional tax practitioner services at reduced cost and risk.248
4.6 While smaller firms appear to still be coming to terms with the challenges and opportunities presented by technological advancement, some have explored options such as offshoring or merging with other practices to offer a broader range of services,249 including business strategy advice and cyber security solutions as their clients increasingly integrate technology into their businesses.
4.7 Other value-added services that tax practices believe they may be able to offer in the future include using RPA for automating BAS lodgment and to assist with simple GST audits as well as using AI to solve more complex tax problems. Furthermore, they believe that leveraging technology, such as video calling and cloud, would enable them to connect in real time with their clients and expand their reach beyond geographical barriers.
4.8 Some stakeholders have also observed that the aging tax practitioner population and the generational shift of taxpayers toward being more ‘tech-savvy’ may create a misalignment between the services provided and those being demanded. Citizens are now expecting 24/7 instantaneous access to services and personnel across a range of platforms.
4.9 In contrast, some stakeholders have observed that the age of the practitioner should not be equated to lack of technological proficiency, citing many seasoned practitioners who have implemented new technologies in their practice or changed their business models to broaden the services they offer to their clients in line with some of the opportunities identified above. Furthermore, these stakeholders believe that for a range of reasons, including level of access, technological proficiency and preference for personal service, many taxpayers may still opt for traditional face-to-face models of seeking tax advice rather than moving towards electronic engagement.
Technology’s disruption on society and its workforce
4.10 Technology may be defined as either ‘sustaining’ or ‘disruptive’.250 Sustaining technologies are those that ‘support and enhance traditional ways of operating in an organisation or an industry, whereas disruptive technologies are those that fundamentally challenge and change working practices’.251 As the McKinsey Global Institute has noted, technology may:
… disrupt the status quo, alter the way people live and work, rearrange value pools, and lead to entirely new products and services ... supplanting older ways of doing things and rendering old skills and organisational approaches irrelevant …252
4.11 Some have noted that the language of disruption is misplaced as it fails to recognise that the disruption may be empowering for those receiving the services as it may result in improvements in affordability and accessibility. Instead they prefer to re-phrase ‘digital disruption’ as ‘innovation’.253 Collectively, Amazon, Apple, Facebook and Google are considered the leaders in innovative digital disruption. They are currently growing at a rapid pace and permeating all aspects of society. For example, Apple built partnerships with telecommunications companies to launch the first iPhone and Amazon has now expanded beyond books to hosting other businesses,254 including industry leadership in the provision of cloud services.255
4.12 The pace at which technology is developing shows no signs of abating. For example, in the European Union, its impact on the economy has been rapidly accelerating. In 2006, only one technology company was amongst the top 20 operating in the EU, accounting for 7 per cent of the market capitalisation. By 2017, these figures had risen such that 9 of the top 20 companies were technology companies, accounting for 54 per cent of the market capitalisation.256
4.13 Domestically, it has been estimated that digital technologies have contributed an additional $79 billion to the Australian economy up until 2014. It is forecast to grow to $139 billion by 2020.257 In addition, Australia’s Information and Communications Technology workforce is expected to increase to approximately 695,000 workers by 2020, with increased demand for experts such as software engineers and developers in a range of areas including cloud computing and cyber security.258
4.14 In the Australian tax sphere, technology has had many positive impacts for taxpayers, the system and the tax profession. For example, taxpayers have increased levels of access and channels through which they may seek advice from the ATO. For many taxpayers, such as small businesses, the ability to access information and assistance outside of usual channels is critically important because of the standard operating hours of their business — they can only focus on matters such as tax compliance outside trading hours.
4.15 The ATO’s use of technology has also yielded positive outcomes in terms of more efficient processing of income tax returns and BAS lodgment, benefiting taxpayers, tax practitioners as well as the ATO. Notwithstanding concerns with the Tax Agent and BAS Agent Portals, they have been particularly beneficial to tax practitioners who have described them as ‘the most useful tools that the ATO has ever provided’ and ‘tools which they cannot do without’.259
4.16 More recently, technology has enabled the ATO to receive, analyse and make available increasing amounts of data for the purposes of pre-filling income tax returns, both for taxpayers who choose to self-prepare and for tax practitioners.260 Advancements in technology and greater integration of systems and services by the ATO have also afforded tax practitioners with greater access than ever before to information that can be used to assist and service their clients, including Single Touch Payroll (STP) reports and the Small Business Superannuation Clearing House.261
4.17 Increasing robust data and insights may also allow the ATO to further refine its risk assessment models to direct its resources to areas of the highest risk, minimise instances of compliant taxpayers being unnecessarily targeted and reducing administrative costs for taxpayers as well as the ATO itself. There is also scope for the ATO to utilise such data and technology to more proactively aid vulnerable taxpayers, including small businesses. The ATO could more accurately detect signs of financial distress and ability to pay their tax debt.262 Earlier identification and intervention would enable the ATO to take more proportional ‘lighter touch’ actions which would assist the taxpayer to better manage their tax debts.263 This has clear benefits for the taxpayer, the ATO as well as the broader economy.
4.18 In 2016, the Australian Productivity Commission (APC) released a research paper which sought to provide policy direction to address the upcoming technological changes264 and, on the issue of potential workforce reductions, observed that whilst there is little evidence suggesting that digital disruption has had any significant economic impacts, there is a gradual trend towards declining numbers of employees in firms. The APC noted that these trends appeared to be more pronounced in the USA than in Australia.265 It further observed that:
… automation of many tasks in the workplace, with large labour-saving technological advances, has not led to unemployment rates trending upwards over long periods of time. However, there is concern in parts of the community that the pace of change will accelerate, leading to substantial unemployment in the future. But dire employment scenarios remain speculative given the considerable uncertainty about the impact of automation on employment.266
4.19 Given the APC’s report and the findings above, it is useful to reflect upon recent announcements made by several Australian companies regarding workforce reductions as a result of technological advancements. In 2017, NAB announced the loss of 6,000 jobs stating that the need for less people is driven by customer expectations for digital channels.267 In addition, NAB has announced that it will hire or retain 2,000 employees in technology related jobs.268 Furthermore, it was reported that ANZ is cutting 10 per cent of its full-time employees over two years, that is, 5,256 jobs. As noted earlier in Chapter 2, there have also been reports that the use of RPA will result in ANZ reducing the number of employees in the payments area from 40 down to 2.269 ANZ has stated that ‘we have been really clear about the sorts of skill sets where we will need to double down’, that is, staff with expertise in data science, engineering and design. NAB and ANZ have pledged to be open and transparent with staff about job losses.270
4.20 As noted in the previous chapter, New Zealand’s IRD has also forecasted a reduction in its current workforce by 25 to 30 per cent as part of its transformation journey, a long-term program to modernise New Zealand’s revenue system.271 The use of technology and automation by other revenue authorities, including the ATO, may give rise to similar reductions or redeployment of their workforce.
Demographic shifts and changing expectations
4.21 It is widely accepted that the aging population is a significant contributor to the changing demographic in the Australian workforce.272 This issue, as it relates to tax practitioners, has been frequently raised with the IGT. ATO statistics, provided as part of a 2015 IGT review, confirm the aging of the tax practitioner population. At that time, 37.4 per cent of active tax agents and 11.9 per cent of BAS agents were over the age of 60 and had either reached or were approaching retirement age.273 It should be noted that these statistics relate only to registered tax and BAS agents, and do not include staff who work for them and whose role may include engaging with clients and assisting them with tax-related enquiries. The ATO has, more recently, commenced research in relation to this latter population of professionals, noting the younger demographic, to better inform the ATO’s support and services for them.
4.22 The general Australian population is also aging. In 2010, the Attorney-General’s Department released a report predicting that the number of people aged 65 years or over will increase from 13 per cent to 23 per cent by June 2050 with a corresponding reduction in the numbers of those of working age.274 In 2016, the Commonwealth Scientific and Industrial Research Organisation (CSIRO) released a report which recognised that the demographics of the future will be divergent with an increasingly large aging population.275
4.23 As Australia’s aging population increases, concerns of elder abuse is predicted to correspondingly grow. The Older Persons Advocacy network has stated that ‘some people become physically frail or have cognitive impairment as they age … they become dependent on others who are in a position of trust’.276 In 2017 the Australian Law Reform Commission (ALRC) highlighted the lack of national data available about the extent of elder abuse in Australia.277 A key recommendation of the report was the establishment of a National Plan, encouraging all areas of Government to work together to address this problem. This plan is forecast to be drafted by the end of 2018.278 It has also led to the development of a National Research Agenda for Elder Abuse.279
4.24 The ATO, TPB and tax profession are in significant positions of trust. Elder Australians rely on the ATO and the TPB to assist them, particularly where they are in a vulnerable position, not technologically literate or unable to access online services. Elder Australians also rely on tax professionals as their trusted advisers who have a duty to act in the public interest and provide competent and ethically sound advice.280 Furthermore, if accountants suspect their client is the subject of elder abuse by others, they ‘must let the client know that an unlawful act may have been committed and advise them of their rights’.281 They should also ‘advise the client on potential responses to the situation, satisfy themselves that the client understands their rights and the advice, and then seek instructions, confirmed in writing’.282
4.25 In the discharge of the above duties, the ATO, TPB and tax professionals must have processes in place to identify and manage situations of elder abuse, as well as to guard against such abuse occurring against their clients and, for older tax practitioners, against themselves personally.
Increasing individual connectedness and privacy management
4.26 As Australians become increasingly interconnected in the global community, through an expanding network of real time communication channels, they have greater access to knowledge and information than ever before. They can now choose how they communicate and are willing to consider non-traditional services where they lead to cost savings and faster delivery.283
4.27 To keep pace with society and the increasing connectedness of people, a large number of jurisdictions around the world have been striving towards greater government connectedness by leveraging technology. The United Nations views such an approach and ‘connected governance’ as:
… the means to achieve maximum cost savings and improved service delivery. The underlying principle is to improve the internal workings of the public sector by reducing financial costs and transaction time, to better manage the work flow and processes, to improve institutional linkages between different government agencies, ministries and units and enable a better flow of resources and allocation of responsibilities to promote the delivery of public services.284
4.28 The increasing connectedness of people has led many to believe that younger generations do not care about their privacy as they share, or rather overshare, their life on social media.285 Despite this, in a recent survey of 1,600 people, commissioned by the digital rights and governance group at the University of Sydney, it was found that 67 per cent of Australians take steps to protect their privacy online, however only 38 per cent feel that they are in control.286 A further breakdown of the findings also demonstrated that half of 18 to 29 year olds felt that they could control their privacy online compared to 34 per cent of those aged over 40.
4.29 The results of the survey may be attributable to the platforms that they use. For example, younger generations using platforms such as Snapchat and Tumblr are able to control their privacy to a degree by being able to remain anonymous, which is more difficult to do on platforms such as Facebook.287 The survey found that people were mostly concerned about what corporations and governments were doing with the information that they held about them, rather than them having the information in the first place. Nonetheless, the survey found that 78 per cent of Australians want to know what information of theirs is being accessed, who is accessing it and how they can report and correct inaccuracies.288
4.30 In addition to privacy, increasing connectedness has resulted in different ways of communicating. Two decades ago, it may not have been anticipated that communication systems and services such as Twitter, Facebook, eBay and YouTube would be used by billions of people around the world. Two decades from now, it is highly likely that the systems and services available will not resemble what they do today.289
Changing nature of work
4.31 Technological and demographic shifts have not only changed the nature of tax interactions but have also led to demands for greater flexibility in how individuals and organisations operate. Online platforms, enabling people to connect with each other, businesses and government, have made flexible working arrangements more easily accessible. As a result, people have greater control over when they work, how they work and how much work they perform. Additionally, technologies such as the Cloud have enabled the creation of virtual teams290 resulting in more flexible collaboration.
4.32 In February 2016, the Minister for Jobs and Innovation said:
The future won’t be about people competing with machines, it will be about people using machines and doing work that is more interesting and fulfilling.
We need to acknowledge the changing nature of work and allow for flexibility.
We also need to invest strategically in skills and training and encourage people to apply the skills they already have to different types of work.291
4.33 In this regard, a shift in mindset is required to appreciate the way technology may empower or constrain employees rather than the technology itself.292 The gig economy uses new technologies, such as digital online platforms, to enable work to be commissioned in a non-traditional model. The provision of freelance services is made possible through platforms such as Airtasker and Freelancer that link the provider to the requester of services.293 A brief search of Airtasker using the term ‘tax’ returns multiple requests for tax-related services including individual lodgment of returns, tax advice and accounting reconciliations.
4.34 The gig economy also gives rise to benefits such as achieving cost savings through the hiring of workers on an as-needed rather than permanent basis which include indirect costs such as superannuation, payroll taxes, worker’s compensation and leave liabilities.294 From a worker’s perspective, freelancing in the gig economy can provide flexibility which may not otherwise be available with full time employment. Whilst there is a level of income insecurity involved in this method of work, it provides income earning opportunities for those who have family commitments or are transitioning to retirement.295
4.35 The technologies discussed in Chapter 2 and other services have also enabled significantly greater cross-border interactions for many business owners. What was once the exclusive remit of large corporations with complex supply chains has become more readily available to all business who are increasingly transacting globally. As tax law develops to keep pace with increasing global transactions,296 taxpayers will need and expect their advisers to be well-informed on their ever more complex compliance requirements.
The important role of the tax practitioner as a ‘trusted adviser’
4.36 Despite the myriad of changes that are likely to impact the tax system, intelligence gathered by the ATO confirms that the important role of tax practitioners in the tax system is likely to continue. In 2016, the ATO commissioned research to understand ‘the small business education experience and their needs in relation to financial management’.297 One of the key findings was that a significant proportion of small businesses need educational support as they lack knowledge and confidence in managing tax and super obligations. Such support was considered to require tailoring to different competence levels and learning styles.298 The ATO has also commissioned other research ‘to obtain the views of small business on their current and preferred engagement experience with the ATO, tax professionals and business advisers’.299 This research found that small businesses have a low tendency to seek information when starting their business. Those that do seek information seem to approach accountants.
4.37 Over the lifetime of a small business, they remain highly dependent on tax professionals. The ATO has found that ‘of the 74 per cent who have ever sought information or advice about their business tax requirements, 80 per cent went to an accountant as their first source’.300 This high percentage is driven by the perception that accountants prioritise small businesses’ best interests, understand their specific needs, interpret information to offer a tailored and holistic service, offer ‘peace of mind’ and save time.301 Figure 4.1 below shows the differing perceptions that small businesses have of tax professionals in comparison to the ATO.
Figure 4.1: Small business perception of tax professionals and the ATO
4.38 Across all measures of perceptions, taxpayers preferred the services of tax professionals to those offered by the ATO. Of particular interest is the perception that tax professionals are a more ‘cost-effective’ avenue of advice rather than the ATO, despite the fact that the ATO’s services to the community are provided without charge.
4.39 The extent of digital disruption on society and the economy is clear and such disruption is likely to increase in the years to come. The manner in which society and businesses will operate will correspondingly be reshaped. This view is not universally held. However, past experience shows that the demand for more efficient, accessible and low cost options overrides any desire to maintain the status quo. Consumer demand in a competitive market will force the hand of change.
4.40 The IGT is of the view that the most prudent approach is not to seek to hamper innovation or progress but rather examine it carefully through the lens of benefits to be derived and challenges to be met for the tax profession and others. The issue then becomes not whether technology will disrupt the tax profession, but how will the disruption manifest itself and how tax professionals may take advantage of any opportunities and mitigate any risks.
4.41 The IGT acknowledges that there are concerns particularly in relation to the impact on employment levels and, potentially, a significant reduction in the workforce. We have not yet experienced such reductions in Australia. However, based on past experience, a rebalancing of market forces may inevitably lead to a decrease in workforce in certain areas and growth in others. A key consideration in this regard is the opportunity for reskilling and redeployment which are discussed in the next section.
4.42 Consistent with the changes being experienced elsewhere in the economy, the nature of the advice or services that taxpayers may seek is likely to evolve and tax practitioners will have to keep pace with such changes. It is important to acknowledge that service models based on simple compliance activities will increasingly be substituted by technology – this is already well advanced in many jurisdictions. However, demand for independent advice and service to individual, not-for-profit and business taxpayers with more complex tax affairs is likely to continue in the short to mid-term. The impact of technology on such services may have been overstated or, to paraphrase Mark Twain, the reports of the early death of these services may have been greatly exaggerated.
4.43 The IGT believes that other opportunities may become available to tax practitioners to expand their service offering. These opportunities may not manifest in the same way and at the same time for all tax practitioners. There are a number of steps that tax practitioners could consider to assist them in managing the upcoming changes. As a first step, tax practitioners may consider assessing their own relative strengths, weaknesses, opportunities and challenges with a view to developing a plan or roadmap for transition from their current to future state. In this regard, the brand of the tax practitioner as a ‘trusted adviser’ is well-established and should not be overlooked as highlighted in the ATO’s research discussed above.
4.44 It is acknowledged that the size and nature of each tax practice will dictate the extent of the planning process contemplated above. It would be beneficial if professional bodies could assist in developing such plans particularly for smaller practices. In this regard, professional bodies and tax practices may find collaboration with the ATO and the TPB of significant assistance. Given the nature of the relationship between the three parties, their respective plans or actions are likely to affect each other. Keeping each other informed and working together in this regard is important. They may also benefit from the learnings of each other as they go through the same planning processes. In addition, the ATO and TPB may provide critical input into whether tax practitioners’ transformation plans meet certain requirements such as those of the Tax Agent Services Act 2009 (TASA).
4.45 Secondly, as technology advances, a range of categories of work currently undertaken by tax practitioners are likely to be disrupted.302 The key for tax practitioners will be to apply technology in a manner which augments their practice and tailors services to the needs of their clients. Given taxpayers’ expectations of services are shifting towards convenience, there will be a demand for one-stop shop businesses that can provide a broad range of services, including domestic and foreign tax business advisory services, both by residents of Australia and those of other jurisdictions seeking to do business in Australia.303 While developing such expertise may prove challenging for many in the short term, the use of client referral programs or mergers with locally-based or overseas practices may assist to provide tax practitioners with increased access to resources, knowledge, drive synergies and enable greater innovation. As a regional practitioner, who had merged his practice with an investment advisory firm, has noted:
Both parties really do benefit. We have a limited licence in terms of being able to advise clients on whether they’re in a great spot to be able to set up a SMSF, and we have a strategic partnership for a financial planner to take care of the investment side of things.304
4.46 Thirdly, the proliferation of the gig economy will provide opportunities for the tax profession through more flexible client engagement models. For example, rather than requiring key clients to come into existing offices, making opportunities available to visit those businesses to understand and observe their operations and offering more tailored advice and services. Such an approach would be analogous to business models adopted by certain mortgage brokers and financial planners to meet the demands of their clientele. When coupled with developments in cloud technology, real time capture of transactional data through platforms such as the NPP and sophisticated machine learning capabilities to consolidate and analyse significant amounts of data, tax practitioners in the future are very likely to be able to expand their service offerings beyond current resource and geographical constraints.
4.47 Finally, there needs to be recognition and forward succession planning, having regard to the aging population of the tax practitioner community. As noted earlier, the statistics presented in the IGT’s 2015 report shows an aging tax professional community. The TPB have also indicated that a significant proportion of individual tax and BAS agents are still over the age of 50. The failure to appropriately plan for their departure from the profession will likely result in significant knowledge and expertise gaps. Hand in hand with the succession planning is also a need to consider ways in which the profession positions itself to attract a new cohort of tax professionals. These newer and younger professionals will possess a different set of values and expectations for their future careers (such as portability and flexibility), may prefer to transact differently with clients (cloud-based, online and real time) and possess inherent digital competencies that will likely drive practical and cultural innovations within the profession. Given the ATO’s more recent research into the demographics of younger professionals who work for or in support of registered tax and BAS agents, it may be able to shed further light on how best to attract and engage the new generation of tax professionals once the research is complete.
Future tax workforce and capabilities
4.48 In 2015, CEDA stated that a significant proportion of Australian jobs that exist today will no longer exist in 20 years’ time.305
4.49 As noted, a number of organisations in Australia have already announced or forecasted a reduction in their workforce and the transition of their capabilities to meet future needs. The revenue authorities of a number of countries have, similarly, predicted smaller workforces with a higher level and broader range of skills. While it is likely that there may be a reduction in workforce in some areas, other areas may experience growth and there may be some redeployment opportunities.
4.50 The ATO also believes that technologies such as automation and AI will be used to enhance the work of its staff rather than replace them.306 However, it has acknowledged that there will be a need for changing skillsets, capabilities and education requirements as well as to align our workforce management decisions with future location and technology plans to achieve cost-effective business outcomes.307
4.51 Stakeholders have raised concerns that the changing nature of tax work will ultimately reduce the demand for tax practitioners, present challenges in terms of attracting, retaining and developing the next generation of tax professionals resulting in an overall diminishing tax profession.
4.52 Concerns have also been raised as to how the current knowledge and experience of the tax profession will be transferred to future generations and how young professionals are able to build up sufficient capability and skills. More established tax firms have commented that the changing nature of tax work is already beginning to expose a risk of diminished deep tax expertise.
4.53 Additionally, stakeholders have also expressed uncertainty as to how the size and mix of the ATO workforce will be impacted and what is being planned to meet changing community expectations.
4.54 Furthermore, there may be significant implications for tertiary institutions, professional bodies and other tax-related course providers. Stakeholders have raised concern that many courses offered appear outmoded for both current and future needs of the tax profession.
4.55 In 2015, the WEF stated that there are a range of foundational literacies, competencies and characteristics that are critical for the 21st century.308 The WEF has identified scientific and information and communications technology (ICT) literacies as two critical components of 21st century education and skillsets.309
4.56 The WEF has forecasted that the skillsets of the workforce as a whole will need to alter. It noted that jobs which now seem unaffected by technology will be affected in the years to come as the ecosystems within which they operate adjust.310
Figure 4.2: 21st Century Skills
Source: World Economic Forum, New Vision for Education Unlocking the Potential of Technology (2015).
4.57 The WEF research accords with feedback from stakeholders in respect of the skillsets needed within the tax profession. Whilst the tax profession has traditionally drawn upon graduates from accounting, finance, economics and law, the future skillsets are increasingly expected to move towards science, technology, engineering and mathematics (STEM) skills as well as soft skills,311 as depicted in Figure 4.2 above.
4.58 In addition to the change in skillsets, some commentators believe that flexibility is critical to respond to rapidly changing requirements.312 It is likely that these new skillsets will not remain stagnant and will also change over time.313
4.59 Australia’s Chief Scientist has urged the Government to focus on STEM skills amongst the workforce to ensure that Australia continues to remain productive and competitive in the future.314 Following these recommendations, the Government released a discussion paper supporting high quality STEM education and training across all industries and professions as they lead to new products, more efficient services, and a more diverse, resilient and sustainable economy.315
4.60 In addition to building STEM skills, there is also a need to build strong soft skills within the workforce as set out in the orange and blue boxes in Figure 4.2. Whilst traditionally perceived as supplementary to STEM skills, soft skills will play an increasingly important role in the future.316 It has been predicted that soft-skill-oriented occupations will comprise two-thirds of all jobs by 2030.317 PwC’s Global CEO Survey, released at the 2017 WEF in Davos, found that ‘the rise of automation and robotics in the workplace is driving a greater need for people that possess qualities that can’t be replicated by machines’.318 These skills are increasingly being sought by CEOs around the world319 and include such qualities as communication, problem solving320 and emotional intelligence, which is ‘a measure of someone’s ability to identify, use, understand and manage the emotions of themselves and others in a positive way’.321
4.61 Importantly, the education and training provided to tax professionals, including ATO staff, needs to equip them with the skills required to service clients or taxpayers and remain competitive and successful over a period of time that may witness significant change. Accordingly, it is pertinent to consider the measures currently being taken by the ATO, the professional associations and universities.
ATO individual job skills and capability development
4.62 The need for revenue authorities, such as the ATO, to acquire new specialist capabilities has been supported by the OECD:322
The use of digital technologies to increase reach and engagement and the introduction of sophisticated tools to analyse Big Data to adjust and improve customer experience require specialist skills, especially in the areas of service promotion, data analytics and IT.
4.63 The ATO’s existing capability framework for core capabilities was developed and established by the Australian Public Service Commission (APSC) in the early to mid-2000s.323 It is regarded by the ATO as out-dated and not supportive of the development of the capabilities that will be needed in the future.324 For example, the ATO has identified that the framework does not support the development of digital and data literacy.325
4.64 In an effort to prioritise the development of a workforce of the future, the ATO has commenced work on developing a new capability framework. This framework forms the foundation for the ATO’s Digital Strategy and Data and Analytics Strategy, however, it is not limited to digital and data skills.326 The ATO believes that strong people capability will ensure that it can deliver on government and community expectations and prepare for future challenges and opportunities.327
4.65 The ATO has also commenced research and consultation to determine the future skilling needs of its officers, including the impact that it will have on recruitment and training.328 In doing so it has analysed other government agencies and organisations’ capability models and built partnerships with the APSC and the Digital Transformation Agency (DTA) to identify and build digital and data capability.329
4.66 The ATO has also taken some initial steps to raise awareness amongst its staff about the need for change in mindsets and skillsets in the coming years through:330
- the Virtual Career Expo which commenced on 13 November 2017 to 8 December 2017 with livestreaming, webinars, and online resources;
- learning and development products including online express learning sessions and instructional videos; and
- the digital mentoring network which has been set up to support staff in the completion of the above learning and development products.
4.67 The ATO also has plans to develop a data literacy capability plan to ensure that all employees have at least a foundational level data literacy. This plan will also include timeframes within which data specialist capabilities must be developed.331 This new capability plan was due for completion in June 2018 after consultation, user testing and the integration of current core capabilities. Once implemented, the ATO plans to continually develop capability building products and approaches.332
4.68 A large proportion of professional associations are educating their members on the benefits that can be gained through acquiring STEM and soft skills. For example, the CAANZ Chartered Accountants Program consists of a compulsory ‘Capstone’ module designed to develop competencies in soft skills including research, problem solving, analysis, professional judgment, communication and thinking ‘outside the box’.333 This module was created in recognition that the automation and increased use of AI in accounting and commerce will result in clients expecting more than just technical answers from their Chartered Accountants. CAANZ has also developed a training technology and data analytics platform called CA Kairos to help tax professionals uncover meaningful insights to assist their clients and improve their business.334 The Institute of Public Accountants (IPA) has partnered with financial software company, myprosperity, to assist their members in providing services to their clients. This strategic partnership is designed to help accountants implement technologies in their practices to increase efficiencies.335
4.69 Other associations have mandated information technology to form a part of recognised or accredited higher education courses. For example, CPA Australia’s international accreditation standards require that higher education institutions seeking accreditation of their course ensure that it contains ‘information technology across the curriculum’ either by way of integration with existing subjects or as a separate subject on its own.336 CPA Australia expects that the courses, for which accreditation are sought, would cover areas including ‘the design of computer-based accounting information systems and their application to solve business problems. Accounting information systems and information technology are important elements in the development of new accounting and business professionals’.337
4.70 The IGT review team has also undertaken an environmental scan of CPD events offered by a number of the leading professional associations which have moved beyond traditional tax technical issues. For example:
- CPA Australia provides corporate learning solutions including an ‘Excel in Finance’ component which recognises that ‘digital automation is essential to future business operations’ and offers its members the opportunity to grow their ‘ability to automate, analyse and create action with our tailored learning solutions’;338
- the Tax Institute offers an online presentation on ‘Data assets, big data and the new tax world’ and other events to raise awareness on issues such as cryptocurrency;339
- CAANZ has held conferences focusing on the ‘increasingly important role of digital innovation, big data and disruption in the accounting profession and finance industry’ as well as courses in relation to cyber security and a ‘tech-bootcamp’;340 and
- the IPA has offered online presentations focusing on issues such as ‘taxation and the Online Sharing Economy’ which introduces participants to the different business models used by parties engaged in the sharing economy.341
Tertiary institutions and other education providers
4.71 Australian tertiary institutions are also recognising the need to modify and expand their course offerings by including disruptive technologies and other subjects tailored to future learning needs. For example, the University of Technology Sydney recently added a ‘Disruptive Technologies and the Law’ subject stating that there is a ‘need to be adaptive and technically capable’ and that ‘FinTech and LegalTech fluency should be part of every law graduate’s armoury’.342
4.72 The University of Melbourne currently offers an undergraduate subject ‘Accounting Processes and Analysis’ which provides a broad introduction to core business processes that support organisational business activities and generate accounting transaction data.343 The Australian National University (ANU) also recently announced the ‘ANU Cyber Institute’ which is intended to encourage collaboration between students, academics, government agencies and private sector organisations on complex issues in the cyber domain.344 The ANU Cyber Institute was inspired by the Australian Government’s 2016 Cyber Security Strategy and the International Cyber Engagement Strategy to protect the community from cyber risk as well as educate the cyber workforce.345
4.73 In addition to their course offerings, the tertiary institutions also provide and host forums in which key issues are discussed and debated to identify opportunities moving forward. In this regard, it is worthwhile noting that in 2017, La Trobe and Edith Cowan Universities, with the support of the ATO and CAANZ, hosted a Future of the Tax Profession Symposium which drew together some 100 tax professionals across multiple fields to discuss the challenges and opportunities facing the profession.346 Similarly, in early 2018, the University of New South Wales’ bi-annual ATAX Tax Administration Conference had as its theme ‘Tax system integrity in a digital age.’347
4.74 Other education providers have also taken steps to review and bolster their course offerings to meet future needs. For example, following industry consultation and with input from the TPB, PwC’s Skills for Australia streamlined two previous Certificate IV qualifications in bookkeeping and accounting into a single diploma aimed at aligning practitioner competencies, industry needs and TPB requirements.348
4.75 As a former Prime Minister has said, Australia needs to be able to keep retraining and reskilling to ‘ensure that growth and the advantages that we get from technology do not leave individuals or regions behind’.349
4.76 In the tax space, work on developing specialised skilling and reskilling is well advanced in New Zealand’s IRD. As part of its transformation program, a core set of 12 capabilities have been identified, each with three tiers of sophistication. IRD has used these capabilities as a driver for creating and shaping new roles that will deliver services it would be expected to provide in the future.
4.77 It is commendable that the ATO has also taken initial steps to reassess its workforce and identify capabilities necessary to deliver services that are increasingly demanded of it. As the ATO develops and implements its plan in this regard, it is important that it works collaboratively, constructively and transparently with all the relevant parties, particularly its employees. The digital disruption path will be made all the clearer with the strong support of employees and is essential to minimise risks associated with disengagement.
4.78 As with any project where a reduction in workforce is one possible outcome, a degree of anxiety and disquiet is to be expected. The IGT is of the view that, as soon as practicable, the ATO should develop a roadmap for itself, its staff and the community, outlining its current position, its desired future state and how it intends to make the transition from one to the other. It should include functions that may no longer be required or are to be automated together with new services or capabilities that have yet to be developed. It should also set out potential redeployment options and plans to transition, upskill and support staff to take up new roles to assuage concerns and anxiety where possible. The collaboration with and support of the unions to implement the planned changes is critical to maximise staff engagement.
4.79 The TPB may also need to consider the likely impact of future changes on its workforce and plan for these changes. However, the IGT notes that the TPB’s remit is significantly narrower than the ATO’s and, therefore, impacts are likely to be limited. Furthermore, as the ATO provides the secretariat to the TPB, those working at the TPB would benefit from the ATO’s training and development program as part of their ongoing career and professional development as well as the TPB’s own learning and development program.350 If the TPB’s work diverges significantly from that of the ATO and it becomes necessary for the TPB to employ its own workforce, the TPB will correspondingly need to increase its workforce planning to meet the demands of the future.
4.80 In discussions with the TPB, the IGT has been informed that while the TPB expects to transition many of its staff away from registration and towards more compliance-based work, it believes that current qualifications (such as Certificate IV in investigations) are adequate to accommodate that transition.351 Whilst this may be currently true, the nature of such work will likely evolve in the future and ongoing monitoring and agile response will be required to ensure that the TPB and its workforce are well-equipped to meet future challenges.
4.81 In seeking to upskill its staff, the ATO could partner with the professional associations, tertiary institutions or other education providers to design training programs that fit both its needs as well as those of the broader tax profession. This would yield significant synergies as future tax professionals attend the same tertiary institutions and require broadly the same knowledge and skills irrespective of whether they eventually work in the private or the public sector. Furthermore, increasingly there is significant movement of staff, in both directions, between for example the ATO and tax practices in the private sector.
The IGT recommends that:
- the ATO:
- in collaboration with its staff and the unions, develop a roadmap outlining its current position, desired future state and how it intends to make the transition from one to the other, including redeployment and upskilling options for staff and support them through the transition;
- in consultation with recognised professional associations, offer assistance to tax practitioners who may wish to develop their own roadmaps to transition from the current to future states; and
- engage with the professional associations, tertiary institutions or other education providers to co-design training programs and courses to upskill ATO staff for the roles of the future; and
- the TPB:
- implement a framework to periodically review its workforce capability needs to meet future regulatory and compliance challenges; and
- in consultation with recognised professional associations, offer assistance to tax practitioners by, for example, providing advice on whether their future plans meet the ongoing obligations of the Tax Agent Services Act 2009.
(a) (i) Disagree
Workforce planning is an ongoing part of our corporate planning and strategy development. A new workforce planning program is underway that is considering capability retention and development of staff across the workforce taking into account the changing operational environment, budgetary considerations and government priorities. Consultation and engagement form key components of our workforce planning approach. Given the work being progressed we do not see benefit in the development of a separate roadmap and framework.
(a) (ii) Disagree
The ATO can provide general information and support relating to the services and products it delivers but cannot be directly involved with the practitioner in managing their business or their practice.
(a) (iii) Existing Programme of Work
The ATO will continue to work with the professional associations, educational institutions and other relevant parties to assist the ongoing development of staff who choose or need to transition to other roles. Solutions may vary from standard offerings through to tailored solutions, based on identified needs.
(b) (i) and (ii) Matter for the TPB
The TPB agrees with recommendations 4.1(b) (i) and (ii)
- In relation to recommendation 4.1(b) (i), the following is noted:
- the TPB agrees that it is appropriate to implement a framework to periodically review its workforce capability needs to meet future regulatory and compliance challenges;
- the TPB welcomes the distinction that the IGT has drawn between the role of the TPB from that of the ATO. Importantly, the ATO is a revenue authority whereas the TPB is a regulator of tax practitioners; and
- the TPB already has in place measures to address a shift from our current state to a future state and is continuously reviewing these measures to ensure that they meet operational requirements. The TPB’s expected future state reflects one where the TPB’s registrations function becomes largely business as usual and the bulk of the TPB’s operational staff are dedicated to compliance activity.
- In relation to recommendation 4.1(b)(ii) the TPB will continue to always work together with tax practitioners and the professional associations to provide guidance on how they can ensure that they continue to meet their ongoing obligations under the Tax Agent Services Act 2009, including the Code of Professional Conduct.
ATO technology implementation and its impacts
4.82 The ATO is responsible for ensuring that citizens comply with a broad range of obligations and in doing so it interacts with the vast majority of the Australian population.
4.83 The ATO has, in recent years, developed and released several significant platforms and services which make it easier for individuals and businesses to engage with the ATO and comply with their tax obligations. These include myTax, the ATO’s virtual assistant Alex, the mobile app, voice biometrics as well as cloud authentication and authorisation.
4.84 As noted earlier, the ATO has also developed platforms and services specifically for tax practitioners.
4.85 Stakeholders have expressed a number of concerns regarding the ATO’s use of technology to extend its service offerings. These concerns include the competitive tension between the ATO’s self-service platforms for taxpayers and the services that are provided by tax practitioners. In a similar vein, although not raised to the same extent, there is clearly a competitive tension between the ATO developing its own software and third party software developers. A further issue raised was stability of the ATO system particularly where outages or failures occur and there is a lack of appropriate redundancies to act as safeguard.
4.86 Stakeholders contend that the ATO’s creation and release of taxpayer self-service channels, such as myTax, which operates in parallel with tax practitioner’s services essentially disconnects them from their clients. This has especially been the case since myTax has become accessible through the myGov system which has been designed to send correspondence directly to the taxpayer.
4.87 Furthermore, stakeholders are of the view that the ATO is encouraging taxpayers to rely on general information contained on ATO websites to lodge returns on myTax without the expertise of tax professionals. This may result in inadvertent over or under compliance which taxpayers may not appreciate, creating a false of sense of security. Intentional under compliance may also go unchecked. Tax practitioners have asserted that their role is essential in the tax system and they should not be bypassed to ensure strict compliance with the tax laws and that taxpayers should be afforded due process and equity, given the ATO’s extensive powers. At the 33rd National Convention of the Tax Institute in March 2018, the extent of the Commissioner’s powers was described as ‘almost unlimited power to assess any person to any amount at any time’.352
4.88 The sense of further disintermediation of tax practitioners has been heightened by the perception that the ATO has spent more resources on their self-service platform offerings in preference to those that support tax practitioners. Examples cited include the comparison of the ATO’s expenditure on myTax to the Practitioner Lodgment System. It was also noted that the ATO has forgone initiatives beneficial to tax practitioners such as providing multi device access to the Tax Agent Portal in favour of direct taxpayer self-service initiatives. Similarly, tax practitioners noted that the ATO’s more recently released platforms and products have not been tailored to their needs. They believe that this was the result of a lack of consultation with them during the design process. Others have suggested that a lack of beta testing of the platform prior to its release may have been the cause or a contributory factor.
4.89 While the above concerns were expressed, stakeholders also recognised that the ATO, as the administrator of the tax system, may need to provide a low cost or no cost compliance option for taxpayers, particularly where no such product is available in the market. However, it has been suggested that governments or their agencies are generally not well placed to build and maintain the very complex systems required by a modern digital society. Accordingly, the ATO and other revenue authorities should outsource the development of software to the market, even in the case of free to use self-service options, by setting standards and releasing more APIs. Such an approach is argued to foster competition and innovation. A key component of the suggested approach was a requirement for the revenue authority to regularly conduct governance and integrity checks on third party providers to assure the community of their robustness.
4.90 Other outsourced options included the support for a more level playing field, by augmenting the status-quo through the introduction of a taxpayer subsidy for the engagement of tax practitioner services or users of third party software.
4.91 An ancillary issue to the use of third party software was that any upgrades of ATO systems ran the risk of rendering the third party software incompatible if there was inadequate consultation and beta testing beforehand.
4.92 An ongoing issue which has been raised again relates to the stability of ATO systems. It had been raised previously through the IGT’s 2015 review into the ATO’s services and support for tax practitioners, and continues to be raised through the complaints handling service. Further issues were raised following the 2016 and 2017 whole-of-ATO systems outages which caused significant community concern, particularly for tax practitioners.
4.93 Stakeholders have indicated that as the ATO and the tax profession become increasingly reliant on technology to carry out day-to-day operations, disruptions in technology will have even greater adverse effects on users. They have highlighted that outages, such as those from 2016 and 2017, resulted in costs to business, missed deadlines and due dates as well as client dissatisfaction particularly where there was a delay in receiving their refunds.
4.94 Digital Service Providers (DSPs) have also explained to the IGT that ATO outages can result in tax practitioners calling their support lines for assistance under the mistaken belief that it is a software issue. Whilst the reputation damage is low once it is explained that the issue originated from the ATO, additional time and resources are needed to respond to queries and manage relationships.
4.95 Stakeholders have pointed out that the ATO is a monopoly service provider and is not subjected to market forces, that is, taxpayers and tax practitioners cannot simply seek another provider if ATO system failures cause them significant losses. Consequently, stakeholders have called on the ATO to provide a dedicated compensation process for such failures and to be held to account on the same level as commercial providers.
ATO’s current and planned implementation of emerging technologies
4.96 In 2015, the ATO commenced the reinvention program.353 The program sought to offer streamlined, contemporary and tailored services to make it easier for everyone to participate in the tax system.354 The ATO consulted with the community to identify how they use the tax system and what they want in the future. From this consultation process, the ATO developed the Program Blueprint which outlined its six strategic programs to transform its culture, systems, practice and processes:355
- contemporary digital services;
- working with our partners in the tax and super systems;
- smarter data;
- optimised workforce capability and culture;
- tailored engagement and support; and
- governance, design and evaluation.
4.97 In October 2017, the ATO Executive endorsed a new Enterprise Governance model working towards the ATO’s 2024 vision of building trust and confidence for Government and the community and ensuring that its services are streamlined, integrated and data-driven where possible.356 The new model replaced the six strategic programs of the ATO reinvention with four newly created committees each focusing on a different area, namely: Client Experience, Staff Experience and Integrity, Partner Experience and Policy Design.357 Each of these committees provides input into the Strategy and Implementation Committee, headed by the ATO’s Chief Information Officer (CIO), to guide and support the implementation of the ATO’s 2024 vision358 as well as ensuring that the ATO’s business, digital and technology strategies are aligned. As at the date of this report, the ATO has not released any public documents about its roadmap towards 2024 or the initiatives that are being pursued under that program.
4.98 In addition to the above strategies, the ATO has also created an Innovation and Tactical Improvements (ITI) Committee which focuses on innovation. It directs the principles, governance and flow of the ITI program of work.
Figure 4.3: ATO Emerging Technology Watchlist
Source: ATO. Information current as at June 2018.
4.99 Figure 4.3 above sets out the range of initiatives that the ATO is currently exploring as well as the timeframes for those technologies to reach maturity based on industry research. For example, the ATO is currently considering how blockchain technology may be integrated into its operations. It anticipates that blockchain will be a transformational opportunity that the ATO could adopt within two to five years. Another significant item is the ATO’s intention to implement a fully cloud hosted workspace within the next two to five years, which will be an inevitable transformational change.359
4.100 In seeking to ensure that its Digital Strategy aligns with whole-of-government imperatives, the ATO’s Chief Digital Officer (CDO) works closely with the DTA. The CDO provides support to the CIO and, as a member of the both the Client Experience and Partners Experience committees, the CDO also works to align the range of different initiatives across the ATO with broader policy directives and community needs.
4.101 As part of its Digital Strategy, the ATO has explored the current state of its digital services and remarked that whilst these offerings have evolved, it is still ‘characterised by multiple, inconsistent, duplicated and disconnected services’.360 Specifically, the ATO noted that its services are not tailored to taxpayers’ needs which impact their engagements with the ATO, leading to increased compliance costs and a damaged relationship.361
4.102 In bringing together its future design, the ATO sees an integration of tax and superannuation services with the digital environment which will be delivered through:362
- digital services which will be embedded into a business or tax practitioner’s natural systems;
- the automatic exchange of taxpayer information in real time;
- greater support to ATO staff to broaden their digital and business capabilities;
- visibility of taxpayer’s overall taxation and superannuation position;
- the ATO’s ability for early identification of when a taxpayer needs assistance with taxation and superannuation obligations; and
- minimisation of the need for taxpayers to report or transact with the ATO.
4.103 In support for its future design, the ATO has also developed a document setting out its recent and planned technological initiatives called the ‘Priority Themes of Work’. This document has been recreated in Appendix 2. A summary of those initiatives is provided in Table 4.1.
Table 4.1: Summary of the ATO’s significant initiatives
myTax is a web-based platform which allows individuals and sole traders to lodge income tax returns across a range of devices. It is available through myGov and prefills a wide variety of information.
Implemented on 1 July 2016
ATO AI Assistant, ‘Alex’
Alex is the ATO’s AI assistant that is available at the bottom of the ATO’s website 24 hours a day, 7 days a week to assist taxpayers with general tax questions. Alex is designed to understand everyday conversational language and asks clarifying questions to provide targeted answers, learning from every interaction she has.
Implemented in February 2016
ATO mobile app
The ATO’s mobile app provides easy access to tax and super information and tools for individual taxpayers, small business owners and self-managed super fund trustees. Its main feature is myDeductions which allows users to keep track of deductions and income records in the one place which is then prefilled into tax returns once the information is uploaded at year end.
Implemented in June 2013
The ATO’s voice authentication system uses a taxpayer’s voice to verify their identity. Since its introduction in the ATO’s call centres, more than 3.2 million taxpayers have been enrolled with voice biometrics, with 35 per cent of all authenticated calls using this technology. Voice biometrics has also recently been made available on the ATO app which has since enrolled over 39,000 voiceprints.
Implemented in September 2014
Cloud Authentication and Authorisation
The Cloud Authentication and Authorisation (CAA) solution is a whole-of-government initiative that enables users of cloud accounting solutions to transmit data and lodgments to the ATO. It allows businesses and registered agents to authenticate themselves when interacting with the ATO and other agencies using cloud software.
Transition from AUSkey for all clients completed in September 2016
Practitioner Lodgment Service and Standard Business Reporting
Standard Business Reporting (SBR) is an Australian Government initiative which simplifies business reporting by linking standard terms used in government reporting with business software terms so that information recorded in accounting software can be extracted to prefill relevant government reports.
Practitioner Lodgment Service (PLS) is the ATO’s main electronic lodgment channel for tax practitioners, replacing the Electronic Lodgment Service (ELS). PLS uses SBR which means that PLS has the ability to allow users to lodge returns and forms to multiple agencies.
SBR was introduced in 2010
PLS is currently in transition phase with forms progressively being removed from ELS
Using IBM Watson to analyse data and intelligence
The IBM Watson Content Analytics software is text mining software that extracts information from free-form text such as PDF or Word documents, emails and web-based information. It is currently being used internally by the ATO to analyse intelligence datasets to identify patterns and trends.
Pilot completed in 2015 and deployed internally in the ATO
Digital business account
The digital business account was designed to be a one-stop shop for businesses to access a variety of government services online. The concept will make it easier for businesses to interact with government and reduce administrative burden with features such as the digital inbox.
Currently in beta phase
Digital Identity Program
The ATO is collaborating with the DTA to deliver on two services as part of the DTA’s broader work to develop a national federated identity ecosystem, namely myGovID and the Relationship and Authorisation Manager (RAM):
Currently in private beta
Single Touch Payroll
STP is a government initiative that is being introduced by the ATO, designed with the purpose of streamlining business reporting obligations. It allows employers to report salary or wages, pay as you go (PAYG) withholding and superannuation information to the ATO from their payroll software when they pay their employees.
Required to be implemented by employers with 20+ employees from 1 July 2018
Push returns and progressive accounts
The ATO will be piloting push assessments during the 2018 tax time for selected individuals as part of its Digital Strategy. At the moment, the push return will only be trialled for a small group of individuals who can choose to ‘opt in’ for the service.
Pilot commencing for the 2018 tax time
Robotic Procession Automation Proof of Concept
The ATO is currently conducting a Proof of Concept to explore how it can employ RPA technology in its operations. It will consider and compare a range of RPA tools which may have varying degrees of functionality.
Proof of concept completed in May and recommendations are under consideration for further implementation
New Payment Platform Proof of Concept
The ATO is currently considering conducting a Proof of Concept to explore using a Tax Convenience Overlay Service for the NPP to transmit and store tax invoice information to be included in pre-filled BAS. This will reduce compliance costs for taxpayers and provide the ATO with the tools to enforce GST compliance and increase revenue collection.
Should the Proof of Concept commence, it will be finalised by early 2019
Blockchain Proof of Concept
The ATO is currently conducting 4 Proof of Concepts on blockchain technology in the following areas:
1. Australian Business Register (ABR) to store and manage the workflows of various licences, permits and grants, facilitated through the use of smart contracts;
2. E-invoicing to automate a part of the procure-to-pay process and hardwiring compliance checks within the supply chain; and
3. Land Registry to track the sale and transfer of land titles.
One of the 4 Proofs of Concepts had been completed; the other 3 have either failed or are not being progressed at this point in time
Source: IGT constructed from ATO information.
ATO’s services and expenditure on its applications of technology for the tax profession
4.104 The ATO has provided information in relation to the work it is currently doing to improve tax practitioner online services. Existing tax practitioner portal functionality will become accessible online across different devices including mobile phones and tablets. The key focus in this project is system performance. The ATO launched a new beta pilot in December 2017 to test these online services with about 110 tax practitioners who volunteered to work with the ATO. Currently, the number of tax practitioners involved has increased to 600. They have been drawn from all states and territories throughout Australia and will incorporate a mix of metropolitan and regionally-based practitioners.363 Figure 4.4 below is a summary of the high level features for the online services for tax practitioners.364
4.105 The features listed below were progressively released into Online Services for Agents homepage from December 2017 to June 2018 via the ATO’s scheduled quarterly releases. Enhancements to that functionality continue to occur through quarterly releases based on feedback from private beta participants.
Figure 4.4: Online services for agents – high level features
Note: The green ticks represent functions that were implemented during the beta or releases, with comments indicating the extent of their implementation or enhancements.
4.106 The Online Services for Agents homepage will display features depending on whether the user is a tax or BAS agent and will vary based on how the agent has customised what is displayed. A variety of tailored services are planned such as notifications and alerts, practice mail, lodgment program status, favourite clients and customisable quick links. Services are optimised for viewing from a range of mobile devices. Access to Online Services for agents on mobile devices is dependent on the implementation of programs to replace AUSkey.
4.107 The client summary pages will include a ‘for action’ feature to provide a quick snapshot of outstanding client obligations including lodgments and accounts with a debit balance or payment plan.
4.108 Tax practitioners will also be able to view a larger list of accounts and transactions. For example, the portal currently only provides 8 tax accounts per page whereas the new online services for tax practitioners will display 25 tax accounts.365
ATO expenditure on self-service channels vs intermediary channels
4.109 Tables 4.2 and 4.3 below set out the ATO’s expenditure on self-service and intermediary channels in 2014-15 to 2016-17. It spent a total of $33,708,590 on the myTax and e-tax platforms, of which $14,272,022.68 was in relation to capital expenses.366 In addition, the ATO spent a total of $39,491,979 on the Tax Agent Portal and Practitioner Lodgment Services, of which $27,684,200.94 was for capital expenses.367
Table 4.2: ATO expenditure on self-service platforms from 2014-15 to 2016-17
|Platforms||Operating expenses||Capital expenses||Total expenses|
Table 4.3: ATO expenditure on intermediary platforms from 2014-15 to 2016-17
|Platforms||Operating expenses||Capital expenses||Total expenses|
|Tax Agent Portal||$9,074,134.16||$13,177,169.94||$22,251,304.10|
|Practitioner Lodgment Services||$2,733,645.00||$14,507,031.00||$17,240,676.00|
4.110 Figure 4.5 below sets out the ATO’s capital expenditure in 2014-15 to 2016-17. Specifically, it shows that whilst the ATO has increased its spending on internally developed software, it has decreased its expenditure on purchased software.368
Figure 4.5: ATO capital expenditure
|Capital budget expenditure||2014-15
|Internally developed software||89.5||114.2||124.6|
|IT infrastructure and hardware||13.2||20.9||17.2|
|Total capital expenditure||149.9||196.8||163.7|
4.111 The ATO has also advised that it has plans to spend a further $258 million on internally developed software and $20 million on purchased software over the next four years from 2018-19 to 2021-22.369
4.112 In addition, the ATO has provided its own intelligence report regarding the tax practitioner landscape and movement of clients between different intermediary options and self-service channels. The most recent insights, drawn from February 2016 data, show that while there were significant movements from taxpayers who used tax agent services to myTax, there was a similar movement in the opposite direction. For example, in 2016, 364,420 taxpayers who in the previous year had used tax agents to lodge their returns opted to use myTax. In the same period, 331,583 taxpayers who lodged using myTax in 2015 chose to use a tax agent service in 2016. The ATO observed similar results when considering movements between the 2014 and 2015 years.
4.113 The ATO’s research indicated that tax agents were most at risk of losing clients to other tax agents. In the 2016 year, the ATO’s showed that 1.3 million (or approximately 14.5 per cent) taxpayers who used tax agents chose to move from one agent to another. Accordingly, the expenditures above notwithstanding, the ATO does not consider that its investment in self-service channels for taxpayers to be a material risk to the tax practitioner community. Rather it is of the view that internal competitiveness within the tax practitioner industry itself is the most significant risk, particularly for those operating within the micro-tier. The ATO has noted that while:
… a client wouldn’t necessarily know that their agent is a micro, small or a medium tier agent, however more mature marketing, wider availability of a range of services from the one practice, style of return preparation (online/electronic/digital v paper) and price competition would be clearly visible to the client and would be some of the drivers for clients to change agent.370
ATO’s engagement with Digital Software Providers
4.114 The ATO has recently reviewed its engagement model for DSPs to establish a consistent approach in consultation forums and released a Digital Service Provider Engagement Model. The Model separates the existing working groups, committees and forums into four categories: strategic, operational, tactical and informational. Figure 4.6 below sets out the Model and the various channels of engagement and some high level information on the purpose of each channel.371
Figure 4.6: DSP Engagement model
4.115 The ATO also provides support to DSPs via its Digital Partnership Office which is responsible for developing and maintaining relationships with DSPs as well as internal ATO stakeholders. For example once a DSP registers as an SBR software developer, an account manager from this team is allocated and has responsibility for:372
- assisting with software and technical related questions for all ATO web service delivery;
- facilitating the integration of software developer partners’ systems to SBR;
- being the ATO advocate for software developer partners; and
- providing management and technical resolution of on-boarding issues.
4.116 A 2016 ATO survey on DSP client experience revealed that DSPs are satisfied with ATO communication channels. However, DSPs felt that tailored enhancements are required and that they prefer to receive ATO news and updates in an online format.373
Impact of ATO’s applications of technology
4.117 The Commissioner, together with tax professional associations, had undertaken to develop a statement of intent for working with the tax profession.374 It recognised that:
Administration of the tax and superannuation systems will change in the coming years because of:
- greater automation and digital business
- increased transparency through data sharing between taxpayers, third parties and government
- reduction in transactional requirements
- whole-of-government services.375
4.118 The statement provides for an intention to work together with the tax profession to deliver expert services, and recognises that tax professionals have a critical role in the tax system in providing expert advice.376 It sets out the principles for working together effectively, such as all parties taking responsibility for their own development, acting ethically, professionally, with integrity and transparency to deliver contemporary services.377
4.119 Furthermore, the statement recognises that the ATO has always offered taxpayers, particularly those who choose to manage their own affairs, the option of interacting with them directly. Moving forward, the ATO will continue to offer a ‘contemporary service’ so that taxpayers can choose to engage with the ATO directly or with a tax professional for advice or lodgment services.378
4.120 The Commissioner has reiterated the nature of ATO’s partnership in a holistic sense that is inclusive of the tax profession. In March 2017 while addressing the Tax Institute’s National Convention, he stated:
Our presence and contribution here demonstrates our willingness to work with the tax profession, key players and the community more generally – through thick and thin.379
4.121 More specifically regarding tax practitioners, at the IPA National Congress in November 2017, he stated that:
I am well aware that the ATO and tax practitioners are dependent on each other for success every day and I would like to see us work more in concert to achieve common strategic goals – like becoming fully digital where possible.380
4.122 The ATO’s Roadmap for Change to the Tax Profession also reflects these statements.381
The risk of under and over compliance
4.123 As more taxpayers opt to use self-service channels,382 tax practitioners believe that the risk of under or over compliance will also increase. To address such risks, the ATO has developed the ‘Nearest Neighbour’ tool which is within myTax to provide prompts to taxpayers who have entered deductions greater than their peers. The tool considers a taxpayer’s occupation, employment income and location to derive an average work-related expense (WRE) claim for the taxpayer’s ‘nearest neighbours’ to calculate an expected WRE claim. Where a taxpayer enters a WRE that is significantly higher than the calculated average, a prompt such as ‘did you know your claim is much more than those who are similar to you?’ will appear.383
4.124 The effectiveness of the ‘Nearest Neighbour’ tool is supported by the findings of a 2015 UK behavioural insight study which considered the effects of pre-populating tax returns with third party data and using ‘nudges’ to increase compliance.384 The study showed that:
… prompts reminding subjects that a lower declaration of income would lead to a higher probability of audit along with a message concerning a descriptive norm of compliance is much more effective in increasing compliance, but only when it is responsive to the values inputted by the taxpayer; passively displaying the same content on the form does not induce changes in compliance behaviour.385
4.125 The ATO has also acknowledged that community confidence can be fostered through the use of this tool to inform taxpayers about under claiming or entitlements. It has suggested that ‘taxpayers could be advised that the deductions they had claimed were below the amounts others in similar occupations had claimed and that they should re-check whether they had claimed all the deductions they were entitled to’.386
1.126 Notwithstanding the concerns regarding over-claiming in returns by self-preparers, the Commissioner has recently asserted that its program of random audits has revealed the over-claiming of WREs is ‘actually worse in agent prepared returns’.387 At the time, the Commissioner did not provide the facts to support these comments. However, the ATO has provided to the IGT the relevant data for the 2015-16 financial year which is captured in Table 4.4 below.
Table 4.4: 2016 individual and entity income tax returns that were subsequently amended by the ATO
|Taxpayer type||Lodgment channel||Number of lodgments||Number of ATO amendments||% of returns which were amended||% of total ATO amendments|
Data source: ATO.
4.127 In the 2015-16 financial year a total of 16.54 million income tax returns were lodged, of which 13.83 million were for individuals and 2.71 million were for entities.388 The ATO initiated amendments on a total of 350,748 income tax returns.389
4.128 Table 4.4 above shows that whilst the number of ATO initiated amendments for entity returns were similar for both agent and self-lodgments, the instance of ATO initiated amendments for individual returns lodged by agents were materially higher than those which were self-prepared. Specifically, 67.2 per cent of all ATO initiated amendments were initially lodged by agents whilst only 32.8 per cent were initially lodged by taxpayers themselves. When examining the proportion of returns through each channel which were subsequently amended, ATO amendments of individual self-lodgments are marginally higher than agent lodgments (2.7 per cent and 2.3 per cent, respectively). In relation to entities, the differences are stark with 13.8 per cent of self-lodgments being amended compared to 0.3 per cent of agent lodgments.
4.129 In a separate paper published by the ATO’s Smarter Data business line in October 2016, the results of analysing 1.3 million individual income tax returns from the 2012-13 and 2013-14 financial years were presented. The paper considered the amount of average income and deductions reported by self-preparers compared to the amounts reported in returns lodged via tax agents. These results have been replicated in Table 4.5 below which show that the average income reported and deductions claimed by tax agents on behalf of their individual clients is slightly higher than the income reported and deductions claimed by individuals who self-prepared. The outcomes of this paper suggested there does not appear to be material differences between the level of deduction claims as lodged by agents when compared with taxpayers who prepared their own income tax returns.
Table 4.5: Income and deductions for the 2012-13 and 2013-14 financial years
|Lodgment channel||Average income ($)||Average deductions ($)||Deduction to income ratio|
Data source: Information provided to IGT on 21 December 2017.
4.130 In July 2018, the ATO published its tax gap analysis for individual taxpayers not in business.390 The analysis drew upon a random sample size of 858 cases from the 2013-14 and 2014-15 financial years, which is significantly less than the figures provided to the IGT in Tables 4.4 and 4.5. The data presented in these statistics starkly contrasts with those contained in Table 4.4 above. In particular, based on the ATO’s sample, 78 per cent of tax returns prepared by agents were adjusted as compared to 57 per cent for tax returns by taxpayers themselves.391 Importantly, not all adjustments were as a result of incorrect WRE deductions.
4.131 The ATO has advised that the above three studies were undertaken for different purposes and using different methodologies. In particular, the ATO has informed the IGT that the data in Tables 4.4 and 4.5 were the results of risk-based analyses of returns (that is, the study aimed at areas where the ATO expected to find errors) whilst the data presented in the tax gap arose from a random sample of cases. Accordingly, the ATO does not believe that the three sets of results are directly comparable.
4.132 It is evident from all three studies that there are inaccuracies in returns lodged by taxpayers or tax agents. It has been suggested that these inaccuracies may be to some extent attributable to inherent complexities of the tax system. The Treasury has noted that the complexity associated with managing work-related deductions is significant. The compliance burdens involved are due to substantiation requirements such as written evidence, characterisation of expenses and apportioning.392 CAANZ has also highlighted such complexity by citing an example relating to the deductibility of clothing, uniforms and footwear. The submission stated that a 25 page public ruling has been devoted to explain the general principles in this regard and there are even more public rulings available that address specific occupations.393
Tailoring platform releases for tax practitioners
4.133 In the 2016-17 Annual Report, the ATO stated that it:394
… consulted and co-designed with nearly 780 tax practitioners on almost 70 different matters, including Single Touch Payroll, superannuation new measures, improving online services, the client communications list, and single online business registration.
4.134 Prior to the release of myTax to the community in 2016, the ATO set up a myTax and myGov limited life working group. The first meeting was held on 26 February 2015, where taxpayer and practitioner enthusiasm for using myGov to access government services was discussed. There were also plans to develop a letter and web content targeted to taxpayers who were eligible to use myTax to lodge returns and also alerting them to engage tax practitioners in appropriate circumstances. However, it is unclear whether practitioners were involved in this working group and were given an opportunity to provide feedback on the design of myTax.395
4.135 The Commissioner has acknowledged shortcomings in the ATO’s design and implementation of services affecting tax practitioners. Specifically, he has spoken of the myGov correspondence issues,396 which automatically sent correspondences direct to taxpayers’ myGov accounts even if they were represented by a tax practitioner. This particular issue necessitated a series of fixes and upgrades and is yet to be completely rectified.397
4.136 The ATO appears to have learnt from the above situation and has modified its consultation processes in relation to large platform releases. For example, in relation to STP, the ATO established a range of working groups, including the STP Design Working Group,398 the STP Software Developers Technical Working Group, the STP Readiness Working Group399 and the STP Advisory Group.400 These consultation arrangements appear to have placed the ATO in a better position in relation to the rollout of STP — the success of this approach will only be proven in the years to come.
4.137 The ATO also regularly tests new platforms and services prior to deployment. The ATO beta website was introduced in 2016 as a ‘testing ground’ for new ideas and digital services. Since its inception, it has received over 36,000 visits from users who are able to test upcoming apps, platforms and services and provide feedback before release. As of 18 January 2018, it has also introduced 30 tests for services including the ATO’s virtual assistant Alex, ATO newsroom, legal database, Digital Business Account, Relationship and Authorisation Manager, myGov notifications, online super and employer tools, managing records on the ATO app, and various content related features on the ATO’s website.401
Third party software development
4.138 In working with the software industry and developers to connect their products to ATO systems, the ATO has released a range of APIs.402 It has stated that as of January 2018, a total of 275 APIs403 have been released which it believes is more than any other revenue authority.404
4.139 To strengthen its governance processes for APIs, in July 2017, the ATO released its interim Operational Framework setting out certain requirements for DSPs. These include compliance with a recognised IT Security Standard, having in place a series of mandatory controls and undertaking conformance testing on their products. During the course of this review, the ATO finalised the Operational Framework and released details of its approach to implementation which was recently updated in August 2018.405
4.140 An example of the ATO’s collaboration with the software industry is the delivery of PLS. The ATO has stated that it is ‘working in partnership with digital service providers to ensure they can deliver’406 software to meet tax practitioner needs. In effect, it is the software industry that is developing PLS solutions, not the ATO.
Stability and redundancy of ATO systems
4.141 In 2015, as part of the IGT’s review into the services and support for tax practitioners, significant concern had been raised about the irritants and instability of certain ATO systems, notably the Tax Agent Portal.407 At the time, the ATO stated that it intended to transfer the functionality of the Portal to ATO Online within two years and believed that such transfer would redress much of the instability experienced by tax practitioners.408 However, such work has not been completed and no timeline has been provided for completion. As a result, the concerns and dissatisfaction with ATO systems remain.
4.142 In addition to the ongoing irritants which affect the ATO’s systems, on 12 December 2016, the ATO experienced a system outage that caused extensive disruption to the majority of the ATO’s most critical IT services including the ATO website, myTax, ATO Portals, ABR, SBR, AUSkey, the enterprise case management system Siebel and outbound correspondence systems.409
4.143 The ATO has explained that the outage occurred when one of its two Storage Area Networks (SAN) failed.410 The SAN hardware is a data storage facility located in Sydney that was and still is operated and maintained by Hewlett Packard Enterprises (HPE). It was installed in November 2015 and at the time, was ‘state–of-the-art’ hardware that had been similarly installed 67,000 times across the world in major business operations such as trading floors and financial institutions.411 The ATO has noted that the failures it experienced had not been previously experienced by any other HPE clients in the past.412
4.144 In its internal report, the ATO explained that the outage was a result of the compounding effect of:
- multiple components of the SAN failing, including failures associated with stressed fibre optic cabling;
- unsuccessful attempts for the system to automatically recover in response to the failures; and
- some of the in-built SAN monitoring and resilience features not being enabled.413
4.145 The ATO has further explained that when designing the SAN, it placed more focus on performance rather than stability, resilience and cost. Whilst the design incorporated some resilience features, it did not consider the combination of events that led to the outage.414
4.146 On 2 February 2017, a second outage occurred when HPE was replacing one of the SAN fibre optic cables. The data cards attached to the SAN were dislodged, causing similar outages to the ones that occurred in December 2016.415
4.147 In response to the above outages, the ATO activated its business continuity management arrangements and worked with local and global HPE staff to restore the system. It engaged with the community and stakeholders on multiple occasions through various channels such as the ATO’s website, social media including Facebook, Twitter and LinkedIn, bulk emails, SMS and newsletters as well as alerts to Australian Prudential Regulation Authority (APRA)-regulated superannuation funds. During the second outage, the ATO also conducted phone briefings with stakeholders, providing them with the opportunity to raise their concerns. In addition, the ATO managed taxpayer impacts with remedies such as extensions of time for lodgment, adjustments to interest and penalties as well as administrative concessions for taxpayers who had missed out on the early payment discount for HECS/HELP debts.416
4.148 In addition to its own internal report on the outages, the ATO commissioned PwC to undertake a post incident review. As part of its report, PwC observed that:
Design and build decisions made by the service provider for the SAN (including array configuration, placement of control/management/monitoring systems) resulted in resilience levels insufficient to cater for the scale and scope of the technical failure, and also led to an extended recovery duration.417
4.149 PwC made 10 recommendations to the ATO as a result of its post incident review, grouped into two categories. The first group of recommendations, ‘re-architect for resilience’, seeks to minimise the risk of an outage should similar conditions leading to the December and February outages rearise. The second group of recommendations, ‘strengthened governance, risk and response capabilities’, was aimed at contributing to overall infrastructure improvements that would also prepare the system for future platforms such as cloud technology.418
4.150 HPE also conducted a root-cause analysis investigation of the failures leading to the outages. After the release of the interim findings, the ATO negotiated a confidential commercial settlement which it stated ‘recoups key costs incurred by the ATO, and provides additional and higher grade IT equipment giving the ATO a world-class storage network’.419 As at the date of this IGT report, HPE had not released the final report of its own investigation.
4.151 In consultation with taxpayers and stakeholders, following the interim findings of HPE’s root-cause review, the PwC review and the ATO’s internal review, 14 key areas for improvement, grouped into five main themes, were identified:
- the ATO’s IT design principles;
- correcting the identified faults;
- enhancing the ATO’s capability to support infrastructure design and IT governance;
- the ATO’s responses to incidents; and
- managing communications and business resumption with stakeholders.420
4.152 The ATO explained that it had already begun implementing changes including replacing the faulty SAN hardware and migrated data to a new SAN. The ATO also sought to address the failure of backup systems to activate in a timely manner by implementing:
… a new storage strategy to enhance IT stability and resilience. This involves rebuilding our primary and back up storage systems with the newest technology from the HPE product portfolio working in conjunction with our 3PAR SAN technology. All production system workloads are now utilising the enhanced storage system. Once data transfer activities are completed, the existing 3PAR SAN will be replaced by a new 3PAR and the current 3PAR SAN decommissioned by late July 2017 for forensic analysis.
[Ensuring] that the ATO’s data management, monitoring and recovery systems are housed in a separate, independent, storage area to remove the dependency of these control systems on the principal SAN. The ATO should also re-architect these control systems to provide ‘always on’ capability.421
4.153 In addition to the reviews listed above, the ATO was also the subject of a performance audit conducted by the Australian National Audit Office (ANAO) to assess whether the ATO had effectively responded to the system failures and unscheduled outages.422 The ANAO found that:
The ATO’s responses to the system failures and unscheduled outages were largely effective, despite inadequacies in business continuity management planning relating to critical infrastructure.423
4.154 The ANAO also found that the ATO does not have service standards for the performance of ICT systems and as such, recommended that it ‘determines the level of availability of services associated with ICT systems to include in service standard(s)’ and report its performance against those standards.424 The ATO agreed to this recommendation as well as the ANAO’s other two recommendations in relation to updating its various risk and business continuity frameworks.425
4.155 In responding to the ANAO, the ATO also stated that it had implemented 9 of the 14 recommendations identified in the ATO Systems Report with the remaining 5 recommendations to be completed in 2018.426 The ATO has advised the IGT that implementation of remaining recommendations is underway as part of the Improving ATO IT System program of work which aims to improve the stability, resilience and availability of ATO systems.427
4.156 Since the outages, the Commissioner has emphasised in speeches that the experience has highlighted the dependency on technology and digital services. He reasoned that in operating a business, there will always be risks of system outages, whether it be due to power providers, telecommunication providers or financial institutions. He discussed the importance for the tax profession to have business continuity and contingency plans so that being offline does not equate to having nothing to do.428 The ATO has also advised that it has invested significant resources to reduce the complexity within its technological environment and enhance its stability.429
4.157 An ancillary matter which has emerged is the provision of compensation to those affected by the ATO system failures or outages. For example, following reports of the ATO’s negotiation of a settlement with HPE, the IPA is reported to have stated that those who incurred productivity losses were not able to receive similar financial relief. Whilst affected tax practitioners could apply for compensation under the Scheme for Compensation for Detriment caused by Defective Administration (CDDA scheme), the restrictive and discretionary nature of the CDDA scheme was believed to have left accountants without any compensation payments.430
4.158 The IGT has previously examined the operation of the CDDA scheme in a prior report. Within the IGT’s remit,431 some improvement opportunities were identified and recommendations made to enhance its administration by the ATO.432 It should be noted that the policy remit with respect to the CDDA scheme rests with the Department of Finance. It is not peculiar to the ATO but applies across the public service with the granting of any compensation being at the discretion of each agency head who has to meet such costs from the agency’s overall budget.
4.159 The above approach to compensation differs from that taken in some other jurisdictions, such as Sweden where the compensation scheme is legislated and the revenue agency’s decisions are reviewable by the courts.433 In response to recently reported events, the IGT has opined that the CDDA scheme should either be improved or a separate compensation scheme for tax administration be created to include a right of external review of the original compensation decision.434
4.160 It is evident that the rapid advancements in technology have touched upon nearly every facet of life and the increasing adoption of technology by the public and private sectors is inevitable. As has already been illustrated earlier in this report, private sector organisations and revenue authorities around the world have all adopted strategies to implement more technology.
4.161 The ATO is no exception and has implemented initiatives such as the AI assistant and voice biometrics while updating and considering other opportunities, such as the ATO app and blockchain technology. The tax profession, particularly large tax practices, have also implemented significant technology in certain areas of practice.
4.162 While there are clear benefits to be realised from increased technology and automation, there are also undeniable impacts. Given the nature of the relationship between the ATO and the tax profession, as stated earlier, the innovations by one will impact the other. Accordingly, the IGT believes that it is important that the two parties work collaboratively with each other and with other segments of the tax profession as well as DSPs to make informed decisions regarding the way forward. In doing so, there are a number of issues that should be actively considered.
4.163 Firstly, the ATO’s ongoing efforts to provide a free service for those members of the community, who choose to manage their own tax and superannuation obligations, is to be commended. The cost in this regard has exceeded $30 million over the past few years and is forecasted to grow by a further $258 million in the coming years. In the light of this expenditure and the rapid pace of technological development, it would be prudent for the ATO to determine whether it should continue developing and delivering such solutions or seek the involvement of the private sector.
4.164 As mentioned earlier, in the USA, the IRS has partnered with private software companies to provide free online lodgment options where certain salary and age criteria are met. The IRS’s website provides links to each of these free file software providers’ websites as well as a ‘Free File Software Lookup Tool’ to determine which software a taxpayer will be eligible to use.435 While there are differences between the USA and the Australian markets, the IGT believes that there would be benefit in the ATO undertaking a cost-benefit analysis to compare the cost of designing and producing its own solutions as compared to outsourcing such work to the private sector. In doing so, the costs and benefits to tax professionals and the community as well as the ATO should be considered and the issues experienced in the USA leading to low-uptake of free market software could be addressed through appropriate contractual terms.
4.165 The self-service channels developed by the ATO have also led to a perception by tax practitioners that the ATO is intentionally disintermediating them from the system. This may be driven by the perception that platforms upon which tax practitioners rely are not progressed at the same pace as self-service platforms. Relevantly, over the three financial years from 2014-15 to 2016-17, the expenditure on platforms for tax practitioners, such as the ATO Portals and PLS, has exceeded those for self-service channels ($39,491,980 compared to $33,708,590). However, examining each product separately, the expenditure on myTax ($28,118,466) exceeds those relating to the ATO Portals ($22,251,304) and PLS ($17,240,767). Tax practitioners may not be aware of the ATO’s precise expenditure. Their perception may be driven by myTax being released in the 2014-15 financial year whilst PLS was not fully implemented until the 2017-18 financial year.
4.166 Secondly, there appears to be some uncertainty regarding the initiatives that the ATO proposes to implement or update. To an extent, the ATO has sought to alleviate these impacts through the various consultation and co-design forums noted earlier as well as the more recent introduction of the ATO beta website. These are positive developments to bring about a more collaborative approach to innovation. The ATO cannot consult with every practitioner personally, nor would it be in the interests of the profession to require the ATO to do so. However, the ATO could better inform the tax practitioner community of the large amount of consultation it does conduct with the tax profession as well as publicly sharing the material made available at these consultation forums. Many tax practitioners who do not participate in these forums directly may not be aware of the work that the ATO has undertaken or plans to undertake and the potential impacts on their practices.
4.167 It would be useful for the ATO to also develop a process through which it more broadly communicates and invites feedback on proposed innovations. One key area in which the IGT believes such communication would be welcome is where the ATO proposes to make substantial changes to the existing lodgment platforms and the timeframes over which these changes are expected to occur. As noted in the IGT’s earlier review, the ATO Portals have become key tools of trade for tax practitioners so it is reasonable that there would be significant anxiety when they do not operate as intended. It is important that as wide a spectrum as possible of tax practitioners are informed of proposed changes and afforded the opportunity to participate in beta testing. Furthermore, the IGT is of the view that the ATO should inform the community about the investments that it is making in relation to tax practitioner platforms so as to dispel any unfounded notions that the ATO is withdrawing funding from that area.
4.168 Thirdly, in considering its future digital services, it is important for the ATO to continue to consider the needs of taxpayers who may not have access to the infrastructure to allow for digital interactions, or ‘particular individuals who struggle with … digital transition’.436 These taxpayers may be elderly, low income earners, disabled or have limited English proficiency. These issues are not confined to Australia. In the USA, a series of public hearings directed at such taxpayers have been held to assist the IRS in developing a plan that is responsive to their need.437
4.169 The ATO has considered some of these matters. For example, the ATO has indicated that it will continue to provide some non-digital services for taxpayers and tax professionals who are not able to transition to digital services. These services include the Tax Help Program which is an income tax return preparation service offered in all states to low income individuals.438
4.170 Given Australia’s significant aging population and the likely support that they would require, the IGT believes the ATO should also conduct some research to assess issues such as how many taxpayers would be unlikely to have access to digital services or be able to proficiently interact electronically and the barriers which are preventing such interaction. The findings of this research could be applied to augment the ATO’s existing support, including ways in which the ATO could assist those taxpayers to overcome relevant barriers or determine where it has to continue to provide traditional access channels.
4.171 Fourthly, as taxpayers are increasingly choosing self-service tax return preparation and lodgment,439 steps need to be taken to minimise the risk of under or over compliance. Whilst the Commissioner has stated that the ATO’s random enquiries into WREs demonstrate that over-claims were ‘actually worse in agent prepared returns’, the absence of the detailed underlying data does not facilitate the determination of the extent to which the tax profession may be a contributing factor. Late in the review process, the ATO informed the IGT that at the time of Commissioner’s comments, the results of the ATO’s enquiry had not been finalised and the Commissioner was sharing initial insights. It is regrettable that the Commissioner’s comments were not accordingly caveated nor any reference made to previous ATO analyses. The ATO has more recently published findings in relation to the tax gap for individuals not in business to contextualise his earlier comments.
4.172 Analysis of historical data provided by the ATO’s Smarter Data business line (Table 4.5) suggests that the average level of deduction claims between taxpayers who self-prepare and those who use a tax agent are not materially different (0.5 per cent). Furthermore, in relation to the accuracy of income tax returns more generally, data from the 2016-17 financial year (contained in Table 4.4), suggests that the rate of ATO amendment of self-prepared individual income tax returns and those prepared by tax agents is not materially different (that is, 0.4 per cent higher for self-prepared individual income tax returns). However, where entity lodgments are concerned, there is a very clear picture that a significantly higher proportion of self-prepared returns are amended by the ATO (13.8 per cent compared to 0.3 per cent for agent-prepared returns). While the IGT notes the ATO’s view that these results are not directly comparable with the tax gap outcomes (due to the different methodologies adopted in undertaking the respective studies), they are nonetheless informative in their own right and, at the very least, raise questions that may be answered in future iterations of the tax gap analysis regarding the accuracy of self-lodgment and agent-lodgments with the ATO.
4.173 As discussed earlier, there is also a risk that the ATO’s ‘Nearest Neighbour’ tool may ‘nudge’ taxpayers away from claiming their full entitlements. The IGT believes that the ATO should undertake research to determine whether this is the case, particularly where there is the potential to use the prompts to effectively ‘test’ threshold limits before submitting the returns. As an extension, the tool does not presently operate in the reverse direction, that is, alerting taxpayers when they have under claimed entitlements to which they may be legitimately entitled.
4.174 Potential over or under compliance may not be confined to myTax and, more specifically, the ‘Nearest Neighbour’ tool. The increasing use of self-service channels and automation of decision making may result in inappropriate outcomes going unchecked. As discussed in Chapter 3, the USA’s NTA has expressed concerns regarding the use of automated decision making and the ability of IRS staff to identify instances where that decision is incorrect. While there are clear efficiency gains to be realised through increased automation, it is imperative that transparency and good decision making are not compromised. Accordingly, automated processes should be monitored to capture inappropriate outcomes which may need to be rectified by manual intervention.
4.175 Fifthly, there are functions which the ATO currently outsources, such as some of its debt collection activities and litigation. It is conceivable that some of its assurance functions may also be outsourced to the tax profession with appropriate safeguards. This may be more efficient and effective given that tax practitioners advise a significant proportion of the taxpayer population. For example, they could provide assurance that applicants for Australian Business Numbers (ABN) meet the necessary requirements and understand the associated obligations to minimise subsequent compliance work that the ATO may need to take. This would be analogous to the manner in which passport and Tax File Number (TFN) applications are considered and processed through Australia Post. While devolving functions from the ATO presents challenges, such as managing conflicts of interest, these issues could potentially be addressed in the design of the process.
4.176 Sixthly, as dependency on and interconnectivity with ATO systems is likely to increase in the future, the stability of ATO systems is of paramount importance. During the course of this review, stakeholders have raised concerns with the level of downtime and urgent maintenance needed to the PLS system, despite the ATO’s significant investment into it. The IGT has also previously recognised the difficulties that are created for taxpayers and tax practitioners as well as the ATO when large scale ATO IT projects do not operate as intended.440 The impact of frequent smaller irritants within ATO systems, including the instability of the Tax Agent Portal discussed earlier, also collectively causes significant disruption. Although the ATO had committed to migrate the Tax Agent Portal to the more stable and robust ATO Online platform within two years, that does not appear to have occurred. There would be benefit in the ATO re-assessing its work in this regard to provide tax professionals with an updated timeframe for completion of the work.
4.177 Additionally, the IGT believes that there should be sufficient safeguards or redundancies to mitigate the risk of significant system failures or recurring irritants. It is reassuring that the ATO has taken steps in this regard following the major outages in 2016 and 2017 with key business system resilience and reliability being identified as one of the main priorities in its Technology Strategy.441 The IGT is also of the view that the ATO should align its service standards with those of commercial providers, including a dedicated scheme for compensation where outages or system failures result in loss for the users. The IGT has previously explored the need for such compensation schemes442 — its scope has to be clearly defined and the processes for accessing it streamlined so as not to create a further impost for taxpayers and tax practitioners.
4.178 Finally, it is necessary to address the impact that the Commissioner’s statements regarding tax practitioners and WRE deductions has had on the already fragile relationship between the ATO and the tax profession.
4.179 Foremost amongst the concerns that have been raised with the IGT is the absence of robust and detailed underlying data to accompany the Commissioner’s claims. It is also concerning that there is significant difference between the information that the ATO has provided, as part of this review to the IGT, and the information that the ATO has since published as part of its tax gap analysis. Some commentators have also suggested that the sample size used in the gap analysis may be too small.443 The IGT can appreciate such a view and believes the ATO should also justify the use of such a small sample to bring into question the expertise and ethics of tax practitioners who feel unjustly attacked and their profession brought into disrepute.
4.180 The relationship between tax practitioners and the ATO is important and needs to be fostered through mutual trust and respect. In doing so, the ATO’s messaging about concerns it may have needs to be appropriately considered to ensure that the delivery achieves the desired effect. Moreover, where such concerns need to be raised, the ATO needs to assure itself and the profession that they are accompanied by robust and properly tested data.
The IGT recommends that the ATO:
- conduct a cost-benefit analysis on the design and production of its own software solutions as compared to outsourcing the work to the private sector;
- in collaboration with the relevant professional bodies, implement a communication strategy to inform tax practitioners of its research and adoption of new technologies that may impact on them and their business;
- expand its beta testing program to reach as wide a spectrum of tax practitioners as possible, particularly those operating small businesses or who are remotely located;
- assess the number of taxpayers who will continue to require access to traditional methods of communication, and use that research to develop a plan for meeting the needs of those taxpayers in the future;
- determine the effectiveness of automated decision making tools to minimise the risk of under compliance or over compliance and ensure they are periodically tested to produce accurate outcomes;
- consider whether it can devolve some of its functions to tax practitioners with appropriate safeguards;
- align its service standards for the performance of its systems with those of commercial providers, including a dedicated scheme for compensation where outages or system failures result in loss for the users;
- engage with the tax practitioner community to develop an action plan to bolster the stability of systems which enable them to assist the community to comply with their tax obligations, including an updated timeframe for the migration of the Tax Agent Portal functionality to ATO Online; and
- ensure that any future messaging regarding concerns it may have with the tax profession is appropriately considered and accompanied by robust and properly tested data.
The ATO’s 2024 Vision and Technology Strategy will make it easy to comply, and hard not to, by leveraging technology services and natural systems to streamline and automate services for clients. The ATO is a world-leading Government agency in the number of
Application Programming Interfaces (API’s) offered to Digital Service Providers, and we will continue to expand this service offering to enable the market to provide value-adding software solutions to the community. We have however, an obligation to provide no-cost digital services to the community to ensure the community can quickly and easily satisfy their tax and super obligations.
(b) Existing Programme of Work
The ATO currently undertakes research into new and emerging technologies to assess their impact on the tax and super ecosystems and our clients. We will continue to communicate, co-design and consult with the profession when considering new technology.
The private Beta for Online services for agents has been expanded to 600 users who are to the extent possible representative of all segments of the agent population. This ensures a representative sample of the tax profession is able to provide feedback on the new system prior to its public beta release in late 2018 to all tax and BAS agents.
More broadly, the ATO already aims that with any private beta, a representative cross-section of the agent population should be involved in testing and given an opportunity to provide feedback.
(d) Existing Programme of Work
The ATO is focusing on assisting taxpayers to transition to digital channels whilst supporting those unable to transition. The ATO will continue to work with the Tax Profession, their associations and other relevant parties to communicate and support them (and their clients) with the digital transition and education.
There are currently no automated decision making tools that the ATO utilises to assess the legitimacy of taxpayer entitlements claims. We will continue to refine our data analytics capability to support voluntary compliance.
We have approved Target Service Standards – these aspirational targets will be implemented by the Improving Services Program to assist with delivering quality experience.
It must be made clear that service standards are aspirational targets and are not a formal agreement between the ATO and the community or tax profession. Where the ATO does not meet its service standards, the ATO has relief provisions to support the community. Examples of these include waivers to penalties or extensions of lodgment dates for returns.
With regard to compensation, the community and the tax profession can, through the Compensation for Detriment caused by Defective Administration (CDDA scheme), seek compensation for situations where they incur a loss as a direct result of outages or systems failures.
(h) Existing Programme of Work
The ATO has already put in place an extensive programme to provide stability to our systems and has communicated this to the tax practitioner community. The ATO will continue to monitor its systems and communicate any impacts to the tax practitioner community.
The ATO has also been providing regular updates as to the progress of the private Beta testing of ATO Online for Tax and BAS agents and an indicative timeline for progressing to the public Beta.
The ATO only raises concerns when we have robust and properly tested data. The ATO will continue to consult (within legal boundaries) with the Tax Professional Associations and the profession on matters of concern and how to communicate them. It is not always appropriate to hold raising concerns which will alert the community until we are able to release the data.
251 Above n 7, pp 109-110.
252 McKinsey Global Institute, Disruptive Technologies: Advances that will transform Life, Business, and the Global Economy (2013).
253 Above n 7, pp 109-110.
254 Sarv Girn, ‘Digital Disruption – Opportunities for Innovation and Growth’, (Speech delivered to the Committee for Economic Development of Australia Adjusting Series, Sydney, 11 June 2014) <www.rba.gov.au>.
256 European Commission, A Fair and Efficient Tax System in the European Union for the Digital Single Market (21 September 2017) p 4.
257 Deloitte, Australia’s Digital Pulse (2016), p 3.
258 Ibid, p 4.
259 Above n 2, p 52.
262 IGT, Debt Collection (2015) p 54.
263 Above n 262, pp 66-67.
264 Above n 250, p 2.
265 Ibid, pp 44-45.
266 Ibid, p 8.
269 Above n 48.
271 Above n 117, pp 5 and 19.
272 Commonwealth Scientific and Industrial Research Organisation (CSIRO), Tomorrow’s Digitally Enabled Workforce – Megatrends and scenarios for jobs and employment in Australia over the coming twenty years (2016) p 7.
273 Above n 2, p 6.
274 Attorney-General’s Department, Australia to 2050: future challenges – the intergenerational report (2010) p 4.
275 Commonwealth Scientific and Industrial Research Organisation (CSIRO), Tomorrow’s Digitally Enabled Workforce – Megatrends and scenarios for jobs and employment in Australia over the coming twenty years (2016) p 15.
277 Australian Law Reform Commission, Elder Abuse – A National Legal Response (May 2017) p 93.
280 It should be noted that the Tax Agent Services Act 2009 does not expressly require registered tax practitioners to act in the public interest or to provide ethically sound advice. However, other requirements, such as the Code of Professional Conduct and requirements for registered tax practitioners to be ‘fit and proper’ arguable incorporate elements of public interest and ethics.
282 Above n 281.
283 Above n 14, pp 5-6.
284 United Nations, E-government survey 2008: From E-government to Connected Governance (2008) p iii.
286 Gerard Goggin, Adriadne Vromen, Kimberlee Weatherall, Fiona Martin, Adele Webb, Lucy Sunman and Francesco Bailo, Digital Rights in Australia (2017) p 1.
287 Above n 285.
288 Above n 286, p 1.
289 Above n 7, p 177.
290 Jamie Kerr, ‘The future of work is … flexible’ (July 2017) Director pp 60-65.
291 Senator the Hon Michaelia Cash, Report reimagines Australia’s working future (26 February 2016).
292 Ramiro Montealegre and Wayne Cascio, ‘Technology-Driven Changes in Work and Employment’ (2017) 60(12) Communications of the ACM, pp 60-67, 60.
293 Senate Education and Employment References Committee, Corporate avoidance of the Fair Work Act 2009, (2017) p 85; Derek Parker, ‘Accountants and the gig economy’ (2017) Intheblack <https://www.intheblack.com>.
296 See for example Treasury Laws Amendment (GST Low Value goods) Act 2017 which has, amongst other things, increased requirements for suppliers of low value goods, including non-resident suppliers, to collect and remit GST to the ATO.
302 Above n 73, p 55.
303 Ibid, 58-61.
305 Committee for Economic Development of Australia, Australia’s future workforce? (2015).
306 ATO, Communication with the IGT (8 December 2017).
308 World Economic Forum, New Vision for Education Unlocking the Potential of Technology (2015), p 1.
309 Ibid, p 2.
310 World Economic Forum, The Future of Jobs (January 2016) p 19.
311 Department of Industry, Innovation and Science, Submission to the Senate Select Committee Inquiry on the Future of Work and Workers (January 2018) p 13.
312 Above n 7, p 114.
313 Shop Distributive and Allied Employees’ Association, Submission to the Senate Select Committee Inquiry on the Future of Work and Workers (January 2018) p 8.
314 Australian Government Chief Scientist, New Research into Stem Skills in the Workforce <https://www.chiefscientist.gov.au>; Australian Government Chief Scientist, Science, Technology, Engineering and Mathematics: Australia’s Future (2014) <https://www.chiefscientist.gov.au>.
316 Professor Toby Walsh, Artificial Intelligence and the Future of Work, Submission to the Senate Select Committee on the Future of Work and Workers (January 2018) p 1.
320 Above n 317; Flinders University – Australian Industrial Transformation Institute, Creative solutions – creativity, innovation and sustainable jobs in South Australia, Submission to the Senate Select Committee on the Future of Work and Workers (January 2018) p 19.
321 Mark Phillips, ‘Accounting for EQ: Why emotional intelligence matters for accountants’ (8 September 2017) Intheblack <https://www.intheblack.com>; Productivity Commission, Submission of the Senate Select Committee on the Future of Work and Workers (January 2018) p 2.
322 Above n 106, p 35.
323 ATO, Refreshing the ATO’s capability framework – National Consultative Forum update (November 2017) [Internal ATO document].
330 ATO, Communication with the IGT (8 December 2017).
331 ATO, Communication with the IGT (8 December 2017).
332 Above n 323.
333 CAANZ, Capstone Candidate Resource Material (2018) p i.
344 The Australian National University, Submission 12 to the Senate Select Committee on the Future of Work and Workers (January 2018) p 2.
346 La Trobe University and Edith Cowan University, The Future of the Tax Profession Symposium (23 November 2017).
349 The Hon Malcolm Turnbull MP (Transcript for the Q&A at the National Governor’s Association Winter Meeting, 25 February 2018).
350 Tax Practitioners Board (TPB), Annual Report 2016-17 (2017) p 61.
351 TPB, Communication with the IGT (24 August 2018).
352 Mark Leibler AC, ‘Perspectives on Tax Administration’ (Speech delivered at the 33rd National Convention of the Tax Institute, Cairns, 14 March 2018), p 2-3.
353 Australian National Audit Office (ANAO), Costs and Benefits of the Reinventing the ATO program, (Report no. 15 2017-18), p 7.
355 ATO, Program Blueprint (2015) p 7.
356 ATO, 2024 – What is it? [Undated internal ATO document].
357 ATO, Charter Client Experience Committee (December 2017) [Internal ATO document]; ATO, Charter Staff Experience and Integrity Committee [undated Internal ATO document]; ATO, Charter Partner Experience Committee (February 2018) [Internal ATO document]; ATO, Charter Policy Design Committee (February 2018) [Internal ATO document].
358 ATO, Charter Strategy and Implementation Committee (January 2018) [Internal ATO document].
359 ATO, ‘Digital Innovation Update, Emerging Technology Watchlist and Innovation Backlog’ (June 2017) [Internal ATO document].
360 ATO, ATO Digital Strategy (December 2016), p 4.
361 Above n 360.
363 370 practitioners who are regionally-based and 232 from metropolitan areas.
364 ATO, ‘Tax practitioner digital services’ (9 November 2017) [Internal ATO document] pp 15-17.
365 Above n 364.
366 ATO, Communication with the IGT (16 April 2018).
367 ATO, Communication with the IGT (16 April 2018).
368 Commissioner of Taxation, Annual Report 2016-17 (2017) p 122.
369 ATO, Communication with the IGT (16 April 2018).
370 ATO, Tax Practitioner Landscape Report Edition 7 (March 2018) [Internal ATO document] pp 12 and 16.
371 ATO, DSP Engagement (1 December 2017) [Internal ATO document].
372 ATO, SBR II Software Developer Training (21 February 2017) [Internal ATO document] p 9.
373 ATO, Client experience – software developers (baseline report), Intermediaries – Software Developers (March-May 2016) p 4.
374 Chris Jordan, ‘Commissioner’s address to the Tax Institute National Convention 2017’ (Speech delivered at the Tax Institute 32nd National Convention, Adelaide, 16 March 2017).
378 Above n 375.
379 Above n 374.
381 ATO, Roadmap of Change for Tax Professionals (2016).
382 Commissioner of Taxation, Annual Report 2015-16 (2016) p 20; Commissioner of Taxation, Annual Report 2016-17 (2017) p 16.
383 Andrew Mills, ‘Tax Administration Continuum – ‘The Law was Made for Man, not Man for the Law’ (Paper updated from the paper presented at the Tax Institute WA State Convention on 17 August 2017) <www.ato.gov.au>; Chris Jordan, ‘Better Services and a better experience for Australians’ (Speech delivered at the 12th International Conference on Tax Administration Sydney, 31 March 2016) <https://www.ato.gov.au/>.
384 Miguel Fonseca and Shaun Grimshaw, ‘Does using behavioural prompts in pre-populated tax forms affect compliance? Results from an artefactual field experiment with real taxpayers’ (Discussion Paper: 015-15, Tax Administration Research Centre, 2015).
385 Above n 384, pp 4-5.
386 Above n 383.
387 Above n 374.
388 ATO, Communication with the IGT (21 December 2017).
389 ATO, Communication with the IGT (21 December 2017).
392 Treasury, Submission to the Standing Committee on Economics, Inquiry into tax deductibility (18 January 2016) p 8.
393 CAANZ, Submission to the Standing Committee on Economics, Inquiry into tax deductibility, 15 January 2016, p 9.
394 Commissioner of Taxation, Annual Report 2016-17, (2017) p 56.
396 Above n 374.
398 ATO, Charter, Single Touch Payroll Design Working Group (30 May 2017) [Internal ATO document].
402 ATO, ‘Draft: Operational Framework Approach’ (undated) [Internal ATO document].
403 ATO, Communication with the IGT (8 December 2017).
404 Commonwealth Hansard, Inquiry into taxpayer engagement with the tax system, Standing Committee on Tax and Revenue, House of Representatives, 27 October 2017, p 23 (John Dardo).
405 ATO, Digital Service Provider (DSP) Operational Framework implementation approach (6 August 2018).
407 Above n 2, p 54.
408 Ibid, pp 58-59, 63.
409 ATO, ATO systems report (June 2017) p 3-4.
410 Above n 409, p iv; Above n 374.
411 Chris Jordan, ‘Commissioners Opening Statement for Estimates’ (Delivered at Senate Estimates, 1 March 2017), p 1.
412 Ibid; Above n 374.
413 Above n 409, p iv.
416 Ibid, pp v, 4-5.
417 PwC, Australian Taxation Office Post Incident Review Draft v9.0 (2017) p 5.
418 Ibid, p 11.
419 Chris Jordan, ‘Commissioners opening statement Budget Estimates Tuesday May 30 2017’ (Delivered at the Budget Estimates, 30 May 2017), pp 5-6.
420 Above n 409, pp 5 & 6.
421 Above n 409, p 8.
422 ANAO, Report No. 29 2017-18 Unscheduled Taxation System Outages (2018) p 7.
424 Ibid, p 10.
427 ATO, Communication with the IGT (19 October 2018).
428 Above n 411, p 1; Above n 374.
429 ATO, IT System Performance Dashboard (August 2018) [Internal ATO document].
431 IGT, Review into the Taxpayers’ Charter and Taxpayer Protections (2016), p 87.
432 Ibid, p 96.
433 Swedish Tax Authority, Communication with the IGT (18 September 2017).
434 IGT on ‘Beattie and Newman,’ Sky News Live (23 April 2018, 8:23pm).
436 Commonwealth Hansard, Inquiry into taxpayer engagement with the tax system, Standing Committee on Tax and Revenue, House of Representatives, 27 October 2017, p 25 (Annie Ferguson).
437 National Taxpayer Advocate, Press Release: National Taxpayer Advocate Delivers Annual Report to Congress; Focuses on IRS’s Future Plans for Taxpayer Service (6 January 2016) <https://taxpayeradvocate.irs.gov>.
438 Above n 436.
440 IGT, Review into the ATO Change Program (2011).
441 ATO, ATO Technology Strategy Executive Summary Pack (July 2018) p 23 [Internal ATO document].
443 The Tax Institute, TaxVine, Member Newsletter 26 (13 July 2017).