The Inspector-General of Taxation's (IGT) review into the ATO's use of data matching is one of three concurrent reviews examining aspects of the ATO's compliance approach to individual taxpayers.
The review arose out of stakeholder concerns regarding the ATO's collection and use of such data. Stakeholders expressed concerns that the data relied upon was inaccurate and that the ATO was not adequately refining such data before comparing them to the relevant information in taxpayers' returns. This had led to a perception that the data matching program was incorrectly identifying cases for audit and exposing taxpayers to higher compliance costs.
The ATO receives data from a number of sources including those that are required to be provided by law, collected by other government agencies, obtained through the ATO's access powers and provided by foreign revenue authorities. The ATO validates and refines such data before comparing them to taxpayers' reported information to identify potential discrepancies. The cases containing discrepancies, then, undergo a selection process to identify those suitable for audit.
Generally, the ATO's data matching program is effective in identifying instances of omitted income with a number of projects yielding high strike rates and revenue outcomes. Moreover, the IGT recognised the ATO's efforts to improve its processes through such initiatives as manual reviews of certain cases before audits are commenced. However, the IGT has identified a number of improvement opportunities, including a need for the ATO to formalise its data gathering and matching processes and to evaluate its projects to determine whether ongoing resource commitments are warranted.
In total, the IGT has made thirteen recommendations aimed at:
- improving timeliness and considering remission of the Shortfall Interest Charge (SIC) where delays occur;
- ensuring that the ATO evaluates the effectiveness of data matching projects including processes which lead to cases being selected for audit, identifying and implementing improvement strategies and, where appropriate, abandoning less effective projects;
- formalising the ATO's strategic enterprise approach to the collection and application of third party data;
- ensuring that taxpayers have a clear channel through which they can seek to address any inaccurate data used in pre-filled returns;
- improving general communication and enhancing engagement with taxpayers and tax agents;
- limiting the instances of notices of amended assessment issuing prematurely;
- raising awareness of its cost-effective administrative reversals process for challenging data matching decisions; and
- improving the ATO's reporting on data matching dispute statistics and using information from the latter to improve its processes in projects generating the highest levels of dispute.
The ATO has agreed with all recommendations made by the IGT with a qualification in respect of Recommendation 2.2. The ATO qualification notes that given the high volume and automated nature of data matching work, consideration of remission of the SIC will occur as requested by the taxpayer following issue of an amended assessment and not before.