7.1 During the course of this review taxpayers and their advisers raised a number of concerns about aspects of Tax Office communication processes with taxpayers in relation to GST refund delays. These concerns are discussed below.
7.2 These concerns will continue to be applicable, to the extent that the Tax Office continues to subject GST refunds to pre-issue verification processes and other forms of delay prior to payment.
Communication on status of GST refunds
7.3 A recurrent theme raised in submissions received for this review by both taxpayers and tax practitioners was that the Tax Office did not have in place a formal process to ensure that taxpayers were immediately notified that their GST refunds would be delayed, for example, because of verification activity.
7.4 One professional association noted that:
'Where the ATO proposes to delay a refund, the relevant taxpayer should be contacted within a reasonable time and advised of the "true" nature for the delay'.85
7.5 Another submission noted that:
'Our tax agents and business members noted that the ATO rarely contacts a business or agent to inform them about a delay in a refund. It is the taxpayer that has to contact the ATO to find out the reason for the hold-up and how this can be overcome. The ATO as a matter of course should contact a taxpayer by both letter and a phone call to inform them of a delay in their refund and try to immediately rectify the problem. This should be before the 14-day time period expires so as to maximise the chance of meeting the deadline'.86
7.6 In November 2004, the Institute of Chartered Accountants noted that the second top tax administration 'bugbear' identified in a survey of its members was that the Tax Office does not proactively and promptly advise the tax agent/taxpayer if a refund is being held back, and the reason why.87
7.7 Taxpayers and tax practitioners also stated that, in many cases, a time period well in excess of 14 days had elapsed after the lodgment of a credit BAS before any Tax Office contact was made. Some taxpayers had experienced delays in excess of four weeks before any such contact had been made.
Tax Office response made during the review
7.8 The Tax Office has advised that, as of 16 August 2004, the portal channel provides the ability for all GST registered businesses to lodge their Business Activity Statements and to be able to monitor the progress of their BAS within the Tax Office, regardless of whether their lodgment was by paper or electronic.
7.9 It has also advised that the types of message which taxpayers receive on the status of their refunds have been further expanded since October 2004.
7.10 However, neither the August 2004 nor October 2004 releases provides any automated email messages to taxpayers where refunds could exceed the charter standards. This facility is being considered for implementation in a subsequent release.
7.11 The Tax Office states that it intends to commence all cases requiring verification within 14 days and to make contact with all taxpayers in that time period. During peak periods, a small number of cases can arise where this will not happen. However, it notes that there are cases where taxpayer contact information is not up to date and they have difficulty locating taxpayers. They consider that the proposed automated messaging referred to above will provide the means for taxpayers to be advised.88
7.12 The Inspector-General notes that the above initiatives may alleviate the concerns noted above of the Tax Office's failure to notify taxpayers on a timely basis of the status of their GST refund, particularly when it has been selected for review.
Processes for taxpayers to help expedite refunds
7.13 Another concern of taxpayers was that there were no processes available for them to expedite their refund claim by providing the relevant supporting documentation either with the relevant BAS or to a nominated Tax Office staff member who was familiar with the taxpayer's affairs. This concern was principally raised by taxpayers in the small business segment.
7.14 A number of submissions pointed out that, under current refund verification processes, taxpayers who do not have a client manager within the Tax Office must wait to be contacted by the tax officer who is handling their refund case before they are able to provide this documentation.
7.15 One submission made the following suggestion in this regard:
'A system should be implemented whereby taxpayers/agents are able to explain in advance unusual circumstances or transactions giving rise to a GST refund at the time of the BAS lodgment rather than waiting for a verification/information request from the ATO'89
7.16 These concerns were also raised, to a certain extent, by large enterprise taxpayers and their advisers. This is despite the fact that these taxpayers have far greater access to, and better channels of communication with, the Tax Office through the Tax Office having allocated key client managers (KCMs) to many of the taxpayers in this market sector.
7.17 However, the Inspector-General notes, from his consultations with taxpayers and their representatives, that many large enterprise taxpayers do not appear to know the identity or contact details of their KCM. When this was raised in meetings with the Tax Office, the Tax Office advised that it was likely that many large taxpayers did not know who their KCM was because of personnel changes within the Tax Office structure and to their own corporate structure.
7.18 The Inspector-General agrees with the above concerns. This leads to the following recommendation.
Subsidiary recommendation 9
The Inspector-General recommends that, where a large enterprise taxpayer has a GST refund which is being delayed for verification, the electronic message which is sent to the taxpayer to notify them that their GST refund has been delayed contain the name and contact details of the taxpayer's key client manager. For all other taxpayers whose refunds are to be subject to verification, the Inspector-General recommends that the Tax Office provide the relevant taxpayer with the name of the Tax Office staff member who will be dealing with their case at the earliest possible opportunity.
Tax Office response
7.19 The Tax Office agrees with this recommendation. In relation to large market taxpayers, notification by email of a refund delay will include the name and contact details of the key client manager.
7.20 In relation to other taxpayers, initial contact with taxpayers in relation to a refund already requires the contact name and phone number to be provided. This practice will continue. The Tax Office is also instituting a notification process to inform taxpayers that their refund claim is being subject to verification at the earliest opportunity. The objective is to contact all taxpayers who may experience a delay in their refund due to verification within 14 days of lodgment.
7.21 Improvements to the ATO's Business Portal allow GST registered businesses to lodge their business activity statements and to be able to monitor the progress of their activity statements within the Tax Office, irrespective of the channel they chose to lodge it by. That is, whether their lodgment was by paper or electronic, GST registered businesses can view the status of their Business Activity Statement. At present the portal does not provide any automated e-mail messages to taxpayers where refunds could exceed the charter standards. This facility is being considered for implementation in a subsequent release.
7.22 The Inspector-General recommends that the Tax Office further explore whether it could provide a facility for small business taxpayers to expedite their refund by providing the Tax Office with relevant documentation to support their refund claim at the time of lodgment of the refund claim.
Tax Office response made during the review
7.23 The Tax Office does not believe it is a viable option to enable taxpayers to lodge supporting documentation with their BAS. In 2003-04 the Tax Office received and processed around 7.9 million refund BASs. It considers that this option could result in the requirement for supporting documentation to be sent, recorded and stored in a manner that can be rapidly accessible for almost two million BASs. The Tax Office states that this would add significantly to the time to process all refund cases, with little beneficial impact to the small number that are reviewed. It notes that only about 4.3 per cent of the almost two million refund cases are reviewed. Approximately half or less of this number would be called upon to provide supporting documentation.
7.24 The Inspector-General notes that the above suggestion does not contemplate supporting documentation being required for all GST refunds that are subject to verification, only those where such documents are in fact likely to be requested under existing Tax Office procedures. He also notes that this facility is already available to large enterprise taxpayers where they are aware of the identity of their key client manager.
Nature of Tax Office requests for information
Whether information is requested unnecessarily
7.25 Submissions also raised concerns that, during CVC verification processes for refunds, taxpayers were asked for details about their business that had already been supplied to the Tax Office such as, for example, during the ABN application process.
7.26 The Inspector-General agrees with these concerns. This leads to the following recommendation.
Subsidiary recommendation 10
The Inspector-General recommends that the Tax Office introduce better systems for recording information obtained from taxpayers, for example, on the nature of the taxpayer's industry, and ensure that this information can be accessed by tax officers when required.
Tax Office response
7.27 The Tax Office agrees with this recommendation. The information submitted by taxpayers upon registration is used to construct a profile of the client which sets out likely reporting obligations and activity statement cycles. All of the identity type information is incorporated within the client record to provide basic details of the business and contact details. Some of the data is used to establish an ANZSIC code while other information is used to set up the activity statement generation process.
7.28 The Tax Office does not specifically contact taxpayers to merely verify information. However, the Tax Office recognises that a considerable amount of the data collected at the time of registration may change as the business develops and expands. This is particularly common in areas such as the main business activity, annual turnover values, GST accounting method and bank account details. The information recorded at the time of registration is available to Tax Office staff but they are encouraged to update profile information when in contact with the client as an extra component of the BAS refund verification contact. This is a deliberate practice to ensure currency of the taxpayer's information so that future case selection is appropriate. The Tax Office will improve its systems in this area by continuing to refine the accuracy of taxpayer data without impacting on taxpayers.
Whether Tax Office information is requested all at once
7.29 Concerns were also raised that Tax Office staff, in some cases, did not request at the one time all the relevant information that they needed to verify a GST refund claim, but instead their request was 'drip fed' to the taxpayer or their adviser. This inefficient method was said to result in taxpayers sometimes having to wait up to seven months for their refund.
7.30 The Tax Office has responded to this concern by stating that, wherever possible, officers will request, in the one contact, all information required to make an informed decision in relation to the validity of a refund. In some cases, the information requested by the officer, and provided by a taxpayer, may lead to additional questions being raised and therefore, further information being requested.90
Nature of documentation requested
7.31 Taxpayers and advisers were also concerned that taxpayers whose refund claim had been generated by a single large capital purchase were obliged to provide a full list of all revenue expenses in addition to information relating to the large capital purchase. This was especially prevalent during CVC verification procedures.
7.32 The Inspector-General observed during his fieldwork in relation to this review that there appeared to be no written procedures to indicate the circumstances in which a request for details of all revenue expenses would be made.
Tax Office response made during the review
7.33 The Tax Office notes in response that there are written procedures that outline circumstances for requesting details of revenue expenses.
7.34 It states that tax officers must be satisfied that any acquisition is used for a 'creditable purpose'. Information in relation to revenue expenses will only be obtained where it is not clear to the officer whether the acquisition has been obtained for a creditable purpose.
7.35 The Tax Office also notes that in March 2004, CVCs introduced streamlined procedures to handle GST refund cases. These streamlined procedures included an instruction to staff that they were to request from the client document(s) to substantiate the increased input tax credit claim on the activity statement rather than a review of all credit claimed.91
Nature of documentation requested for refunds involving large taxpayers
7.36 Similar submissions to those lodged by small business taxpayers were made by large enterprise taxpayers to this review, raising concerns about the nature of the Tax Office's requests for information during a GST refund check.
7.37 In addition large enterprise taxpayers raised the following specific concern about the nature of requests made by the Tax Office for information. This was that, in some situations involving large refunds, taxpayers with very large turnovers have been required to provide randomly selected tax invoices for extremely minor acquisitions.
7.38 Going through vast quantities of records for a single tax invoice of an inconsequential value in order to justify a large refund was claimed to represent a significant burden for large companies.
Tax Office comments
7.39 The Tax Office has informed the Inspector-General that where a refund is to be verified, the focus should be on the major transactions that relate to the refund but that these types of requests may be made in a full audit in order to test the integrity of the taxpayer's accounting system.
85 The Institute of Chartered Accountants in Australia, Review of ATO administration of GST refunds arising from the lodgment of Business Activity Statements, Submission to Inspector-General of Taxation, dated 30 April 2004 at p. 4.
86 State Chamber of Commerce (New South Wales), Inquiry into the GST refund system, Submission to Inspector-General of Taxation, dated 28 April 2004.
87 CA Tax Bulletin, Edition 46/2004, dated 22 November 2004 at paragraph 3.
88 ATO minute No IGT-GST11-2004 at paragraph 1.6 on p. 4.
89 Taxation Institute of Australia, Review into the tax administration of GST refunds arising from the lodgment of business activity statements, Submission to Inspector-General of Taxation dated 8 June 2004.
90 ATO Minute No IGT-GST11-2004 at paragraph 4.1 on p. 7.
91 ibid at paragraphs 3.1 to 3.4 on pp. 6-7.