Australian Government - Australian Taxation Office crest

SECOND COMMISSIONER OF TAXATION

Mr Ali Noroozi
Inspector-General of Taxation
GPO Box 551
Sydney, NSW 2001

Dear Ali,

REVIEW INTO THE NON-LODGMENT OF INCOME TAX RETURNS

Thank you for your final report dated 19 May 2009. I note that the report outlines your findings and makes recommendations as a result of your review.

It is pleasing that the review has found that, overall the ATO is managing the lodgement of individual returns well and with sophistication within the current legislative framework.

The findings reflect the concerted effort and investment the ATO has made to improve lodgement compliance over recent years.

We note that you have made six recommendations from this review. Three of the recommendations (recommendations 1, 3 and 5) are recommendations to government and therefore are matters for government to consider. The ATO agrees with the remaining three recommendations, although our agreement to recommendation 4 is subject to a cost benefit assessment and timing considerations given the likely interdependency of the ATO Change Program. Details for each recommendation are contained in Attachment A.

I would like to acknowledge the co-operative and professional approach that Mr. Rick Matthews, Deputy Inspector General and his team have taken throughout the course of this review.

If you require further information or clarification on any matter please contact James O'Halloran, Deputy Commissioner, Tax Practitioner and Lodgement Strategy, on (02) 6216 1516.

Yours sincerely

SIGNED

Jennie Granger
Second Commissioner

cc: Mr Rick Matthews (Deputy Inspector-General of Taxation)

Attachment A

Recommendations from the Inspector-General's Review into the Non Lodgement of Income Tax Returns

Recommendation 1

The Government should refer the review's findings and the results of the community survey to the Henry review of Australia's future tax system for consideration in that broader context, noting that the Henry review has specifically sought input in this area,

ATO Response

This is a matter for government to consider.

Recommendation 2

The Inspector-General recommends that the Tax Office supplement its current reporting on lodgement compliance by a periodic report on the broader outcomes and impacts being achieved on the level of non-lodgement in the community.

ATO Response

Agree

The Commissioner will create a specific income tax lodgment report each financial year. This will try to bring together the analysis available on the level of 'lodgement on time',' late lodgement' and 'not lodged returns' which are already reported with insights from research through our surveys.

The content of the report will however be subject to what can be achieved from the integration of existing data sources, the systems changes arising from the Change Program and the opportunity to leverage from existing Tax Office research.

Recommendation 3

The Government should increase support to the Tax Office to improve the availability and usefulness of third party data used to identify non-lodgers and for other compliance activities. This could include new arrangements with Commonwealth agencies, and agreements by the states and the territories for third party data to:

  • include unique identifiers such as a TFN orABN;
  • where possible be an electronic transmission;
  • be provided within timeframes that ensure its currency; and
  • assist in determining whether a taxpayer was in or out of Australia.

ATO Response

This is a matter for government to consider.

Recommendation 4

The Tax Office should flag low-risk non-lodged returns in its systems and should Identify them as a separate category in its management reports to enable a clearer focus on higher risk non-lodged returns.

ATO Response

Agree, subject to a cost benefit assessment and timing considerations given the high priority delivery requirements of the ATO Change Program,

The Commissioner will explore the cost and viability of developing an improved systems indicator flag, to enhance the focus on higher risk non lodged returns.

This systems indicator would be subject to the development of functionality specifications and funding availability. The costs would need to be assessed against benefits which arise from the conversion of client data into the Tax Office new record keeping systems (Integrated Core Processing system) as part of the implementation of the Change Program.

Recommendation 5

The Government should improve the failure-to-lodge penalty system established by the present tax laws to strengthen the Tax Office's ability to encourage compliance by high risk (high revenue or high profile) taxpayers.

ATO Response

This is a matter for government to consider.

Recommendation 6

The Tax Office should progressively increase, where appropriate, the use of default assessments to further support lodgement compliance.

ATO Response

Agree.

The Commissioner will, in circumstances where the Tax Office has readily available information to use that would support a default assessment, do so to support lodgement compliance.