Australian Government - Australian Taxation Office crest

SECOND COMMISSIONER OF TAXATION

Mr Ali Noroozi
Inspector-General of Taxation
GPO Box 551
SYDNEY ACT 2001

Dear Ali,

Inspector-General of Taxation's review into the ATO's use of benchmarking to target the cash economy

Thank you for your letter of 25 June 2012 and for the opportunity to provide comments on the proposed report on your review into the ATO's use of benchmarking to target the cash economy.

General observations

I am pleased to note the observations in your report that stakeholders were generally supportive of the ATO's use of benchmarking to support risk identification and improve the targeting of our compliance activities.

Benchmarks are just one of the tools we use to manage the risk of under-reported income in the cash economy. The benchmark ratios are not a normative statement of what the ATO independently thinks is a 'right' amount, they are the statistical representation of the actual amounts reported to the ATO by businesses. This makes them a valuable tool for businesses to assess their own performance against others in their industry.

I note that a number of your recommendations are about providing the community with greater information about benchmarks. Providing additional information will assist in dispelling misconceptions about benchmarks and the ATO's use of them. In this regard, we are particularly concerned to improve the community's understanding of the circumstances in which the ATO issues default assessments. We provide taxpayers with several opportunities to provide evidence of their income and expenses before resorting to a default assessment within the range of their industry peers using the relevant benchmark.

ATO response to the Inspector-General's recommendations

Our responses to your specific recommendations are included at Attachment 1. I understand that you will include these under the relevant recommendations in your final report.

Of your 11 recommendations, we agree in full with 9 and with 2 in part. While we agree with the majority of those 2 recommendations, we do not agree with the specific suggestions in sub-recommendations 3.1 (d) and 7.1 (e). Nevertheless, we agree with the underlying intent of improving community understanding and confidence in benchmarks and minimising overall costs for small business. We have committed to undertake a range of activities to improve communication and education about benchmarks and will continue to consult with taxpayers and their advisers to explore further ways to minimise costs for small businesses.

We will also use your recommendations, building on our own continuous improvement processes, to enhance the benchmarking process and improve its effectiveness in addressing under-reporting of income by businesses.

Acknowledgements

I would like to thank you for the collaborative manner in which this review has been conducted and your inclusion of contextual information on benchmarks.

Yours sincerely

SIGNED

Bruce Quigley
Second Commissioner, Compliance
11 July 2012