4.1. This chapter examines the ATO's processing of GST refund cases which have been identified for pre-issue verification. In particular, it will explore how the ATO engages with taxpayers and tax practitioners throughout this process as such engagement is of overarching importance to the efficiency of the pre-issue audits.

Overview of the ATO's pre-issue audits

4.2. Once a case has been selected for pre-issue verification (as set out in Chapter 3), the case is generally allocated to an officer in the BAS Engagement (BASE) teams although a small number of cases may be referred to officers in Public Groups Assurance and Engagement (PGE). The process followed by officers in BASE teams is depicted in Figure 4, below, and is known as Refund Integrity Case Processing (RICP). A number of procedures and guidelines are available to assist and support such officers in managing this process.

Figure 4: Refund Integrity Case Processing

Source: ATO

4.3. The RICP is made up of two compliance processes, namely, the review and audit phases. In Figure 4, stages from 'Case operative initiates case' to the 'Escalate Review to Audit' represent the review phase. The actions that take place in the review phase usually occur within the first 14 days after the BAS is lodged. Importantly, the ATO is empowered to retain any GST refund, without any restriction during this period.

4.4. During the review phase, ATO officers consider whether it would be appropriate to 'early exit' the case, that is, take no further action. The ATO's Refund Integrity (RI) Auditor Guide, the primary source of instruction for ATO officers undertaking pre-issue verification work, sets out the circumstances in which it may be appropriate to do so. These circumstances include situations where:

  • compliance action has already commenced relating to the same or similar risks;
  • the taxpayer is deceased or insolvent. [ATO officers] should appropriately assess the taxpayer to ensure genuine insolvency exists and the CAC [Client Account Centre] under review must have the INS (insolvency) indicator if [the officer] intends to consider early exit for this reason;
  • the case was incorrectly selected or is a duplicate case;
  • the case was created using the incorrect case product; and
  • the [particular compliance] project has ceased.100

4.5. If an ATO officer decides not to 'early exit' the case, it is moved to the next stage, 'Client Profiling'. At this stage, ATO officers are required to understand the taxpayers and their business environments in preparation for any engagement with them. It involves ATO officers obtaining and verifying information, including information which may be held by other government or private organisations. Some of the tools which are available to ATO officers for this task include:101

  • internal ATO systems such as the BAS Analyser and Risk Assessment Profiling Tool (RAPT); and
  • external systems such as Mirrored Australian Securities Commission On Time (MASCOT) and Real Property (RP) Data.

4.6. Once 'Client Profiling' is completed, the case moves to the 'Phone Client' stage. No direct taxpayer engagement needs to occur before the latter stage. The ATO expects its officers to contact taxpayers within forty-eight hours to advise them that their GST refund has been selected for review and to outline the ATO's verification process.102 Officers are encouraged to contact taxpayers by telephone in the first instance. If successful, during the initial telephone conversation, officers are required to gather further information to better understand the taxpayer's business, clarify and determine the risks identified by ATO risk assessment tools and, where necessary, request documents to substantiate the claim.103 Where telephone contact is unsuccessful, written correspondence is issued via email or post.

4.7. After reviewing information provided by the taxpayer and verifying it against third party data and information accessed from the ATO systems, the officer determines whether the risks identified have been mitigated or whether the claim requires further verification.104

4.8. Where further verification is required, the ATO officer must decide whether to exercise the Commissioner's discretion to retain the refund under section 8AAZLGA of the TAA 1953.105 The decision is made in accordance with guidance contained in PSLA 2012/6106 as well as the RI Auditor Guide and a set of 'Frequently Asked Questions' that have been developed by the ATO (internal FAQs).107

4.9. As part of their decision making, ATO officers are required to consider and document their consideration of the 10 statutory factors outlined earlier108 by completing a template or an appropriate file note and store it on the Siebel system.109 The ATO has developed two templates, being a Word document and an Excel worksheet, for officers to use. While ATO officers are required to consider each of the 10 statutory factors there may be situations where it is not possible to do so due to insufficient information being available.110

4.10. Decisions to retain a refund generally need to be approved by technical or team leaders. However, if ATO officers making the decision are 'Accredited Officers', no such approval is necessary provided the amount of the refund does not exceed certain limits.111 The criteria to become an Accredited Officer include competency in auditing and GST matters, particularly refund verification, as well as experience in case management and associated communication.112

4.11. If the discretion to retain the refund is exercised, the ATO must inform the taxpayer by no later than 14 days after the lodgment of their BAS (or 30 days in some cases).113 If the taxpayer is not informed, the ATO is required to pay the GST refund to the taxpayer on the 15th day after lodgment of the BAS.114

4.12. Where the taxpayer provides insufficient information or there are discrepancies in the information provided, ATO officers may also request additional information.115 If the ATO officers have identified issues that may be more appropriately handled by specialist teams they may also escalate the case to other compliance areas in the ATO.116

4.13. Once ATO officers have the necessary information to make a decision, the case moves to the 'Finalise case and consider referral' stage where officers are required to decide whether to release the GST refund claimed in full or revise the BAS to deny the GST refund claimed in full or in part. Where there is a risk of potential identity theft or identity fraud, the matter may be referred to other more specialised areas of the ATO for action.

4.14. If the ATO does not finalise a case within a certain period of time, the taxpayer has a right of objection against the ongoing retention of the refund.117 The ATO must inform taxpayers of this right within 7 days of the right being triggered.118 However, taxpayers may object to the ATO's retention even if the ATO does not notify them.119 The right to object against the ATO's retention is in addition to taxpayers' general rights of objection contained in Part IVC of the TAA 1953.

4.15. Many stakeholders acknowledge the importance of GST refund verification, noting that, in this regard, the ATO's approaches have been generally working well and taxpayers' and tax practitioners' experience in dealing with ATO officers have been largely positive. However, some stakeholders have raised specific concerns about the ATO's engagement with taxpayers and tax practitioners during the verification process and have suggested a number of improvements.

4.16. Broadly, the specific concerns raised include:

  • insufficient communication during the refund verification process, including:
    • inconsistent notification to inform taxpayers of the ATO's retention of their GST refunds within 14 days (or 30 days, as the case may be);
    • insufficient explanation for retention of refunds and adjustments to the relevant BAS ; and
  • the ATO's information requests are voluminous and unrelated to the verification of refunds.

4.17. Each of the above concerns are considered in more detail in the specific sections that follow.

4.18. It should be noted that concerns have also been raised regarding the ATO's management of the objection process. These concerns mainly related to the more intensive compliance projects, such as the precious metals industry project. Accordingly, these concerns will be considered in Chapter 6.

Communication during the GST refund verification process

Stakeholder concerns

4.19. In complaints received by the IGT, taxpayers have raised concerns that the notification of the retention of GST refunds by the ATO was much later than 14 calendar days or there was no notification at all.

4.20. Taxpayers with access to the Business Portal, a gateway through which they can access a range of ATO services,120 may check the status of their BASs and any GST refunds that they may have claimed. However, the Business Portal does not indicate whether the GST refund claim is under review. Accordingly, to find out this information, irrespective of whether taxpayers have access to the Business Portal or not, they have to contact the ATO. In certain cases, the officers responding to such enquiries may not have the necessary information to assist taxpayers.

4.21. An ancillary issue raised by some stakeholders is that the ATO does not inform them when their case escalates from being a verification matter to a broader GST audit.

4.22. Some stakeholders have also observed that the ATO does not always sufficiently explain the reasons for retaining refunds or the underlying risks that it is seeking to address. They believe that without such information, it is difficult to understand the scope of the verification activities or fully engage with the ATO to address its concerns.

4.23. Concerns with a lack of explanation have also been raised by stakeholders where the ATO has fully or partially denied refund claims following reviews or audits. By way of example, a complaint made to the IGT involved a taxpayer who could not understand why a GST debt of $80,000 was created following adjustments to his BASs. The complainant believed that only $20,000 claimed in the BASs was the subject of dispute.

4.24. In another complaint made to the IGT, the ATO amended 17 BASs resulting in a debt of $4,300 to the taxpayer. The complainant did not understand why the ATO had made the adjustments, even after seeking advice from a tax agent and investigating the adjustments with the ATO. Consequently, the complainant believed the ATO had improperly amended his BASs.

4.25. Stakeholders considered that the ATO should provide clearer explanations otherwise it may result in taxpayer confusion or perceptions that the ATO has not appropriately considered all relevant information, leading to unnecessary disputes. Furthermore, communicating specific reasons better informs and educates taxpayers and their representatives leading to potentially improved compliance in the future. It should be noted that concerns raised regarding the lack, or adequacy, of ATO explanations does not necessarily indicate that the ATO decisions were incorrect.

ATO materials

Notification to inform taxpayers of the retention of their GST refunds

4.26. As noted earlier, where the ATO has decided to retain GST refunds for verification under section 8AAZLGA of the TAA 1953, the taxpayer is notified within 14 days (or 30 days in some instances) following lodgment of the BAS. The ATO uses a number of communication channels, including telephone, text messages, letter or email to notify taxpayers. The ATO's preference is to inform taxpayers via telephone and thereafter officers may follow up in writing. While the legislation does not require written notification, where a taxpayer requests to be notified in writing, the ATO expects its officers to do so.121

4.27 In addition to the guidance provided by PSLA 2012/6, the internal FAQs instruct ATO officers that where notification deadlines fall on a weekend or public holiday, notice may be given on the next working day.122 The internal FAQs also instruct ATO officers to allow sufficient time for postage in cases where telephone contact is unsuccessful.123 All communication is required to be documented or attached to the relevant Siebel case.124

4.28. Figure 5 below is an extract of the ATO's template notification letter. The letter informs taxpayers of the GST refund retention, the period to which the BAS relates, the ATO actions that may follow, how to access further information on the ATO website and the actions the taxpayer may need to consider as well as the ATO's contact details.

Figure 5: Extract of ATO notification letter

Source: ATO

4.29. The requirement for the ATO to notify the taxpayer is important as the consequence for failing to do so results in it releasing the refund. Thereafter, the ATO may only undertake a post-issue audit with a risk that incorrectly released refunds may not be recoverable.

4.30. ATO team leaders are expected to use a mix of approaches to ensure refund decisions are appropriately made and taxpayers notified in accordance with the legislative requirement.125 These approaches include:126

  • Adding a note, which includes the date when the retention period expires, to the "ultimate holding company" field in the Siebel case to alert the case officer when a retention decision needs to be made. The Team Leader is able to [sort cases based on this file note] to follow up with the case operative on whether a decision has been made.
  • Using spreadsheets of case allocations which includes the notification due date.
  • Case reviews or regular case call overs.
  • Checking allocated pre issue cases when [officers] are on unplanned leave to ensure retention decisions are made within time.
  • Checking Automated Work Allocation [an internal ATO system] to ensure stoppers allocated to officers have been finalised.
  • Reviewing stored refund reports.
  • Reviewing the Active Compliance Dashboard [a single standardised platform for managers to monitor and report on performance] and/or [Online Analytical Processing] cubes.

4.31. In addition to the above, post-finalisation quality assurance reviews are undertaken via the Sero system, which is used across various business lines to provide feedback to officers on a real time basis.127 A case is randomly identified for each officer in a given month and assessed by a technical leader from a different BASE team.128

4.32. Four primary criteria are to be addressed in making the Sero assessment. Amongst them are specific requirements for assessors to consider whether communication of the retention to the taxpayer has occurred within the required timeframe129 and whether the officer's consideration of the 10 statutory factors is attached to the Siebel case.130 For completeness, a full list of Sero assessment criteria is contained in Appendix 3.

4.33. Once an assessment is completed in Sero, the team leader reviews it and releases it to the relevant officer. Each case is given one of four ratings, namely: 'Exceeded Standard', 'Met Standard', 'Met Standard Development Required' or 'Standard Not Met'. The Sero assessment result is used to identify any gaps in officer capability and to determine the appropriate training and coaching required to address those gaps.131

4.34. A monthly report aggregating the Sero assessments is also developed and provided to team leaders and management. The report summarises the assessments and notes the number of cases where the assessment criteria were met.132 For the six months between 1 July 2016 and 31 December 2016, the ATO reported 77 per cent of the cases assessed were rated either 'Exceeded Standard' or 'Met Standard'. The ATO reported similar results in the following six months.133

4.35. Where a case did not meet the required standard, it does not imply that the ATO's retention decision was incorrect. A case may not have met standard if the ATO officer did not undertake appropriate checks to confirm the identity of the taxpayer or the risk identified by the risk models were not mitigated. If the decision was determined to be incorrect during the Sero assessment process, the case is reopened and the incorrect decision rectified.134

4.36. Following an ITX BASE Executive decision135 to put in place call recording in all of its areas with a large number of telephone calls with taxpayers or their authorised representatives, in 2016, the call recording system, Verint, was introduced to BASE teams.136

4.37. Call recording is helpful in resolving some disputes, particularly where the taxpayer's recollection of a telephone conversation may be different to that of the relevant ATO officer. It also allows officers to replay discussions and ensure all relevant details of the conversation are included in contemporaneous notes which are required to be recorded on the Siebel system.137 ATO officers are expected to appropriately document all their interactions with taxpayers (whether by telephone or otherwise), on the Siebel system and to ensure that their case notes provide sufficient detail.138

4.38. During the course of this review, the BASE management team acknowledged that ATO officers' notes in the Siebel system could be improved and have moved to introduce training to address this issue. Such training provides specific direction on the importance of quality recording, the use of plain English, the information to be included and the actions or events to be added.139

Communicating reasons for retention of GST refunds

4.39. The ATO has committed to improve the client experience, with a strong emphasis on direct officer engagement with taxpayers or their representatives. In line with this commitment, officers are generally expected to communicate their decisions to retain the GST refunds via telephone. They are also required to provide reasons for the decision in terms of the risk identified but not in terms of the 10 statutory factors set out in sub-section 8AAZLGA(2) of the TAA 1953 which they are required to consider.140 There is no scripting available to them for conducting such telephone calls although guidance is available as to the principles and information that should be conveyed to the taxpayer.

Communicating reasons for adjustments to BAS

4.40. The ATO's RI Auditor Guide requires its officers to record decisions to disallow or vary any GST refund claims on the Siebel system.141 The decision should contain the following sections:

  • What is the compliance issue?
  • What are the taxpayer's views?
  • What are the facts?
  • Supporting evidence
  • ATO view
  • Decision.142

4.41. The RI Auditor Guide also provides further guidance on what information needs to be obtained and included within each of the sections listed above.

4.42. The ATO's internal service standard requires officers to notify taxpayers within seven days of the review or audit decision being made.143 As part of the ATO's procedure, officers are required to prepare a finalisation letter to inform the taxpayer of the decision in each case except where no further action is required.144 A range of template finalisation letters has been developed to assist ATO officers in this regard. Where the ATO has decided to make adjustments to the taxpayer's BAS, the finalisation letter contains the following information:

  • the period of BAS subject to the audit;
  • reasons for decision which include relevant facts, issues examined and the explanation for the decision;
  • whether a penalty has been imposed;
  • how to request remission of general interest charge;
  • a fact sheet for paying any tax liability;
  • internal review that may be available; and
  • objection rights to dispute the assessment.145

4.43. In addition to issuing finalisation letters to taxpayers, ATO officers are also required to attempt telephoning taxpayers to inform them of the decision.146 The information that officers should discuss with taxpayers during such calls is set out in the RI Auditor Guide as well as another internal guide known as the Pre-issue Audit – ITX Procedure.147

4.44. In audit cases where a shortfall penalty is not imposed and the total adjustment for all BASs is less than $5,000, the finalisation of these cases is streamlined.148 In particular, it is not mandatory to issue a finalisation letter unless the taxpayer has requested it. However, in all cases taxpayers will receive a Notice of Assessment or Notice of Amended Assessment showing the adjustments made by the ATO to their BAS.149 Further, if the ATO officer finalising the case is an 'Accredited Officer', the decision does not need to be escalated for approval.150

IGT observations

4.45. Many taxpayers are reliant on the prompt payment of GST refunds. Any delay in receiving GST refunds may impact on their cash flow and ability to meet other payment obligations. Therefore, it is important that the ATO maintains efficient verification process, including appropriate procedures and guidance to relevant officers, to expeditiously action refund claims.

4.46. While undertaking this review, the ATO provided a significant range of procedures and instructions that are available to its officers involved in the GST refund verification process. Having examined these materials, the IGT has found that they provide very detailed information regarding most steps in the process. However, they are voluminous and not well structured and may overwhelm ATO officers, particularly those that may be new to the task.

4.47. By way of example, the RI Auditor Guide contains more than 200 pages when printed. There are also numerous links that further sub-link to other procedures or guidance. The net result is that there is overlap and redundancy in the procedures, with critical instructions being lost or difficult to locate amongst a range of internal administrative requirements. This is demonstrated by some procedures requiring taxpayers to be contacted by the 'required date' without stating how to determine that date. The RI Auditor Guide itself refers to the notification requirements in three separate sections.

4.48. In addition to the RI Auditor Guide, the Pre-issue Audit – ITX Procedure instructs officers that, 'you must inform the taxpayer by the required date (the 14th day after lodgment) if you are retaining the refund'. The internal FAQs also contain information on the notification requirements. These procedures are variously
cross-referenced to each other sending officers in both directions for more information.

4.49. The IGT considers that the ATO's procedures need to be consolidated and streamlined to remove duplication, improve officers' understanding and access to relevant information, thereby achieving administrative efficiency.

4.50. In the course of the IGT review, the ATO advised that it had commenced reviewing the RI Auditor Guide with a view to streamlining the document. A consultation group consisting of a range of officers at various levels was formed to better understand case officers' experiences in using the procedures.151 The first stage of the review is to separate the guide into five main areas:

  • BAS Engagement standalone procedures
  • Job Aids
  • Checklists
  • Administration
  • Learning and Development material.152

4.51. The second stage is to review the information to ensure it is fit for purpose, develop new procedures for each of the above five areas and host it on Sharepoint, an online internal web page accessible to all officers.153

4.52. The ATO has not indicated when it expects to finalise the review and complete the updating of the RI Auditor Guide.

Notification informing taxpayers of GST refund retention

4.53. The current ATO process to monitor and comply with the legislative notification requirement is done manually and as a consequence is reliant upon ATO officers correctly calculating and recording notification deadlines. Moreover, ATO officers are required to record notifications by attaching the relevant email, letter or file note of the telephone conversation on the Siebel system. The IGT's sample testing of the ATO's file notes suggests that sufficient information was provided to taxpayers in most instances and taxpayers were informed of the refund retention.

4.54. The Verint system provides certain assurances by recording all telephone interactions. However, despite the availability of the Verint system, ATO officers are required to ensure that their Siebel notes are a detailed and accurate reflection of their interaction with taxpayers. The IGT considers that the ATO should ensure all ATO officers' file notes are robust such that compliance with key legal requirements is evidenced and readily available to address any taxpayer challenge or dispute.

4.55. In monitoring compliance of the notification requirement, team leaders currently rely on manual processes which increase the risk of deadlines being missed or not identified early enough for remedial action to be taken. In addition, there are no procedures or guidance on how a team leader manages the notification requirement or how assurance is evidenced. This will likely lead to varying and inconsistent practices across different BASE teams within the ATO.

4.56. While the Sero assessment process does consider whether taxpayers are notified of the retention within 14 days, not all cases are subject to this assessment and, in any event, it is only undertaken after the case has been finalised. The IGT notes that the ATO does not undertake any other internal quality assurance audits to determine the proportion of all cases which do and do not comply with the notification requirements.

4.57. Given that the notification requirement is a legislative one, the ATO needs to be assured that it is met in all cases. Accordingly, the IGT believes that, to the extent possible, there should be automatic triggers that alert officers or team leaders of the notification deadline where it has not been met already. For example, this could be achieved through the use of automated flags or indicators on the Siebel system. Such improvements would be particularly useful to team leaders where relevant officers take unscheduled leave, resign, or experience high workloads.

4.58. Towards the latter stages of this review, the IGT was advised that a new function in the RAPT system was currently being developed which may partially address the above issue. The new function is intended to provide ATO officers with the following relevant BAS information:

  • Tax period of the BAS lodged
  • Lodgment source
  • Lodgment date
  • Label 9 net amount (payment or refund amount of the BAS)
  • Number of days since lodgment
  • Date of the end of the 14 day period to notify taxpayers of the retention
  • Date when 60-day call over is due
  • Date when objection rights are triggered (not including any extensions to the 60-day period as a result of ATO's information request).154

4.59. It should be noted that the above is not in the form of an alert as envisaged by the IGT. Furthermore, it is developed within RAPT rather than Siebel. The IGT believes it would be preferable that officers be alerted in the Siebel system as cases are actioned through it. It is also important that all information is recorded and available on a single system, that is, Siebel, rather than through multiple sources to avoid officer confusion and support more efficient administration.

4.60. The IGT acknowledges that the legislative timeframe of 14 days may at times pose operational challenges for the ATO, in particular, when taxpayers lodge their BAS in paper form or where the ATO has detected potential fraud or serious
non-compliance. It may not provide sufficient time for ATO officers to fully consider all information and risks before making the decision to retain the GST refunds. As a result, they may err on the side of caution and retain a refund which may have otherwise been released and thereby unnecessarily disadvantage affected taxpayers.

4.61. Whilst the above are valid concerns, the IGT considers that the implementation of the recommendations in this report will improve the efficiency of the verification process and that the 14 day notification period may be sufficient. Accordingly, it would be appropriate to allow some time for the outcome of this review to bear fruit before reconsidering the length of the notification period. However, a different approach may be required in cases of serious non-compliance or potential fraud and this is explored in Chapter 6.

Communicating and documenting reasons for retention of GST refunds

4.62. Whilst there is no legislative requirement for the ATO to provide reasons for retaining refunds, it is good administrative practice to do so. It avoids disputes and fosters confidence in the revenue agency and the system as a whole — a key factor in promoting voluntary compliance. The ATO does seek to provide reasons to some extent but its associated documentation could be improved.

4.63. As mentioned earlier, ATO officers are generally expected to communicate their decisions to retain GST refunds via telephone as well as the reason for such a decision in terms of the risk identified but not in terms of the 10 statutory factors. Given there is no scripting available to them for such calls, it is important that they accurately record those discussions in a file note so that team leaders can assess the taxpayer experience as well as the officers' performance without resorting to listening to hours of call recordings.

4.64. Figure 5, which reproduces the template used to inform taxpayers in writing where telephone contact has not been possible, provides no reason for the decision at all. This is inconsistent with the guidance for conducting the same task via telephone. This template also refers taxpayers to the ATO website for further information. Specifically, taxpayers are advised to search for the term 'Retaining refunds for integrity checks – frequently asked questions'. However, the IGT's testing of that search term, or its subsets, did not yield any relevant results.

4.65. Whilst officers are not required to discuss their decision with taxpayers in terms of the 10 statutory factors, they are required to document their consideration of these factors. The method of such documentation varies between different ATO teams. It may be in Excel spreadsheets, Word templates or Siebel notes. The Word template includes 'tick boxes' and officers may input additional comments, the Excel spreadsheet includes non-mandatory free text dialogue boxes for input and Siebel notes are purely free text. As a result, the quality and level of detail in these documents can vary significantly amongst the various teams. The IGT has reviewed such documents in a random sample of 40 cases.

4.66. From the IGT's review of the above sample, it was not apparent how officers had considered each of the 10 factors. In three cases, there was no documentation in this regard. In the majority of the other cases, there was insufficient or inadequate consideration of the factors either individually or as against each other. In some cases, a 'tick box' approach was used to simply confirm that an action was recorded in the Siebel system without referencing the location on Siebel or what was actually recorded. More concerning is that in some instances, a box had been ticked confirming that no discussion with the taxpayer has taken place whilst in others no boxes had been ticked at all.

4.67. Accordingly, significant improvement is necessary in how ATO officers document their consideration of the 10 statutory factors and there needs to be consistency in the manner it is done across the various teams. Such lack of documentation suggests that the factors may not be appropriately considered or at the very least does not allow the team leaders to assess officers' performance and their decisions.

Communicating reasons for adjustments to BAS

4.68. Taxpayers have a right to understand the reasons for any ATO action, including an adjustment of their BAS. In high volume, low value, less complex cases, the ATO is likely to be dealing with taxpayers who do not often engage with the tax system. In such cases, the ATO communication with the taxpayer should be in plain English and tailored to their circumstances to ensure they fully understand the relevant issues.

4.69. As mentioned earlier, whilst the ATO provides some guidance on how to conduct telephone calls for explaining adjustments, there is no scripting available for such calls. Accordingly, officers' file note of these calls should be fulsome and accurately reflect the conversation, particularly where there is no follow-up written confirmation to taxpayers. The IGT has reviewed a sample of such files notes.

4.70. From the IGT's review of a sample of the file notes, a number of them were written in disjointed short form or contained ATO jargon. When these files notes were read in isolation, they did not contain sufficient information for a third party to understand the reasons for the adjustments. It is not apparent whether these file notes accurately reflect the conversation that had taken place between the taxpayer and the ATO officer.

4.71. Consistent with the earlier IGT observations regarding notification requirements, improving the quality and accuracy of file notes in these circumstances is also important to evaluate the taxpayer experience as well as the performance of the relevant officers.

Recommendation 4.1

The IGT recommends that, in respect of pre-issue GST refund verification, the ATO:

  1. consolidate and streamline its guidance to its officers with an emphasis on adhering to the statutory requirements;
  2. ensure that interactions between its officers and taxpayers as well as its officers' consideration of statutory requirements are accurately and consistently documented and that team leaders use such documentation to assess the performance of officers and the taxpayer experience;
  3. provide a mechanism to automatically alert its officers and team leaders to notify taxpayers of the retention of their refunds within the statutory period; and
  4. improve its communication with taxpayers by ensuring that they are provided with sufficient reasons for the retention of their refunds and the other information provided to them is accurate and up to date.

ATO RESPONSE

(a) Agree

The report acknowledged that work was already underway to streamline our processes and procedures. This was progressed during the course of this review and has now been finalised. The ATO is committed to continuous review and improvement of our guidance for staff.

(b) Agree

The ATO provide clear guidance for its staff on the statutory requirements through guidance in PSLA 20012/6 Exercise of Commissioner's discretion to retain a refund and in internal Frequently Ask Questions document. The Indirect Tax BAS Engagement (BASE) branch, which undertakes the vast majority of verification activities on GST refunds, is currently reviewing its documentation of the 10 statutory factors in making decisions to retain a refund.

(c) Disagree

Activity statements are processed through the Instalment Processing System (IPS). This system does not allow for automatic alerts to notify officers or Team Leaders whether retention of a refund has been made within the statutory period in s8AAZLGA of the Taxation Administration Act 1953 (TAA 1953).

The ATO is planning to move the processing of activity statements to the Integrated Core Processing (ICP) system, which may provide opportunities to build alerts. In the meantime the ATO has a number of reporting options that can be used to ensure staff are making appropriate decisions with the statutory requirements.

(d) Agree

We are currently reviewing all correspondence to ensure that communication with taxpayers is clear and easily understood. The 'retention of refund' letter used in BASE will provide reasons why a refund is being held for further verification.

ATO information requests

Stakeholder concerns

4.72. In complaints and submissions to the IGT, concerns have been expressed about the ATO's wide ranging information requests, which are not tailored to taxpayers' circumstances, without any explanation as to how they relate to the risk that the ATO has identified. At times, the information requested may already be readily available to the ATO, for example from prior reviews.

4.73. Stakeholders believe that information requests may go beyond ascertaining that the GST refund claim made in a BAS is correct. By way of example, the ATO may request information about the taxpayer's business such as their marketing strategies or suppliers. These stakeholders believe that to verify the validity of refund claims, the information request should be limited to such material as invoices and bank statements.

4.74. A number of stakeholders have also suggested that more experienced practitioners can forecast situations where the ATO is likely to retain a GST refund based on the specific risk or quantum of the refund. In these circumstances they
pre-empt the refund retention by preparing materials in advance and then forwarding these contemporaneously with the BAS lodgment to assist the ATO verification process and expedite the refund release. These stakeholders believe that taxpayers should be able to upload such information onto the ATO system at the same time as lodging their BAS.

ATO Materials

4.75. The ATO requests information from taxpayers as part of its verification activities. Sub-section 8AAZLGA(4) of the TAA 1953 states that:

In informing the entity that the amount is retained, the Commissioner may request information that he or she is aware will be required for the purposes of verifying the notified information.

4.76. The ATO's preference for seeking information from taxpayers is to do so informally and by telephone, where possible.155 In preparation for telephone contact, the RI Auditor Guide provides some questions, by way of example, that ATO officers may ask taxpayers or their representatives.156 The questions are intended to gain a better understanding of the taxpayer's business to determine whether the taxpayer is carrying on an 'enterprise' and determine the reason for the refund claim.157

4.77. If telephone contact is unsuccessful or the taxpayer requests that the questions be provided in writing, general business profile questionnaires have been developed to provide guidance to officers on relevant questions.158 The ATO also has industry specific questionnaires which were developed following consultation with industry representatives.159 The ATO has not advised the IGT how often these industry specific questionnaires are reviewed or how it receives feedback on them.

4.78. The ATO also has a standard letter for requesting information and officers may tailor the information request based on taxpayers' circumstances.160

4.79. On receiving the requested information from taxpayers or their representatives, ATO officers are instructed to consider whether the identified risk(s) may be mitigated without further materials. If further information is required to mitigate the risk, the RI Auditor Guide provides a list of suggested further information:

  • bank statements for the period until audit (irrespective of cash or non-cash basis of accounting);
  • a list of all transactions for the period;
  • tax invoices for the period (the number required to be determined by you during your interview);
  • proof of finance;
  • for importers – Import Declaration form (N10) and Official Receipt; and
  • for exporters – Export Declaration Number (EDN) and Bills of lading.161

4.80. In seeking such further information, ATO officers are also instructed to negotiate a timeframe that is reasonable for both the taxpayer and the ATO. In doing so officers must have regard to the notification requirements under section 8AAZLGA of the TAA 1953 and the time needed to assess the risk and make a decision regarding the refund retention.162 Generally up to a maximum of 14 days is considered appropriate for the provision of the information.163 If the ATO makes a second request for the information, the ATO generally provides an additional 14 days.164

4.81. If a taxpayer has not provided all requested documents or further clarification is required, the ATO may issue additional information requests.165 Taxpayers are also provided with opportunities to explain any discrepancies identified by officers.166

IGT Observations

4.82. The IGT notes that ATO procedures require officers to conduct extensive profiling before contacting taxpayers to request further information in support of GST refund claims. The profiling process, if completed correctly, should ensure all information available to the ATO has been verified prior to taxpayer contact and thereby reduce the scope of the information requested.

4.83. A close examination of the ATO's information request templates and associated procedures supports taxpayers' perception that some of the information requests are unreasonably extensive and not directly relevant. Examples of questions in the template include: 'How do you advertise your business?' and 'How are you funding the enterprise?'. It is important for the ATO to explain that this information is required for the ATO to establish whether the taxpayer is carrying on an enterprise.

4.84. Furthermore, the use of general questionnaires, as opposed to industry specific ones, is unlikely to result in a tailored and considered approach to seeking information. In working to ensure that such questionnaires remain relevant to taxpayers and the risks to be addressed, the ATO should periodically consult with internal and external industry experts to refine and update the questionnaires.

4.85. Even if industry specific questionnaires were used, some profiling questions may be viewed by taxpayers as being irrelevant to refund verification. In such cases, it is important that ATO officers explain the reasons for asking such questions and how it addresses the risks identified by the ATO's risk assessment tools. The ATO's general guidance on information gathering contemplates only limited situations in which the ATO would not explain its reasons for seeking information, including where it may prejudice ongoing investigations or breach secrecy or privacy provisions.167

4.86. There is limited guidance to officers regarding communication of reasons for information requests. Provision of such reasons or explanation improves their confidence in the system and enhances voluntary compliance as well as assisting them in pinpointing the required information.

4.87. There is also minimal written guidance available to officers in relation to the period of time in which taxpayers must respond to information requests where the request is made in writing only. Such limited guidance may lead to inconsistencies in the timeframes given to taxpayers across BASE teams.

4.88. In relation to a formal process for pre-emptively providing supplementary information to the ATO, in anticipation of a retention of refunds, the IGT considers that, whilst it may be useful in some cases, it may place an unnecessary additional burden on taxpayers in other instances. However, it is important to note certain tax practitioners and taxpayers, who have sufficient networks and direct contact with ATO officers, are able to take such pre-emptive action on an informal basis. This may give rise to perceptions of lack of transparency and inconsistent treatment.

Recommendation 4.2

The IGT recommends that, in undertaking pre-issue GST refund verification, the ATO:

  1. periodically review its information requests templates with input from stakeholders, including industry experts, to ensure that those requests are appropriately focused on addressing the risks identified; and
  2. consider allowing taxpayers and tax practitioners to pre-emptively provide information online to assist in the timeliness of the verification process.

ATO RESPONSE

(a) Agree

We are committed to ensuring information requests are tailored according to the risk identified through our risk assessment tools and client profiling. We will also review our profile questionnaires using industry experts to ensure the questions are appropriately focused.

(b) Disagree

Taxpayers and Tax Agents who lodge electronically already have the option to supply supporting information through the various portals. The ATO believes that the current options are appropriate considering the very small number of refund activity statements stopped for verification activities. Allowing taxpayers to send in information may result in additional compliance costs where their refund is not subject to verification activities.

Audit and Objection timeframes

Stakeholder concerns

4.89. While stakeholders have generally acknowledged that the GST refunds process works well, concerns have been raised about the timeliness of the ATO's verification activities. They have indicated that audit timeframes may be prolonged as a result of insufficient communication between the ATO and taxpayers or where the ATO requests extensive information from taxpayers.

4.90. The ATO's information requests may also delay taxpayers' objection rights which are generally triggered if the ATO has not finalised the audit within 60 days. However, where the ATO has issued a request for information, the elapsed audit timeframe is paused ('stop the clock') until the requested information is provided.

4.91. As the calculation of time elapsed can be complicated due to 'stop the clock', taxpayers rely on the ATO informing them when their rights have triggered. Some stakeholders and complainants, who have approached the IGT, have noted that ATO does not always inform them of their objection rights being triggered within the legislated timeframe.

4.92. Furthermore, where objections have been lodged, the time taken by the ATO to consider and issue decisions far exceeds the ATO's previous service standard of 56 days. In certain cases made known to the IGT, taxpayers had to exercise their rights to compel the Commissioner to make a decision.168 These concerns seem to arise in audits involving the precious metals industry, which is discussed in Chapter 6 of this report, rather than in BAU cases. However, it is nonetheless instructive to examine the timeliness of the ATO's verification activities and the ATO's notification of objection rights in the BAU context.

ATO materials

Time taken by the ATO to verify GST refunds

4.93. Section 8AAZLGA of the TAA 1953 does not specify a definite period for which the ATO must finalise its verification and release the refund. However, it states that:

  1. The Commissioner may retain the amount under this section only until:
    1. if paragraph (1)(a) applies--it would no longer be reasonable to require verification of the information; or
    2. if the Commissioner fails to inform the entity, in accordance with subsection (3), that he or she has retained the amount under this section--the end of the day after the time by which, under that subsection, the Commissioner is required to inform the entity; or
    3. in any case--there is a change to how much the Commissioner is required to refund, as a result of:
      1. the Commissioner amending an assessment relating to the amount; or
      2. the Commissioner making or amending an assessment, under Division 105 in Schedule 1, relating to the amount;

    whichever happens first.169

4.94. PSLA 2012/6 and internal FAQs reiterate the legislative provision above170 and reinforce the need for ATO officers to 'review each retention decision from time to time by reference to the particular circumstances'171 of the taxpayer and whether it is still reasonable for the ATO to retain the refund.

4.95. The timeframes taken for the ATO to undertake its verification activities in BAU audit cases are set out below in Tables 4 and 5. They show that in 2014-15, 2015-16 and 2016-17 financial years, over 50 per cent of cases were finalised within 14 days.172

Table 4: Overall case finalisation in percentages

  Year ending 30 June
2015 2016 2017
Number of days Reviews Audits Reviews Audits Reviews Audits
0-14 days 53.06% 13.30% 45.89% 11.50% 39.72% 10.59%
15-28 days 13.03% 4.55% 15.34% 5.24% 18.76% 5.37%
29-60 days 5.54% 5.37% 8.82% 6.73% 12.32% 7.50%
61-90 days 0.54% 2.47% 0.79% 2.88% 0.53% 3.14%
>90 days 0.10% 2.05% 0.18% 2.63% 0.20% 1.90%
Total number of cases 33,350 27,455 23,313

Source: IGT - Constructed from ATO source information.

Table 5: Overall case finalisation in numbers

  Year ending 30 June
2015 2016 2017
Number of days Reviews Audits Reviews Audits Reviews Audits
0-14 days 17,695 4,434 12,600 3,157 9,259 2,468
15-28 days 4,344 1,516 4,211 1,438 4,373 1,251
29-60 days 1,848 1,791 2,421 1,849 2,871 1,748
61-90 days 181 823 218 790 123 732
>90 days 33 685 50 721 46 442
Total number of cases 33,350 27,455 23,313

Source: IGT - Constructed from ATO source information.

4.96. Table 6 shows the average time taken to finalise cases for the years 2014-15, 2015-16 and 2016-17 as recorded in the Siebel system.

Table 6: Average days taken for the ATO to finalise its verification

 

Year ending 30 June

2015

2016

2017

Reviews Audits Reviews Audits Reviews Audits
Mean 13 32 15 36 17 35
Median 10 16 11 21 13 23

Source: IGT - Constructed from ATO source information.

4.97. On the whole, the statistics show that the vast majority of cases are finalised within 60 days. Across all three financial years, the majority of cases were completed within 14 days (66.36 per cent in 2014-15, 57.39 per cent per cent in 2015-16 and
50.31 per cent in 2016-17) although there has been a reduction in the number of cases finalised within 14 days in 2016-17 compared to 2014-15 and 2015-16. The ATO has attributed this reduction to the increase in case complexity.173 The proportion of cases retained beyond 60 days has consistently been less than 7 per cent (5.16 per cent in 2014-15, 6.48 per cent in 2015-16 and 5.77 per cent in 2016-17).

4.98. The ATO has reported that in 2016-17, 94.1 per cent of its audit and review cases were finalised within cycle time, exceeding its 80 per cent service standard.174

Notification of objection rights being triggered

4.99. A key legislative addition, following the enactment of section 8AAZLGA of the TAA 1953, was the inclusion of specific objection rights against ongoing retention of refunds by the ATO, which arise 60 days after refunds have been retained.175

4.100. The 60 day period may be extended where taxpayers are required to respond to ATO information requests.176 The ATO's procedures instruct its officers to consider the effects that information requests may have on taxpayers' objection rights. Specifically it states that ATO officers need to:

Consider the effects that waiting periods for any additional information requests will have on taxpayers review rights of the retention decision under 8AAZLGA.

4.101. The ATO must inform taxpayers within 7 days of the objection rights being triggered. Specifically, sub-section 8AAZLGA(7) of the TAA 1953 states:

Before the end of the 7 days after the start of the period during which, under section 14ZW, the entity may object to the decision, the Commissioner must notify the entity, in writing, that the entity may object to the decision.

4.102. The Explanatory Memorandum provides the following example to illustrate the relevant timeline: a taxpayer lodged its BAS for the tax period ending 30 June 2012 on 28 July 2012 claiming a GST refund. After considering the 10 statutory factors, the ATO decided that verification was required. On 8 August 2012, the ATO informed the taxpayer of their decision to retain the refund under section 8AAZLGA of the TAA 1953. On 20 August 2012, the ATO requested additional information from the taxpayer which was provided on 19 September 2012. Note the effect is such that the 60 day timeframe is effectively extended by the time the taxpayer takes to respond. If by 10 October 2012, the ATO still had not refunded the amount or made an assessment, the taxpayer may object to the ATO's decision to retain the amount under Part IVC of the TAA 1953. The ATO is required to notify the taxpayer of their objection rights by 17 October 2012.177

4.103. An illustration of the timeline leading to the objection rights being available is produced in Figure 6.

Figure 6: Objection rights timeline

Source: IGT

4.104. The ATO's internal FAQs provide guidance to officers on when the ATO is required to inform the taxpayer of their objection rights against ATO retention. Specifically it states that:

The Commissioner is required to inform the entity in writing about the right to object against the decision to retain a refund. The Commissioner must inform the entity before the end of 7 days after the end of the
60-day period (or as extended).178

4.105. The ATO has advised the IGT that an automated tool within the BAS Analyser, called the Retention of Refund Analyser (RoRA) is available for its officers to calculate time elapsed on a retention case, including any 'stop the clock' periods as a result of information requests. The tool requires the officer to manually input the relevant dates of when the information was requested and received. The RoRA tool then calculates the date that the objection rights are triggered.

4.106. Once the objection right has triggered, the ATO's guidelines instructs its officers to prepare and send correspondence to taxpayers informing them of their objection rights.179 The ATO has developed template correspondence to assist its officers in this regard. Figure 7 below is an extract of such correspondence.

Figure 7: Letter notifying taxpayers of their objection rights

Source: ATO

4.107. It should be noted that taxpayers may lodge an objection against the ATO's retention even if the ATO fails to notify them of their objection rights.180 The ATO's RI Auditor Guide informs officers that 'where a refund has been retained for verification, objection rights to the decision arise at 60 days (plus any applicable extensions)'.181

4.108. ATO's statistics show that the utilisation of objection in BAU cases is low, with only 3 objections received since 1 July 2015. Of those, two were disallowed whilst the third became invalid as a result of the refund issuing prior to the objection decision being made.

IGT observations

4.109. It is clear from the discussion above that the majority of BAU cases are completed well before objection rights are triggered (that is, within 75 days). Completion within this time period should be encouraged for the efficient operation of the system as well as minimising unnecessary costs associated with objection and litigation. However, even in those cases where objection rights have been triggered, the uptake by taxpayers has been low which may be due to a range of reasons.

4.110. Firstly, taxpayers may not be aware that their objection rights have been triggered due to the complexities associated with calculating the days elapsed including any extensions due to further information requests being made by the ATO. Using case data provided by the ATO, the IGT sought to examine the ATO's compliance with the requirement to notify taxpayers of their objection rights. That exercise proved difficult due to a number of factors including:

  • the absence of a clear indicator in the Siebel system as to whether objection rights had been triggered;
  • the multiple dates relevant to the particular case such as BAS lodgment, case creation and case allocation; and
  • the absence of a clear indicator of time elapsed throughout the case and any extensions as a result of additional information requests.

4.111. While the BASE teams have access to the RoRA tool which they may use to track the 60-day objection period and any extensions resulting from information requests, the IGT understands that it is not mandatory for officers to use it. As taxpayers rely on the ATO to correctly calculate the 60-day period and to inform them when their specific retention objection rights have been triggered, the IGT is of the view that the ATO should make use of the RoRA tool in all cases where it makes information requests.

4.112. Secondly, the time and costs associated with pursuing objections may be considerable. Accordingly, taxpayers may be reluctant to take such a course of action particularly as it would be solely aimed at the retention decision rather than any amendment to the BAS.

4.113. Thirdly, there is a risk that when a taxpayer objects or seeks review of the retention decision, it could be rendered moot by the Commissioner issuing an amended assessment, as illustrated in Sanctuary Australasia Pty Ltd v Commissioner of Taxation.182 In that case, the Administrative Appeals Tribunal (AAT) ruled that the taxpayer had no standing to seek a review of the objection decision as the Commissioner had issued an amended assessment.183

4.114. Ultimately, any decisions regarding whether to exercise a right to object to the retention of a refund will be made by the taxpayer in consultation with their representatives. The ATO's responsibility is to ensure that taxpayers are aware of their right to lodge such an objection, notify them as to when the right has been triggered and to provide information that assists them to lodge such objections effectively.

4.115. In submissions to the IGT, it had been suggested that rather than requiring taxpayers to go through an objection process, the taxpayer should have a right to seek an independent external review of the retention decision. Such an approach may benefit both the ATO and the taxpayer. The taxpayer has a degree of certainty in knowing that there is a maximum period of time under which the Commissioner may retain a refund and to plan their resources and operations accordingly. The ATO, on the other hand, would not have to notify taxpayers of their objection rights and deal with resulting objections whilst also conducting audits.

4.116. It should be noted however that an external review mechanism may be just as costly for taxpayers as the current objection process and would only be aimed at the ATO's retention of the refund rather than the substantive amendment to their BAS. Moreover, taxpayers currently have external channels available to them to raise their concerns, including seeking judicial review under the Administrative Decisions (Judicial Review) Act 1977. In addition, whilst it would not result in a binding determination, taxpayers may seek the assistance of the IGT through his complaints handling service if they believe that there has been undue delay in the ATO's verification activities.

Recommendation 4.3

The IGT recommends that the ATO:

  1. make effective use of its automated system to calculate the 60-day period within which taxpayers may lodge an objection and inform them accordingly; and
  2. provide information to assist taxpayers in lodging such objections effectively.

ATO RESPONSE

(a) Agree

The ATO currently has automated systems available for staff to calculate when taxpayers' rights to object are triggered taking into account any extensions to the 60 day statutory period associated with information requests. The ATO will reinforce with its operational staff to use the available system in those cases where objection rights are likely to be triggered.

(b) Disagree

The ATO currently provides information to taxpayers to advise them of their objection rights and how to lodge an objection. This information is clearly communicated in written correspondence when the taxpayer's objection rights are triggered. The ATO also provides information on our website, 'How to object to a decision'.

The ATO considers the information that is currently made available to taxpayers is sufficient to assist them in lodging an objection.

Management of identity fraud

Stakeholder Concerns

4.117. An allegation has been made to the IGT that the ATO's risk assessment tools do not accurately detect identity fraud and GST refund fraud nor does it differentiate between them. In particular, reference was made to internal ATO operations, active between 2011 and 2012, where it was alleged that crude risk assessment tools incorrectly identified certain cases as involving identity fraud rather than potentially incorrect GST refunds. As a result, the wrong action was taken, including the cancellation of taxpayers' ABNs, denying their refunds without appropriate communication and effectively denying them review and objection rights.

4.118. A related concern identified was that as a result of erroneously classifying certain cases as 'identity fraud', the relevant accounts were 'locked down' and were not subjected to further compliance action for other potential breaches.

ATO materials

4.119. The ATO has advised the IGT that it had in place a number of operations to address specific risks between 2011 and 2012.

4.120. In 2011, one of the automated risk assessment tools discussed in Chapter 3, identified a group of 200 trusts that had been set up using stolen identities.184 As a result, the ATO initiated a 'fast actioning' operation, codenamed Whip, given the serious nature of the risks. It involved taking a range of actions including retention of refund and cancellation of ABN or GST registrations. In addition, 47 entities were identified for further verifications or audits.185 This streamlined approach provided ATO officers with discretion as to whether communication with taxpayers was necessary.186 Interaction or correspondence in these cases would only occur where the taxpayer successfully proved their identity through the ATO's proof of identity process.187

4.121. Operation Whip was similar to other operations that were active at the time, variously codenamed Zodiac, Cohort,188 Onion and Feline, to address risks that had been identified within specific groups. In each of these operations, communication with taxpayers was either deemed unnecessary or left to the discretion of the ATO officer. Moreover, in the case of Operation Cohort, the internal ATO instructions stated that no notices of assessments or audit finalisation letters would be issued and therefore no objections rights would be available. However, the instruction also noted that there could be 'some feedback into the ATO Call Centres but any complaints could not proceed until the tax file number (TFN) is reactivated via the Compromised TFN Unit.'189

4.122. In discussions with the IGT, ATO senior management have stated that operations such as the ones discussed above were successful in containing the GST fraud risks which had been identified. This has manifested in GST refunds not being issued erroneously and ATO's actions or decisions not being challenged.

4.123. Notwithstanding the success of the operations, in late 2012, the ATO augmented the procedures which guided the above operations through the addition of an addendum which required ATO officers to:

  • attempt to contact the affected taxpayer;
  • use both information provided upon the allocation of the case to them as well as other relevant information to determine the action required; and
  • exercise judgment in deciding the final outcome based on all information available as well as the significance of the risk and the consequences of the decision.190

4.124. The ATO's objective was to ensure all affected taxpayers were contacted and given the opportunity to address any deregistration or refund cancellation concerns. Reinstatement of their registrations or issue of refunds would be provided upon the taxpayer satisfying proof of identity requirements or upon receipt of relevant supporting evidence. Instructions were also provided in the addendum for the ATO officer to provide contact details to assist the affected taxpayer in addressing the compromised TFN issues through the ATO's Client Identity Incident Management (CIIM) team and Client Identity Support Centre.191

4.125. As part of the current IGT review, the ATO has provided further information in relation to its current approach to potential identity fraud cases:

When identity fraud is believed to have taken place, the ATO's Client Identity Support Centre will make contact with the client. After establishing their identity through the Proof of Record Ownership process, the ATO will ask a series of questions to determine whether it was the client that lodged the return. Where it's identified as identity fraud, the ATO will invite the client to register for voice authentication for additional protection, and will apply a range of safeguard measures to ensure the client's ATO record is protected from any future fraud attempts. The ATO will cancel any fraudulent lodgments, refunds and contact information, and invite the client to lodge their legitimate return. The ATO will provide advice on protecting their personal identity information and will advise that additional monitoring will occur over future lodgments.

The ATO will advise the client they can also contact IDCARE, who has partnered with the ATO to provide clients affected by Identity theft with a toll-free national identity security counsellors service on 1300 432 273 (more information on IDCARE at www.idcare.org).192

4.126. Importantly, the ATO further explained that:

The treatments applied to prevent further identity crime enabled refund fraud do not impact on the broader refund integrity suite of models or processes.193

4.127. Specifically, all lodged BASs which claim refunds are subject to automated risk assessment tools that identify potentially incorrect or fraudulent refund claims, regardless of whether the taxpayer has a potential identity fraud indicator or is on a watch list for similar risks. Any BAS identified as being incorrect or potentially fraudulent is then referred to a specialist team that addresses both refund fraud and potential identity fraud.

4.128. As discussed in Chapter 4, the ATO's management of fraud and fraud-related risks within the GST context is set out in the RI Auditor Guide194 and the ITX guidelines.195 Both provide overarching guidance on management of suspected identity fraud, including reference to the Law Administration Practice Statement PSLA 2008/11 Fraudulently altered or created income tax returns or activity statements.196

4.129. As noted earlier, in 2016 the ATO undertook an internal Business Improvement Review in relation to refund fraud management. While the report did not specifically mention handling of identity fraud as an enabler for refund fraud, it does note that there is a discrepancy between the numbers of cases identified by the ATO's risk assessment tools (900 in income tax and 348 in indirect tax for the 2014-15 financial year) and potential identity fraud referrals from members of the public (25,658).197 It also stated that the two avenues for identifying fraud were separate but complimentary. Although no recommendations were made in respect of process improvements on the treatment of identity fraud, the ATO stated that:

Smarter Data is researching online behaviours with a view to detecting risk exposure prior to the actual fraud event (refund claim). This approach aims to improve client experience by detecting identity crime at the earliest possible point in the process, so that clients can be protected at the earliest opportunity.198

IGT Observations

4.130. Given the seriousness of the above allegations, the IGT considered them both at the time that they were raised and in more detail in the context of the current review. It is important to note that the same allegations were also directly conveyed to ATO management who seem to have acknowledged the concerns raised. In response, the ATO explained that additional procedures had been added to augment the streamline processes used in operations such as Whip or Cohort.

4.131. It seems that taxpayers, affected by the above operations, were provided very limited information and were effectively required to contact the ATO to find out and address any actions that may have been taken against them. Although such situations are far from desirable and raise serious concerns, only a finite group of taxpayers, who were suspected of being involved in fraud, were affected for a limited period of time. Furthermore, these taxpayers could have approached the ATO or, at the time, the Commonwealth Ombudsman, to report their concerns. In the materials made available to the IGT, there were almost no instances of such reporting.

4.132. More importantly, the ATO appears to have addressed the above concerns in 2012 through the additional procedures discussed earlier. The materials provided to the IGT as part of the allegations made as well as other information provided by the ATO do not indicate that the practices in question are continuing. It should also be noted that the IGT has also not received any submissions or complaints indicating that such practices are still in place.

4.133. In the broader context of this review, the ATO has sought to continue improving its ability to detect instances of identity fraud through internal reviews and enhancements of the risk assessment tools, as discussed in Chapter 3. The IGT has also made recommendations for further improvements in this regard. Nevertheless, automated risk assessment tools will never be absolutely accurate and there is a risk of compliant taxpayers being selected for review or audit. In such cases, it is important that these taxpayers have effective avenues through which to raise their concerns and have them addressed. Such avenues are currently available through the ATO's CIIM team as well as the IGT's complaints handling service.


100 - ATO, 'RI Auditor Guide', above n 53, p 79.

101 - Ibid pp 82-107.

102 - ATO, 'ITX Review Streamlined', internal ATO document, p 5.

103 - ATO, 'RI Auditor Guide', above n 53, p 119.

104 - ATO, above n 102, pp 9-11.

105 - Ibid, p 11.

106 - ATO, Commissioner's discretion to retain a refund, above n 40.

107 - ATO, 'Commissioner's discretion to retain a refund – frequently asked questions', internal ATO document.

108 - Taxation Administration Act 1953 s 8AAZLGA(2).

109 - ATO, 'RI Auditor Guide', above n 53, p 159-160.

110 - Taxation Administration Act 1953, s 8AAZLGA(2); Explanatory Memorandum, House of Representatives, Tax and Superannuation Laws Amendment (2012 Measures No.1) Bill 2012.

111 - ATO, 'RI Auditor Guide', above n 53, p 185.

112 - ATO, 'BASE Accreditation Guide', internal ATO document, pp 4-5.

113 - Taxation Administration Act 1953 s 8AAZLGA(3)(a).

114 - Explanatory Memorandum, House of Representatives, Tax and Superannuation Laws Amendment
(2012 Measures No.1) Bill 2012, p 85.

115 - ATO, 'RI Auditor Guide', above n 53, p 158; ATO, 'Pre-issue audit – ITX', internal ATO document, p 7.

116 - ATO, 'RI Auditor Guide', above n 53, p 163–168.

117 - Taxation Administration Act 1953 s 8AAZLGA(6).

118 - Taxation Administration Act 1953 s 8AAZLGA(7).

119 - Explanatory Memorandum, House of Representatives, Tax and Superannuation Laws Amendment
(2012 Measures No.1) Bill 2012.

120 - ATO, 'Business Portal' (30 June 2017) <https://www.ato.gov.au/Business/Business-Portal/>.

121 - ATO, Communication with the IGT, 26 June 2017.

122 - Acts Interpretation Act 1901 s 36(2).

123 - ATO, 'RI Auditor Guide', above n 53, p 159.

124 - Ibid p 160.

125 - ATO, Communication with the IGT, 11 August 2017.

126 - Ibid.

127 - ATO, 'Sero is coming to Refund Integrity Assurance (RIA)', internal ATO document.

128 - ATO, 'RIA Sero Matrix', internal ATO document.

129 - Ibid.

130 - ATO, 'The 10 factors worksheet', internal ATO document.

131 - ATO, Communication to the IGT, 10 October 2017.

132 - ATO, 'Indirect Tax BASE Sero Monthly Report: September 2017', internal ATO document.

133 - ATO, 'Sero Assessment Overview July to December 2016', internal ATO document; ATO, 'Sero Assessment Overview January to June 2017', internal ATO document.

134 - ATO, Communication with the IGT, 19 January 2018.

135 - The decision was made in line with recommendations from the ATO's Telephony Reference Group (TRG). The TRG had regard to the ANAO's report into the ATO's Administration of Contact Centres (2014).

136 - ATO, Communication with the IGT, 20 October 2017.

137 - ATO, 'Frequently Asked Questions – ITX BAS Engagement IVR Project', internal ATO document.

138 - ATO, Communication to the IGT, 10 October 2017.

139 - ATO, 'Quality notes for compliance BASE presentation', internal ATO document.

140 - ATO, Communication with the IGT, 26 June 2017.

141 - ATO, 'RI Auditor Guide', above n 53, p 178.

142 - Ibid p 174.

143 - Ibid p 190.

144 - Ibid.

145 - ATO, Communication with the IGT, 11 August 2017.

146 - ATO, 'RI Auditor Guide', above n 53, p 190.

147 - Ibid pp 190-191.

148 - Ibid p 169.

149 - Ibid.

150 - Ibid.

151 - ATO, Communication with the IGT, 20 October 2017.

152 - ATO, Communication with the IGT, 20 October 2017.

153 - ATO, Communication with the IGT, 20 October 2017.

154 - ATO, Communication with the IGT, 20 October 2017.

155 - ATO, Our Approach to Information Gathering (26 July 2016) <https://www.ato.gov.au/>.

156 - ATO, 'RI Auditor Guide', above n 53, p 119.

157 - ATO, 'RI Auditor Guide', above n 53, p 121.

158 - Ibid.

159 - Ibid p 119.

160 - ATO, Communication with the IGT, 11 August 2017.

161 - ATO, 'RI Auditor Guide', above n 53, 119.

162 - Ibid, p 136.

163 - ATO, RI Auditor Guide, above n 53, p 134; ATO, Communication with the IGT, 14 December 2017.

164 - ATO, Communication with the IGT, 14 December 2017.

165 - ATO, RI Auditor Guide, above n 53, p 148.

166 - Ibid, p 158.

167 - ATO, above n 155.

168 - Taxation Administration Act 1953 s 14ZYA.

169 - Taxation Administration Act 1953 s 8AAZLGA(5).

170 - ATO, Commissioner's discretion to retain a refund, above n 40; ATO, above n 107, p 11.

171 - ATO, Commissioner's discretion to retain a refund, above n 40, paras 9 and 13.

172 - ATO, 'Case Outcomes by Age', above n 50.

173 - ATO, Communication with the IGT, 20 October 2017.

174 - ATO, Communication with the IGT, 20 October 2017.

175 - Taxation Administration Act 1953 s 14ZW(1)(aad).

176 - Taxation Administration Act 1953 s 14ZW(4).

177 - Explanatory Memorandum, House of Representatives, Tax and Superannuation Laws Amendment (2012 Measures No.1) Bill 2012, p 85.

178 - ATO, Frequently Asked Questions – ITX, above n 137.

179 - ATO, 'Guidelines for retention of retention of refunds under section 8AAZLGA of the TAA 1953 in pre-issue cases', internal ATO document.

180 - Taxation Administration Act 1953, s 8AAZLGA(8); ATO, Commissioner's discretion to retain a refund, above n 40, para 16.

181 - ATO, 'RI Auditor Guide', above n 53, p 182.

182 - Sanctuary Australasia Pty Ltd v Commissioner of Taxation [2013] AATA 371.

183 - Sanctuary Australasia Pty Ltd v Commissioner of Taxation [2013] AATA 371 at [4].

184 - ATO, 'Office Minute (30 January 2012), internal ATO document, p 1.

185 - Ibid, p 2

186 - ATO, 'Refund Fraud Hobart' (undated), internal ATO document.

187 - ATO, 'Office Minute', above n 184, p 2.

188 - ATO, 'Office Minute' (30 January 2012), internal ATO document, p 1.

189 - Ibid, p 4.

190 - ATO internal email dated 8 November 2012.

191 - Ibid.

192 - ATO, 'ATO's management of GST refunds in cases involving suspected identity fraud', June 2016, internal ATO document, p 3.

193 - Ibid, p 3.

194 - ATO, 'RI Auditor Guide', above n 53.

195 - ATO, 'Indirect Tax guidelines for dealing with suspected fraud', 20 September 2017, internal ATO document.

196 - ATO, Law Administration Practice Statement PSLA 2008/11 Fraudulently altered or created income tax returns or activity statements (2015).

197 - ATO, 'Business Improvement Review', above n 86, p 12

198 - Ibid, p 13.