8.1 This chapter considers the ATO's risk review and audit processes. The risk review processes are addressed first and followed by the audit processes. Issues and concerns raised by stakeholders are set out in each part along with recommendations to improve the level of transparency and engagement and promote greater certainty in the progress of risk reviews and audits for stakeholders.

8.2 The IGT received submissions directly and via the consultation process about the ATO's audit and risk review processes. Many stakeholders expressed a view that the ATO's approach to risk review processes had improved in more recent times. Stakeholder views on audit processes were much more varied.

8.3 Taxpayers and their advisers have also shared a number of concerns about these processes with the IGT. There was a broad consensus that while certain aspects were working reasonably, there was room for improvement in these processes. This chapter primarily focuses on these stakeholder concerns and aspects of the processes where there is an opportunity for improvement.

8.4 The ATO has also agreed with the IGT that there is room for improvement in this area. The IGT and stakeholders have broadly supported the ATO's efforts to improve and in particular the development and release of the Large Business and Tax Compliance (LBTC) booklet.

8.5 It is important to appreciate that both the risk review and audit processes are largely administrative processes designed by the ATO. Some aspects of these processes or core documents are designed with input from external stakeholders (for example, the LBTC booklet) but this chapter analyses the aspects of the processes designed by the ATO. This IGT review did not consider the underlying ATO risk identification or creation process itself, although that may be considered for future IGT review. A specific discussion on the administration policy approaches to the implementation and management of the audit and risk review processes is outlined in Chapter 1 of this report.

Risk review processes

Background

8.6 As previously stated, the ATO source guidance for risk review or audit teams on how to create, plan, implement and manage a risk review is outlined in the ATO's LBTC booklet and Large Business and International (LB&I) Compliance Manual. The details of the ATO's risk review product are discussed in Chapter 5 of this report.

Submissions and consultation

8.7 A number of stakeholders expressed the view that ATO risk reviews had improved in more recent times. A common theme amongst these stakeholders is higher levels of genuine ATO engagement. These stakeholders felt the ATO clearly communicated the issues it was focusing on. Information requests were specific and succinct, and clearly referable to the issues of focus and perhaps more importantly, understood by the taxpayers who were actioning them. Another feature was the agreement of sensible timeframes for response upfront between the taxpayer and ATO.

8.8 Taxpayers and advisers also commented that the risk review process went particularly well where the ATO audit team sought to build a direct and continuing relationship with the taxpayer. This was in evidence where the ATO team engaged in meaningful dialogue with the taxpayer, seeking to understand and take account of the taxpayer's particular business circumstances regarding resourcing, access and timing difficulties in an open manner with an appropriate degree of flexibility.

8.9 Taxpayers and their advisers have also submitted that the risk review process worked best when there were opportunities to engage and discuss issues throughout the risk review process. One taxpayer referred to the ATO's willingness to meet and discuss the taxpayer's governance structures and to outline the potential risks early in the risk review process. The taxpayer felt that that this allowed them to explain the risks and discuss their control systems in relation to those risks. The taxpayer also organised meetings between representatives of its various business units and the ATO, to provide the ATO with a better understanding of the taxpayer's business. Importantly, the taxpayer submitted that the ATO took into account what was discussed in those meetings as reflected through a change in the scope of the risk review.

8.10 However, other taxpayers expressed concern that there had been very little engagement during a risk review.

8.11 Some taxpayers and advisers suggested that an essential starting point for all review and audit processes should be a discussion of the taxpayer's corporate and tax governance policy and of the ATO's initial reasons for selecting the taxpayer. They submitted that if the ATO has prepared a risk profile or analysis of the taxpayer then this should be openly shared and discussed in detail with the taxpayer and documented as part of the case plan. Others suggested that there was no collaboration or engagement with them in relation to key milestone events, while a significant number expressed concern that they were not informed of the ATO's risk hypothesis even after they had provided the ATO with information. Some taxpayers and advisers submitted that it was only at the end of the risk review that the ATO provided them with the risk hypothesis.

8.12 A number of taxpayers also felt that some audit teams only engaged in the formality of a process, where real dialogue and exchange was missing. The stakeholders expressed considerable frustration in these circumstances. These taxpayers felt that they were in an information void and in trying to understand the ATO's situation wondered whether there were skilling, confidence or empowerment issues that prevented audit personnel from responding. A concern was also expressed that engagement seemed to be measured by a ticking-off exercise on a check list sheet and that 'real' decision-making power was expressly said or implied to be elsewhere.

8.13 A number of taxpayers expressed concern that the lack of engagement and discussion during the risk review process is leading to incorrect or higher risk ratings at the conclusion of risk reviews.

8.14 Taxpayers believed that there would be significant benefit if the ATO shared the risk hypothesis with them earlier in the risk review process as it would allow them to better understand the ATO's concerns. They suggested that this would allow them to provide the ATO with far more targeted responses that could potentially lead to a lower risk rating. It would also encourage a discussion between the ATO and taxpayers about the type of information that would be readily available in relation to the risk hypothesis and would minimise perceptions that the ATO was 'fishing' for issues.

8.15 A number of taxpayers raised concerns with the limited opportunity to meet and discuss risks and issues with senior tax officers and technical specialists especially where these officers have been involved in internal ATO workshops. Taxpayers asserted that the nature and purpose of these workshops was not generally discussed with taxpayers, nor were they given an opportunity to present or participate. However, after a workshop taxpayers would receive information requests which were often very broad in scope. Taxpayers also indicated that these information requests were hardly ever accompanied by a refined risk hypothesis. Taxpayers expressed concern that the attendees at these workshops had no accountability for the information being requested and that there was no opportunity to discuss the scope of the information requests with them despite the large compliance costs associated with these.

Scope of information requests

8.16 A significant concern amongst taxpayers and their advisers was the scope, nature and detail of documentation required at the risk review stage.

8.17 A number of taxpayers submitted that they sometimes received requests for an extremely broad range of documents (even source documents) with some information requests containing over 100 questions. Taxpayers asserted that the concerns associated with such broad information requests were compounded by the uncertainty about the exact nature of the ATO's concerns and the limited timeframes (usually 28 days) to provide this information.

8.18 These taxpayers believed that this made the risk review stage seem more like an audit. Taxpayers and advisers suggested that risk review information requests should be consistent with the role and purpose of a risk review and not that of an audit.

8.19 Some advisers suggested that the risk review stage was being used as the commencement of an audit and as a means to extend the audit period beyond the two year timeframe.

8.20 For more discussion in relation to ATO information requests served on taxpayers and related issues please refer to Chapter 7 of this report.

Taxpayer certainty in outcome of ATO risk review

8.21 Submissions expressed concern with a proliferation of open issues with some risks being placed into a 'wait and see' pool meaning that the ATO is able to review the issue at any time depriving taxpayers of certainty. Taxpayers affected indicated that the only closure available to them in such circumstances is to wait until the amendment period has expired. A considerable number of taxpayers suggested that the outcome of a risk review should be certain — that is, a risk issue is either flagged as subject to audit or closed for that particular year and only open for re-examination in circumstances of fraud or evasion.

Transparency in ATO risk review rating and process

8.22 Taxpayers questioned the transparency and consequence of risk review rating in providing certainty. In one example, a taxpayer noted that despite most risks being rated at the lower end of the risk rating scale, a significant number of the issues went to audit. Feedback from the board and senior management was that the risk rating provided at the end of the risk review and the inferred level of comfort provided was misleading. In particular, it placed the taxpayer in a very difficult position with other external parties such as auditors, investors and analysts to whom the taxpayer had conveyed the ATO's initial low risk rating.

8.23 Taxpayers want more certainty and clarity at the end of a risk review given the significant time and resources they expend to comply with the ATO's requirements. They state that no less intensity, time or effort is expended on a risk review than an audit. Taxpayers also want greater transparency and clarity around the meaning and consequence of each risk rating with clear expectations of the likely ATO response.

IGT observations

8.24 The IGT observed that clarity as to issues of ATO concern and clarity of ATO process made for a strong starting point in the risk review process. Where the ATO clearly identifies the issue of concern that is the potential risk then taxpayers are better placed to understand it and better placed to respond to it.

8.25 The IGT in discussion with the ATO has raised this issue. The ATO has indicated that the risk review process may not always be clear as to what the nature of the issue may be on initial enquiry. The ATO suggested that by way of example there may be a pattern or anomaly against a body of data that they observe in their risk identification processes, which they need to understand in more detail.

8.26 The ATO also advised that these preliminary enquiry situations were not necessarily taxpayer risk as such but that they were a risk for the ATO because they do not know enough about it. To put it another way, it may not be a 'risk' in the sense that it would be an issue of concern once it is understood by the ATO.

8.27 This preliminary risk hypothesis identification process is one that taxpayers have expressed some difficulty and frustration with. This has the potential for communication breakdown and misunderstanding or worse, if taxpayers do not appreciate the nature of this kind of initial enquiry.

8.28 The IGT believes that there is scope to further enhance the risk review process by providing more opportunities for engagement and discussion.

8.29 The IGT also believes that the ATO can improve the manner in which a risk review changes into an audit (that is, the risk review ends but an audit begins) by providing greater guidance and certainty to taxpayers at the completion of a risk review.

8.30 Currently, taxpayers receive a risk review finalisation letter from the ATO informing them of the risk, a risk description and the risk rating. Risks may be rated as Trivial, Low, Moderate, Significant, Major, High or Severe. However, the finalisation letter does not provide guidance on which risk issues will be selected for audit or when an audit may commence.

8.31 The LB&I Compliance Manual requires that a risk assessment workshop be held where the risk will proceed to audit. This originated from earlier taxpayer concerns that some audits may have become unnecessary if the ATO had undertaken more complete internal workshopping of the commercial and technical issues before a risk review was completed.

8.32 The purpose of these workshops is to bring together appropriate ATO technical leaders and relevant specialists prior to finalising a risk review to determine whether the risks warrant further action.

8.33 Under the previous LB&I management structure, where a recommendation to proceed to audit had been supported by the risk assessment workshop, the audit team had to prepare a business case. The business case had to contain key taxpayer information, value of the risks, focus years, reasons for audit, expected duration of the audit, technical support requirements and expected start date. The business case was considered by a Segment Risk Management Committee where it could be approved, placed on a contingency list or rejected. After a Segment Risk Management Committee considered that a case warranted further examination, it would be listed for approval by the Segment Leaders Forum. This forum met every three months, ensured that prospective audits would meet ATO priority requirements and made decisions to approve, make contingent or reject proposed audit cases.

8.34 Cases on the approved list would then be allocated to a segment, a projected commencement date would be nominated and they would be placed in an approved pool awaiting allocation to a particular audit team.

8.35 Given that this audit approval process occurs after a taxpayer may have been notified of the risk review outcomes, there is potential for a delay between the risk review finalisation letter and the commencement of an audit. This delay contributes to taxpayer uncertainty regarding whether and when an identified risk will proceed to audit. In addition, it prevents taxpayers from being able to plan for future ATO audit activity by identifying likely resourcing and capability requirements.

8.36 The IGT believes that the case selection process should be brought forward and occur prior to the ATO communicating the risk review outcomes to taxpayers. This will allow the ATO to create risk rating definitions that better explain (via indicative next steps) what a taxpayer can expect after receiving the outcome rating and the expected timeframe (for example, audit to commence in first quarter of 2010/11 or issue placed on contingency list).

8.37 The ATO has advised that under the new management structure, the business case provides a summary of key information about the taxpayer and the risks the team is recommending for audit. Senior officers independent of the compliance team consider business cases for audits as part of LB&I's normal operational management arrangements to ensure resources are allocated efficiently and directed to the highest priority risks. Where a case is approved to proceed to audit, the timeframe in which the audit commences will depend on the current available resources and the nature and priority of other work being undertaken.

Recommendation 8.1

To improve taxpayer certainty, after completion of the risk review the ATO should make the decision as to whether it will proceed to audit promptly. If the decision is made to proceed to audit, then the audit should be commenced as soon as possible. The ATO should also nominate an appropriate contact officer who will maintain regular contact with the taxpayer, to keep them informed of the progress of their case.

ATO Response

Agree.

Audit processes

Background

8.38 Appendix 6 to the LBTC booklet contains a diagrammatic representation of the ATO's audit process.

8.39 The LB&I Compliance Manual provides additional guidance to audit teams about how to plan the audit and make audit decisions.

8.40 The Manual notes that a good audit plan clearly sets out:

  • the objective of the audit, namely to prove (or disprove) a risk hypothesis;
  • who is responsible for various aspects of the conduct of the audit;
  • when key tasks are to be completed and by whom;
  • key risks and the planned mitigation of those risks; and
  • key case review points.1

8.41 The Compliance Manual states that planning for the audit should commence at the outset of the audit (preferably before the finalisation of the risk review). It notes that inadequate planning has been recognised as a weakness in LB&I case work and that without proper planning it is likely that audit activities will slip and expected timeframes will not be met. Further, poor planning results in inefficiencies and increased cost to both the ATO and taxpayers.2

8.42 The Manual also states that Team Leaders play a vital role in planning for the cases done by audit teams. In addition to bearing the responsibility for the plan, team leaders must also ensure that case officers have adequate planning capability.3

8.43 There are a number of fundamental planning documents and activities that must be completed at the outset of an audit.4

Audit Planning Workshop

8.44 The Audit Planning Workshop is required to be held prior to the preliminary audit interview with the taxpayer. The purpose of this workshop is to:

  • confirm the hypothesis the audit will test for each of the issues;
  • determine the scope of the audit (income years and risks covered);
  • determine the initial information, documents or evidence that will need to be requested from the taxpayer;
  • identify the relevant technical issues;
  • plan the timeframes and resource requirements for the audit;
  • determine who needs to be involved on an ongoing basis such as the Tax Counsel Network (TCN) and Centre of Expertise (CoE); and
  • plan strategies to achieve audit goals.5

8.45 The Compliance Manual also states that the discussions from this workshop should assist audit teams identify:

  • what they need to know about the business (wide survey) and what they need to know about the issue (exact scrutiny);
  • the 'elements' to be proved and the evidence necessary to prove each issue; and
  • the information to be requested, the manner in which it should be obtained (discussion, written query) and the approach to be adopted (formal or informal).6

8.46 By the end of the workshop the audit team should have considered and planned both the operational and technical aspects of the case, and have briefed any senior tax officers who will be attending the preliminary audit interview.7

8.47 The Manual states that another key function of this workshop is the early engagement of technical experts in audits ensuring that senior technical specialists, including from the TCN and CoE, are brought into the process early to assist with focusing the audit team's information gathering and contributing to forming the ATO view on the facts.8

Preliminary audit interview

8.48 Before an initial audit interview, where the ATO will discuss the issues under audit and its information needs with the taxpayer, a scheduled preliminary audit interview focused on planning and logistics is to be held. This is to ensure the smooth running of the audit and is a crucial part of planning for the audit both for the ATO and the taxpayer.9

8.49 The LBTC booklet states that at the preliminary interview the ATO will:

  • provide a copy of the audit plan for discussion;
  • discuss the audit scope, the periods under audit and the expected completion date;
  • discuss the information gathering processes;
  • discuss any ATO guidelines relevant to the issues and years to be audited, including procedures in relation to voluntary disclosures;
  • outline facilities and assistance that the ATO may require; and
  • give the taxpayer contact details of a senior officer in the event that the taxpayer wishes to raise any concerns during the audit.10

8.50 The Compliance Manual also states that it is mandatory that a senior ATO officer discusses the Audit Management Plan with the taxpayer at the preliminary audit interview.11

8.51 The purpose of the Audit Management Plan is to provide taxpayers with a clear understanding of the scope of the audit, the tax risks being examined, the audit process and the proposed audit project plan timelines and to also take into account taxpayer planning considerations.12

8.52 The discussion should provide a good basis for considering all operational issues involved in the audit and reaching agreement with the taxpayer on timeframes and processes. It is highly recommended that the senior tax officer who attends the preliminary audit interview and discusses the Audit Management Plan with the taxpayer also participates in the initial audit interview.13

Initial audit interview

8.53 The Compliance Manual states that the purpose of the initial audit interview is to discuss the technical issues and information gathering needs in relation to the audit. It notes that it is common for the preliminary audit interview to also include a discussion of the technical issues and information gathering requirements. The Manual states that this is an acceptable practice providing the requirements of the preliminary audit interview, such as the discussion of the Audit Management Plan with the taxpayer, occur first.14

Making an audit decision

8.54 The Compliance Manual sets out the key steps in making an audit decision:

  • refining the hypothesis and scope of the audit until the issues and income tax years under audit are clear;
  • for each issue determining the relevant provisions, the elements of the provisions, the material facts and the evidence required to establish those facts and the applicable ATO view;
  • escalating issues where appropriate;
  • developing and receiving clearance on the initial ATO view (prior to communicating the initial view to the taxpayer) — often in the form of a draft position paper;
  • presenting the initial ATO view to the taxpayer;
  • seeking the taxpayer's response to the initial ATO view;
  • responding to the taxpayer's views and contentions as appropriate;
  • reaching a final decision as to the ATO view; and
  • at all times ensuring that the plan, at either the audit level or an issue level, is appropriately updated for developments.15

8.55 All audit decisions must be made in accordance with the ATO Good Decision Making Model and Judgement Model. These models were developed to assist decision makers exercise judgement to make sound decisions.16

8.56 Applying the ATO's Decision Making Model means that all ATO audit decisions must satisfy the following principles:

  • Legal — by considering and complying with all relevant legislation, regulations, determinations, and practice statements;
  • Ethical;
  • Equitable — ensuring that audit decisions apply equally to all people and do not discriminate. For example, where transactions by different taxpayers have the same facts, circumstances and evidence then the law should not be applied differently;
  • Overt — the reason for audit decisions must be open and transparent;
  • Sensible — audit decisions must be commonsense;
  • Timely — audit decisions must be made within an appropriate timeframe and the people affected have a right to know the outcome as soon as possible. The complexity of large business audits means that this can sometimes be challenging, so it requires careful planning and active management of casework; and
  • Natural justice — when making audit decisions the auditor must act fairly, in good faith and without bias.17

8.57 The ATO Judgement Model is used to assure quality of the ATO's technical decisions. It is part of the Integrated Quality Framework that LB&I uses for quality assurance reviews. The principles of both the Judgement and Decision Making Models are also built into the quality assurance points of the Siebel case management system. The Compliance Manual states that it is important that case officers use the Judgement Model (in addition to the Decision Making Model) as self-assessment tools throughout the audit to ensure that audit decisions can stand up to scrutiny.18

8.58 The Judgement Model says that in preparing technical decisions a case officer must continually check that they have:

  • correctly identified and clearly understood all of the relevant issues;
  • provided an accurate and consistent answer to each of the taxpayer's issues; and
  • provided a logically organised and properly reasoned argument for each response to every issue.19

8.59 The Compliance Manual also notes that in forming a view on the audit issues, case officers must ensure that they:

  • identify the facts and issues;
  • research, identify and interpret the relevant law;
  • if there is an applicable precedential ATO view, then apply the law and ATO view to the facts and reach a conclusion; and
  • if there is no applicable precedential ATO view the issue will need to be escalated to establish an ATO view.20

Facts and Evidence worksheet

8.60 To assist case officers identify the facts and issues the ATO has developed a series of Facts and Evidence worksheets. The purpose of the worksheets is to:

  • assist in planning initial and follow-up information requests for audit cases;
  • ensure that all the requirements of the provisions being applied have been considered — these requirements are sometimes referred to as the elements, integers or ingredients of the provision;
  • ensure that all the requirements of the provisions being applied have been satisfied — that is, sufficient facts each of which is supported by evidence have been obtained to support the application of the particular provisions;
  • assist the case officer to consider and catalogue what additional facts and evidence are required and the possible sources for obtaining that evidence; and
  • allow the case officer to reference the evidence to the specific elements of the provisions being applied.21

8.61 The worksheets are intended to be used throughout the audit process to assist with developing arguments, identifying problems with arguments, identifying evidentiary gaps and analysing the provisions.22

8.62 The Compliance Manual states that the information contained in the worksheet will form the basis of the arguments in the position paper. The use of the worksheet is also intended to assist in structuring the position paper and developing the arguments. The worksheet is also intended to assist the objections officer where the facts and evidence need to be re-examined as a result of the taxpayer objecting to an assessment and with other technical areas if at some stage the issues need to be referred for specialist advice.23

8.63 The Manual also notes that the completion of the Facts and Evidence worksheet is not intended to result in any additional work being created for case officers as it will merely document the process which case officers already follow when establishing whether the Commissioner's case is proven to the requisite degree.24

8.64 Researching information and reaching an initial view generally involves conducting workshops and holding meetings with internal stakeholders such as Case Leaders, TCN, CoE and external experts.25

8.65 It is mandatory under the Manual to hold at least one audit workshop (in addition to the audit planning workshop) before the ATO presents its initial findings to the taxpayer. The purpose of these workshops is to bring together relevant internal stakeholders (such as subject matter experts and senior tax officers) to assist in the progression of the audit and confirm the initial ATO view.26

8.66 The primary case officer is responsible for developing the ATO view and interacting with the taxpayer to obtain their views and take them into consideration. The primary case officer is also responsible for determining the final ATO view. In reaching decisions the primary case officer is supported by a range of internal support including specialists such as CoE or TCN staff, segment leadership and Case Leaders, who may contribute to or sign-off on decisions made in the course of the audit. The Team Leader (who needs to approve the audit decision) is ultimately responsible for the technical correctness and quality of the decisions reached in the course of the audit.27

Submissions and consultations

8.67 Taxpayers and advisers submitted that while the ATO has made improvements in how it handles audits, elements of the ATO audit processes continue to be inefficient, giving rise to unnecessary costs for taxpayers. They believed that aspects of the ATO's audit processes take too long to complete, they impose significant compliance costs and do not provide adequate certainty for taxpayers. Some suggested that the primary causes for this inefficiency were the lack of direction from senior tax officers regarding the scope of the audit and the audit teams not being able to narrow the scope of an audit.

8.68 A few stakeholders indicated that while they disagreed with ATO audit decision outcomes in the process, they could not fault a given audit team's application of the stated ATO processes. However, the same stakeholders did raise concerns that the experience was not universal and invariably depended on the calibre of ATO officers involved.

8.69 Taxpayers expressed frustration when they perceived the ATO was pursuing lines of enquiry or initiating audit processes that appeared to be unnecessary or inappropriate, especially where it led to information requests that did not seem to be relevant to any technical issue.

8.70 Taxpayers and advisers also raised a number of concerns with aspects of the audit process, including:

  • timeframes for finalising audits and extension of time requests;
  • the level of engagement especially in relation to facts, evidence and issues; and
  • escalation and access to technical specialists.

Timeframes for finalising ATO audits and ATO extension of time requests

8.71 Taxpayers raised concerns that amended assessments were being issued just before the end of the two year timeframe, even though there had been little time for taxpayers to respond to position papers. Where taxpayers managed to respond in the short time available to them, there was little or no time to debate the merits of the competing positions. Taxpayers submitted that this forced them to have to prepare and lodge an objection to protect their position, notwithstanding that the ATO position was still a work in progress. This also required the taxpayer to incur additional costs by having to respond to the position paper and prepare the grounds for objection.

8.72 Taxpayers and their advisers also expressed concern with the manner in which the ATO requests taxpayers for an extension of time to the amendment period. Taxpayers stated that they expect that the ATO will review their tax affairs within the statutory limitations (currently four years) timeframe contained in the law. They submitted that on some occasions the ATO has sought to extend this period but in a manner that created uncertainty and was, at times, unfair on the taxpayer.

8.73 Taxpayers submitted that in the ordinary course of dealing with the ATO when the four year timeframe is nearing, they must choose between granting an extension of the statutory review period and dealing with the ATO issuing protective assessments. In such instances, consenting to the extension request is seen as the only means of deterring the ATO from issuing an amended assessment. Taxpayers suggested that the latter option is least desirable, particularly as public companies are required to report disputed protective tax claims in their published accounts. For this reason very few ATO extension requests are refused by a public company. Currently, where the taxpayer has no practical alternative other than to grant the extension, the taxpayer must extend the amendment period for all issues, not just those identified in the audit.

8.74 In addition, taxpayers and their advisers submitted that the ATO does not show sufficient cause as to why it is necessary to extend the limitation period and does not consider the cause of the delay. This means that a taxpayer is forced to make a decision without full comprehension as to the causes for the delay, the appropriateness of the extension or the matters that will be reviewed if and when the taxpayer consents to the extension.

8.75 Taxpayers believe that as a matter of ATO practice and policy the approach to obtaining a taxpayer's consent should broadly mirror the requirements for a Federal Court order. Taxpayers also believe that the ATO should be precluded (by at least administrative policy) from issuing protective assessments unless the ATO has issued a position paper. Taxpayers were also mindful that in a different market risk segment situations may arise for the ATO where this approach may need to be differentiated from certain serious non-compliance situations where fraud or evasion may be present.

Level of engagement — ATO with taxpayers

8.76 Submissions noted mixed experiences with the ATO's level of engagement with taxpayers during an audit. Some observed that case officers have been cooperative and that it is now less difficult to discuss issues and refine the scope of an audit. However, this was not a uniform experience.

8.77 A concern raised by some stakeholders was that requests for further explanation from the ATO about information requests or explanation as to what was going on in the process sometimes led to perceptions that the taxpayer was being uncooperative. The ATO noted in discussions with the IGT that there are occasions where deciding to meet is a question of judgement. The ATO commits to taxpayer engagement but situations can arise where the ATO does not believe it has sufficient understanding of the facts or issues to meet with the taxpayer. Accordingly, the ATO did not wish to waste taxpayer or ATO time in meeting until such time as it could have a meaningful discussion.

8.78 Taxpayers complained that there is an absence of timely communication around key milestone events during an audit. An adviser made the observation that an overriding concern is the ATO's failure to identify and communicate the key issues in dispute, despite an extensive information exchange process.

8.79 A number of stakeholders expressed the view that certain audit teams had been reluctant to meet with taxpayers to discuss and better understand the audit issues. Taxpayers and advisers suggested that some audit teams only seem interested in obtaining documentation and demonstrated a tendency to simply repeat the same questions in multiple information requests where they had not understood a particular matter. Others submitted that it was often the case that after the initial audit meeting, the only engagement between the ATO and taxpayers was when the ATO sent out information requests.

8.80 It was suggested that it was not until the issuing of a position paper that taxpayers may realise that the ATO continued to have concerns about a particular issue. It may also be the first opportunity the taxpayer has to better understand the ATO's technical position on the issue.

8.81 The ATO raised situations with the IGT where certain taxpayers indicated that they did not wish to meet in this context. In these instances the taxpayer felt it was better to wait until a position paper was issued before they met.

8.82 In addition, affected advisers expressed frustration when audit teams only tell them that the taxpayer or issue is considered high risk and needs to be investigated without providing any further details. Some taxpayers indicated that they would receive information requests from the ATO, without any prior consultation or discussion, where the response date fell within their busiest reporting period. Taxpayers asserted that the lack of engagement makes it difficult for them to appropriately plan their responses and ensure that sufficient resources are available.

8.83 A number of taxpayers submitted that the ATO was reluctant to discuss the facts, evidence or legal basis for their views during an audit. Taxpayers and advisers submitted that there was often no opportunity for them to engage and provide input prior to the issuing of the position paper. They expressed concern that by this stage there was limited opportunity for the ATO to change its view given the significant time and technical resources it may have already allocated to preparing the position paper. This was even though the facts identified by the ATO may be incorrect or suggest an erroneous understanding of the matter. Taxpayers submitted that in such circumstances they are often faced with the need to progress the dispute to objection stage. The underlying issue of potential organisational inertia around the technical decision making process by the ATO has been raised with the IGT previously by various stakeholders and may be considered for future IGT work programs.

8.84 The ATO expressed the view to the IGT that the gathering of information or facts was not always a linear approach. The ATO also commented that it was a situation where the ATO experienced an asymmetry of knowledge about the facts.

8.85 A taxpayer submitted that they offered to meet with the ATO audit team on three occasions but on each the audit team refused and simply sent out another information request. The taxpayer suggested that the audit team seemed to prefer to obtain information through a question and answer approach rather than seeking to have a meeting to try and resolve, or at least narrow, the scope of the audit. Some other taxpayers suggested similar experiences, but generally not to this extent.

8.86 Taxpayers and advisers submitted that it is uncommon for audit teams to seek to clarify the facts before commencing the technical legal analysis. Given that a correct understanding of the facts expedites legal analysis for all, taxpayers and advisers indicated that this was a constant cause of disquiet. Where ATO audit teams took the initiative in clarifying facts in this manner it was generally encouraged and applauded by stakeholders.

8.87 It was suggested by stakeholders that the ATO should issue a 'Statement of Facts' to the taxpayer once the information gathering process is completed and prior to commencing detailed technical analysis so as to assist both the ATO and the taxpayer to clarify all material facts. It was submitted that the ATO could ultimately save both itself and the taxpayer significant time and resources by settling the relevant facts before preparing their position paper.

8.88 Advisers also pointed to the draft 2006 version of the ATO LBTC booklet which contained an undertaking to provide a statement of facts where issues were complex or contentious — although this was later dropped by the ATO from the final publication. Also earlier audit guidelines provided that 'auditors were encouraged to clarify facts before moving to an exchange of legal interpretations'.

8.89 Other advisers believed that the ATO mindset was such that it was never sure that it had all the relevant facts or whether it had all the documentation relating to the matter. However, the consequence was that this had the potential to impose significant compliance costs on taxpayers especially where the ATO does not clearly communicate its concerns.

8.90 Taxpayers want to be able to meet with the ATO at the early stages of the audit process to present and discuss the issue subject to audit so that both the ATO and the taxpayer can get to a position of agreed facts. Taxpayers also want the ATO to take into account their business circumstances when planning an audit. If there is disagreement about an issue between the ATO and taxpayer, then taxpayers want the ATO to be clear about the point of disagreement and the reasons for it. They also want it to be raised at an appropriate time in the process so that they have a genuine opportunity to engage and respond.

Access to ATO technical specialists

8.91 It was submitted by stakeholders that the most important part of the escalation process that is often missing is the appropriate level of direct communication and engagement between the taxpayer and advisers with technical specialists in a CoE or TCN.

8.92 Taxpayers and advisers indicated that there were some examples of very good practices adopted by ATO compliance teams, such as having TCN and CoE officers attend meetings and teleconferences with taxpayers and advisors, which have led to more certainty in the audit process and better relationships between the ATO and taxpayers.

8.93 However, some taxpayers submitted that it was difficult to discuss technical issues with the audit team because it:

  • lacked adequate technical capability itself to engage in this type of discussion;
  • was not sufficiently empowered to definitively deal with technical issues in this type of discussion; and
  • could not take accountability for the line of enquiry that it was pursuing especially where it was acting under the direction of a technical specialist or other senior tax officer.

8.94 Taxpayers and advisers also observed that the ATO technical specialists are not members of the audit team and do not often have direct contact with the taxpayer. They believed that this can give rise to further issues such as the technical specialist lacking personal accountability for the actions that he or she directs the audit team to take or not forming an objective view of the tax risk associated with the issue.

8.95 Some taxpayers complained that it is too difficult to obtain access to technical specialists or key decision-makers during an audit and that some technical specialists were reluctant to meet and discuss issues. This can create uncertainty as taxpayers are not aware of the ATO's exact concerns except that an issue has been referred to TCN or a CoE.

8.96 Other taxpayers observed that technical specialists are sometimes brought into an audit too late and do not critically review key aspects of the position paper (such as the facts and evidence) resulting in the technical specialist providing their views based on incorrect facts.

8.97 Some taxpayers believed that the management and control of the audit process was uncertain at times. The process was often dependent on a Case Officer explaining the facts and transaction to technical specialists and decision-makers rather than encouraging discussion between taxpayers and the ATO, where taxpayers did not have the same direct specialist access. Similarly, certain taxpayers also felt that the case leadership function was something that was not clear in application in this context. In these cases considerable additional work has arisen, often much later in the process, which if it was necessary should have been undertaken much earlier on.

8.98 Taxpayers indicated that where technical specialists were brought into an audit at an early stage, this was a good thing. Holding workshops between auditors and specialists from which position papers are developed on the issue is critical. However, facts pertaining to the issue are more grounded and settled for internal ATO workshops in development of the technical legal position, where those facts have first been agreed with the taxpayer.

8.99 Other taxpayers noted that sometimes the referral of issues to technical specialists can lead to long delays or bottlenecks, especially where the audit team are waiting on the availability of certain technical experts to resolve a matter.

Escalation process

8.100 Taxpayers complained that there is no clear and effective escalation process. Advisers submitted that it can be difficult to escalate an issue relating to the conduct of an audit in a manner that does not have negative repercussions for the taxpayer.

8.101 Taxpayer and advisers would like to see a formal escalation process that allows frank and open discussion of concerns about the overall management of audits in circumstances where there is a disagreement.

8.102 The ATO has indicated to the IGT that they are particularly keen to ensure the LBTC process works well in relation to escalation. The ATO management position is that stakeholder concerns need to be addressed effectively in this context.

Due process

8.103 Taxpayers expressed concerns where the ATO seeks to raise significant issues, such as the application of Part IVA (the general anti-avoidance provision) of the ITAA 1936, late in the audit process.

8.104 A number of taxpayers and advisers expressed concern about what they believed was an absence of due process in how an audit was conducted and finalised, especially where it leads to the issuing of amended assessments.

8.105 One taxpayer discussed an instance where an issue had been referred to the General Anti-Avoidance Review (GAAR) Panel which concluded that it could not give final advice regarding the possible application of Part IVA but the issues presented were sufficiently important to justify further work. The taxpayer submitted that despite the GAAR Panel's conclusion, the ATO proceeded to issue an amended assessment seemingly due to the expiration of the ATO's amendment period.

8.106 Further, the ATO then continued to ask for information for almost two years after the matter first went before the GAAR Panel and it appeared that the ATO was seeking to retrospectively justify its amended assessments. The taxpayer expressed concern that this suggested that not all the relevant and material information was considered by the ATO when the matter was referred to the GAAR Panel or when the determination were issued to the taxpayer. The taxpayer stated that it considers any claim by the ATO in relation to the applicability of the general anti-avoidance provisions as a serious matter and its processes for dealing with such claims include the retention of external advisers to prepare and appear for the GAAR Panel, at significant cost. But given the ATO response to the GAAR Panel conclusion, the taxpayer questioned the ATO's commitment to the GAAR Panel process.

8.107 The example related above may be one of a more limited number with certain extremities, but the specific underlying concerns raised, were echoed more broadly by affected taxpayers in relation to general anti-avoidance or Pt IVA matters.

8.108 Other taxpayers also noted that the ATO's approach of issuing amended assessments in such instances suggests a disconnect between Parliament's intention to give the taxpayer certainty regarding the tax affairs within the statutory limitation period (currently four years excluding fraud or evasion) and the ATO's use of amended assessments to preserve to itself time rather than follow due process.

Taxpayer certainty

8.109 A range of taxpayers expressed various concerns in relation to certainty in their dealings in this context in submission and consultation with the IGT.

8.110 These taxpayers complained that issues subjected to audit are not always finalised at the commencement of an audit, especially where issues identified at a risk review are still being considered by ATO specialists (CoE or TCN).

8.111 Frustration was expressed by them about the uncertainty this creates for taxpayers regarding audit issue identification, the time frame to resolution, the resource allocations required and their taxpayer risk profile.

8.112 Taxpayers also submitted that given that most large business taxpayers have statutory accounting and continuous disclosure requirements, it is unacceptable to be placed in a position of not being able to confirm board items about the ATO's proposed tax audit activity. They suggested that the ATO should only commence an audit when they have completed their review of all matters identified during the risk review and have identified the specific issues to be subject to audit. This will provide better clarity and certainty to the taxpayer as well as minimise the costs of compliance incurred in complying with the ATO's requests.

IGT observations

8.113 The overarching theme was one of taxpayers needing to get to an understanding of the ATO's specific issues of concern and to be able to respond to these at the earliest opportunity. Taxpayers wishing to engage with the ATO to ensure they have a full understanding of the ATO position at issue are to be encouraged. They also appreciate that both parties may not always agree and a more formal dispute may arise. However, taxpayers are keen to ensure there is a genuine understanding for both parties as to their respective positions, and to have this established at the earliest opportunity to minimise costs and related uncertainties.

8.114 The IGT notes that absence of engagement and communication between the ATO and taxpayers is not conducive to an efficient audit. It is important that the ATO maintains good dialogue with taxpayers and keeps them informed about the progress of an audit, especially given that taxpayers may not be aware that the ATO has serious concerns in relation to particular aspects of a transaction.

8.115 During the IGT review into the underlying causes and management of objections to ATO decisions, the ATO acknowledged the need to take a more 'whole of dispute' approach with an emphasis on moving dispute resolution closer to the point of the original decision28. It has recognised that there was a tendency in the past to focus compartmentally on the particular stage of the progression of the case (audit stage, objection stage or litigation).

8.116 The report found that the audit work practices must adequately support the role and aims of objection. The Ralph Review of Business Taxation emphasised the need for an administrative regime that is seamless and keeps disputes, and their associated costs and delays, to a minimum. It suggested that ATO processes need to be considered on an integrated, 'whole-of-transaction' basis, for the best administrative regime design and implementation. Audit work practices need to align with and adequately meet the needs and expectations of the objections process. In turn, the work practices and outcomes of objections need to properly feed into litigation. This means that reworking, duplication of tasks or having to rectify inadequate work or analysis from earlier stages should not occur.

8.117 The report outlined a number of audit work practices that would encourage open and direct communication between the parties and the timely exchange of relevant information:

  • Constant opportunity for an exchange of views and the refining of the issues to ensure that the entire process is more efficient and effective, including face-to-face discussion between the parties prior to an amended assessment which may allow for disputes to be settled at the earliest possible stage.
  • Taxpayers that are affected by a proposed audit decision should have an opportunity to express their views to auditors and to respond to adverse information, including having sufficient information to understand the case to which they are responding. These requirements should be critical steps toward the finalisation of an audit case. Taxpayers were also mindful that, in a different market risk segment, situations may arise for the ATO where this approach may need to be differentiated from certain serious non-compliance situations where fraud or evasion may be present.
  • Information requests during audit should clearly articulate the type of information being sought, its purpose and the relevance of the information to the issues under examination.

8.118 By adopting such practices, at the end of an audit, taxpayers should have a clear understanding of the issues in dispute, the material facts that are agreed and disputed and the evidence that the ATO is relying upon to support its view and any amended assessments. This is not only beneficial to the taxpayer but also to any ATO objections officer should the audit go on to dispute. In addition, these practices align with the requirements of the Federal Court Practice Note TAX 1 should the objection decision proceed to litigation.

8.119 The IGT believes there is scope to improve the audit process and encourage the open and direct communication between taxpayers and the ATO with the timely exchange of relevant information and views, including:

  • clearer milestone events including timeframes and expectations around these milestone events;
  • better engagement on facts and evidence;
  • better engagement on issues; and
  • better timely access to technical specialists.

8.120 The IGT also believes that greater emphasis must be placed on the Facts and Evidence worksheet in the audit decision-making process as it is a key operational tool. The IGT found that currently the worksheet tended to be viewed by audit teams as duplicating an already occurring process, namely the formulation of the decision as part of the position paper. This has sometimes led to the worksheet only being populated near the conclusion of the audit and only as an internal process point that needs checking-off for file completion. These approaches significantly diminish the benefits of using the worksheet throughout the audit process to assist with developing arguments, identifying problems with arguments, identifying evidentiary gaps and analysing the provisions.

8.121 The IGT believes that two ways of ensuring that proper emphasis is placed on the worksheet during the audit process are to:

  • require that team leaders and senior tax officers ensure that the worksheet is being properly used as part of the ATO's monthly review process; and
  • require that the worksheet form the basis of discussions between the ATO and taxpayers prior to the issuing of the ATO's position paper.

8.122 The IGT considers that the Facts and Evidence Worksheet is a key operational tool that should be completed in similar form for risk reviews.

8.123 The ATO has discussed the function of these Worksheets with the IGT. The ATO management have confirmed the intention that the Worksheets be used as a key operational tool during the course of a risk review and audit (not simply at the end). As the Facts and Evidence Worksheet is a working document that is developed from an early stage in the case, it will contain some information about facts or issues that were examined as the case progressed but may not ultimately be relevant to the final issues in dispute (if any).

8.124 The IGT has seen situations where extracts of these Worksheets have been provided to taxpayers in certain circumstances. The IGT also wishes to ensure taxpayers appreciate that there may be a lot of material in these Worksheets that is irrelevant to a given matter or dispute. As such, it could give rise to significant cost in review and enquiry that may not ultimately assist the taxpayer. Nevertheless, the IGT believes that these Worksheets should be made available wherever requested by the taxpayer.

8.125 Taxpayers should also be aware that they may be entitled to obtain such documents from the ATO under the Freedom of Information law.

8.126 The IGT also believes that the audit process could be enhanced to provide an opportunity for taxpayers and their advisers (should they wish), to attend appropriate ATO workshops to provide them with an opportunity to explain the facts of the transaction before any detailed technical consideration of the ATO position is undertaken. The IGT believes the key issue is to ensure the taxpayer has the opportunity to engage in the process of the ATO developing of its understanding of the facts. The same should occur at such later time on the technical legal issues that the ATO may have in consideration.

8.127 The IGT is aware that taxpayers and the ATO also appreciate that from time-to-time establishing a fact or finding of fact may not always be as clear cut a process as one may wish. In these situations the key is to ensure that both parties understand the points of concern or dispute and the nature of evidence or explanation that may be required to persuade the other party to accept their understanding of the position that is being put as a matter of fact.

8.128 The IGT believes a process of early engagement around this process to seek an agreed understanding of the facts would assist in maximising understanding and would also mitigate unnecessary dispute related costs. It makes no practical or commercial sense to have a detailed technical legal wrangling if the facts are genuinely not in support of either party. It may be that in very complex cases this process of establishing the facts is iterative for both the ATO and taxpayer.

8.129 Taxpayers and their advisors appreciate that the ATO may need to undertake some preliminary technical legal analysis to gain a basic understanding of whether there is an application of tax law to be tested. Their primary concern is to avoid a situation where a costly and elaborate internal ATO analysis is undertaken on a misunderstanding of fact at first instance. Where this occurs in any large organisation there is at minimum a perception that organisational inertia or processes can operate to prevent a genuine reappraisal of the analysis. As noted it may also raise questions of due process.

8.130 In addition, the enactment of the Civil Dispute Resolution Act 2011 on 12 April 2011 will have a significant impact on the ATO's alternative dispute resolution approaches. It requires the ATO to articulate the steps it has taken to resolve a dispute, including the steps taken during the audit process. This will necessitate a consideration of the ATO's alternative dispute resolution processes and how they have been applied to the audit at hand so that the ATO can be assured that they have taken all reasonable steps to resolve a dispute to a court's satisfaction.

Recommendation 8.2

Agreeing facts assists in maximising understanding of issues and minimising dispute-related costs and better directs evidentiary needs, therefore, the ATO should implement a process that is designed to:

  • establish the facts and issues at the early stages of the audit process, by providing taxpayers with a draft Statement of Facts before conducting significant detailed technical legal analysis;
  • provide the taxpayer with an opportunity to clarify and correct the draft Statement of Facts by way of explanation or provision of additional information;
  • revise this statement as is considered appropriate; and
  • communicate the Statement of Facts (as revised) to the taxpayer, noting particularly where there may be a disagreement as to facts or findings of fact.

ATO Response

Disagree.

We think there is merit in settling the facts up-front and would welcome a draft statement of facts from the taxpayer — given that they are best placed to provide the full facts. However, often the relevant facts have to be determined by reference to the technical issues and discussions.

For our part, the ATO position paper includes a statement of the relevant facts (as we understand them) and is provided to the taxpayer for comment prior to us concluding our view. It is developed through progressive consultation and discussion with the taxpayer to assist us in establishing the relevant facts.

This is consistent with our commitment to open, ongoing and frank dialogue in the LBTC booklet and a considered engagement strategy tailored to the circumstances of the case. Where the taxpayer is willing to work co-operatively with us, this is usually an iterative process from an early stage in the audit.

While we appreciate the sentiment and underlying intent of this recommendation, we consider that it reflects a linear approach that does not adequately recognise the complexity of large market casework. It suggests the facts can be established independently of and prior to undertaking our analysis. The facts are not at large. They need to be relevant and that relevance is determined by the legal issues in dispute29. Your recommendation 8.8 recognises this.

In the large market context, disputed 'facts' are frequently about conclusions of fact, which themselves are only developed through the technical analysis. It is neither realistic nor practical to suggest that a meaningful Statement of Facts can always be developed in advance of that analysis.

The imposition of a linear approach would present opportunities for the small number of taxpayers and advisers who choose to adopt a less than co-operative stance to engage in tactics designed to delay our teams in being able to settle such a statement.

Recommendation 8.3

To improve audit case management the ATO should set clearer benchmarks for key events within the two year audit timeframe.

These benchmarks should include the following:

  • the ATO provide the taxpayer with a draft Statement of Facts (within 9 months from audit commencement date);
  • the ATO to provide an opportunity for an ATO-taxpayer workshop to discuss the draft Statement of Facts and taxpayer response, that is also attended by relevant technical specialists and key decision-makers (within 3 months after the step above);
  • the taxpayer to respond and clearly set out the material facts agreed, material facts in dispute along with appropriate supporting evidence (within 3 months after the step above);
  • the ATO to issue a draft position paper (within 3 months after the step above); and
  • the ATO to provide an opportunity for an ATO-taxpayer workshop to discuss the draft position paper, which should be attended by technical specialists and key decision-makers (within 2 months after the step above).

ATO Response

Disagree.

Our response to Recommendation 8.2 explains why we consider it is not appropriate to try to establish the facts as a theoretical construct separate from the technical analysis. However, if the taxpayer and the ATO are in a position to settle on the issues and facts, then we would encourage that to occur as early as possible. The remainder of our response is directed to the additional issues of benchmarks, timeframes and your recommendation that the taxpayer should have an opportunity to attend an ATO workshop.

The LBTC booklet requires that our teams prepare an audit plan; discuss it with the taxpayer; and provide regular progress updates. The planned timeframes also need to allow, where relevant, for other processes, such as the General Anti-Avoidance Rules panel, including an opportunity for the taxpayer to present their views. There is an expectation that teams will actively manage cases in line with the plan and adopt a purposeful approach to ensure matters progress in a timely manner. This is reinforced and assured through our monthly review and callover processes.

Audit plans are designed having regard to the circumstances of the case, which are widely differentiated in the large market. We believe that the imposition of these internal benchmarks will not encourage or support teams in developing a more considered plan. It could also have unintended effects if teams become focused on meeting benchmarks to the detriment of relationships and case outcomes.

Our commitment to open, ongoing and frank dialogue in the LBTC booklet includes discussions with the taxpayer at the position paper stage. Where appropriate, specialists assisting the audit team will attend and actively participate in these discussions. We believe it is not necessary to convene a separate ATO-taxpayer workshop for this purpose.

However, to the extent that this recommendation is about ensuring that processes are monitored as tightly as possible, then we agree in principle with that intent.

Recommendation 8.4

The ATO should review the escalation processes embodied in publicly available guidance (including the LBTC booklet) through a process of consultation with the Large Market, to specifically consider improvements that may be made in enhancing stakeholder understanding and access for addressing concerns in audit and risk reviews.

ATO Response

Agree.

This will be achieved through consultations with the Large Business Advisory Group in developing the next revision of the LBTC booklet.

Recommendation 8.5

If the ATO wishes to expand the scope of an audit, to encompass issues that were not listed in the original audit notification letter, then it should only do so after subjecting the issues to an appropriate approval process such as business case approval or risk review. This is designed to ensure that the audit is warranted and that overall compliance costs are minimised.

ATO Response

Agree.

Where our compliance teams recommend that an issue should proceed to audit, they must seek approval from an independent panel of Senior Executive Officers. We will update our directions to teams to clarify that this also applies to situations where the scope of an existing audit may be expanded.

Recommendation 8.6

An ATO framework should be developed that provides a formal process for determining whether an ATO extension of time request made upon a taxpayer is appropriate in their particular circumstances. Such a framework should ensure that a request is not made where the need for the extension has arisen from undue delay on the ATO's part.

ATO Response

Agree in part.

We agree that the decision to seek an extension of time to amend a taxpayer's assessment is an important one and should not be made without due consideration.

We do not agree that this decision requires a separate formal process. It should be made by our team leaders, in discussion and consultation with their senior executive officer as appropriate, and this itself constitutes a formal process for that decision. We will clarify this in the LB&I Compliance Manual, consistent with your Recommendation 6.2.

Where taxpayers have concerns about any aspect of an audit, including a request for extension of time to amend assessments, they are encouraged to discuss it with the audit team leader and/or the officer who has been identified as the escalation point at the start of the case. This reflects what we expect in current practice and the roles and responsibilities of our senior officers as outlined in your Recommendation 6.1.

In response to Recommendations 4.2, 4.3, and 6.1 we have noted that we are in the process of revising and updating our instructional materials (including the LB&I Compliance Manual). We will ensure the changes made also reflect the roles and responsibilities of our senior officers having specific regard to making a decision to seek an extension of time to amend an assessment.

We do not agree that an ATO delay should be an over-riding factor in deciding whether to seek an extension of time. In the large market, there are times when significant risks from prior years need to be investigated on behalf of the community. Unnecessary delays should be avoided as far as possible through careful planning and should be taken into account when deciding whether to request an extension for time. However, even if a case has been delayed, there will be times when we need to seek the extension of time to fulfil our duty to the community in protecting the integrity of Australia's tax system.

Recommendation 8.7

The ATO should develop an "Aged Case Report" showing all audits that have not been finalised within two years and providing reasons, and supply this report to the Deputy Commissioner LB&I on at least a monthly basis. The Deputy Commissioner LB&I should review this report and determine any action required to expedite these audits.

ATO Response

Agree.

Recommendation 8.8

The ATO should enhance the IQF process to ensure that the Facts and Evidence Worksheets are completed effectively and progressively throughout the audit process, in accordance with policy and to provide a continuous and accurate repository of operational work activities.

ATO Response

Agree.


1 LB&I Compliance Manual, Chapter 10, p 4.

2 LB&I Compliance Manual, Chapter 10, p 4.

3 LB&I Compliance Manual, Chapter 10, p 4.

4 LB&I Compliance Manual, Chapter 10, p 4.

5 LB&I Compliance Manual, Chapter 10, p 20-21.

6 LB&I Compliance Manual, Chapter 10, p 21.

7 LB&I Compliance Manual, Chapter 10, p 20-21.

8 LB&I Compliance Manual, Chapter 10, p 21.

9 LB&I Compliance Manual, Chapter 10, p 22.

9 Large Business and Tax Compliance, p 44.

11 LB&I Compliance Manual, Chapter 10, p 22.

12 LB&I Compliance Manual, Chapter 10, p 16.

13 LB&I Compliance Manual, Chapter 10, p 16.

14 LB&I Compliance Manual, Chapter 10, p 23.

15 LB&I Compliance Manual, Chapter 12, p 4.

16 LB&I Compliance Manual, Chapter 12, p 14.

17 LB&I Compliance Manual, Chapter 12, p 14-15.

18 LB&I Compliance Manual, Chapter 12, p 15.

19 LB&I Compliance Manual, Chapter 12, p 15.

20 LB&I Compliance Manual, Chapter 12.

21 LB&I Compliance Manual, Chapter 12, Appendix 8.

22 LB&I Compliance Manual, Chapter 12, Appendix 8.

23 LB&I Compliance Manual, Chapter 12, Appendix 8.

24 LB&I Compliance Manual, Chapter 12, Appendix 8 (p 55).

25 LB&I Compliance Manual, Chapter 12, p 20.

26 LB&I Compliance Manual, Chapter 12, p 20.

27 LB&I Compliance Manual, Chapter 12, p 7.

28 Review into the underlying causes and the management of objections to Tax Office decisions, IGT, p 8 (publicly released on 11 August 2009).

29 Gordon, J - Speech to ATO staff on information and evidence gathering (2007).