A2.1 On 27 July 2004, the Inspector-General consulted representatives from selected industry, business, accounting, legal practitioner and tax organisations about the prioritisation of his work programme for the following six months. On the basis of strong feedback, the Inspector-General announced that he would undertake a series of reviews around the theme of Tax Office audit/verification activity. The Inspector-General subsequently scoped the, then, potential review into the time taken to complete audits with the Tax Office.
A2.2 On 23 November 2004, the Inspector-General announced on his website, www.igt.gov.au, the terms of reference for the review and invited public submissions. Sixty-nine submissions were received from tax profession representative organisations and small businesses. It is interesting to note that taxpayers were generally reluctant to provide details of their audit on the grounds that they feared retribution for doing so. Nonetheless concerns were raised in a manner that generally did not identify individual cases. These concerns were tested by interviewing tax officials, viewing relevant audit procedures and reviewing a sample of audit case files.
A2.3 A total of 386 audit case files were examined. These files related to a wide range of audit types, market segments, audit teams in a variety of States and regions, revenue types and complexities of issue. They were of audits either completed during or after 2003-04 or still in progress. A number of the selected audit case files were of cases commenced more than five years previously. This allowed an examination of approaches and practices before significant changes were made to the Tax Office's audit approaches.
A2.4 Two sets of cases for each market segment (micro-business, SME and large business) in income tax and GST audit areas were selected for review except for GST large business audits. One data set comprised the top five projects or audit areas averaging the greatest number of cases irrespective of average timeframes. The other data set comprised the top five projects or areas averaging the longest timeframes. Both sets included cases from two different audit teams within the same project or area. Specific cases were then selected from those teams and areas from three different time bands: those taking the least, median and most amount of time to complete. This allowed comparison of like cases with varying timeframes. The two data sets also ensured that the results would not be unduly distorted by selecting cases of longer timeframes.
A2.5 The source data was obtained from the Small Business, GST and Large Business and International BSLs. However, it was not pointed out until after the testing phase for this review had completed that the small business aggressive tax planning audit cases had been excised from the source data. These case lists were subsequently provided.
A2.6 Inspector-General staff visited the Tax Office's national, Sydney, Parramatta, Penrith, Hurstville, St Leonards, Newcastle, Terrica Place (Brisbane), Moonee Ponds, Casselden Place (Melbourne), Box Hill and Geelong offices to interview Tax Office staff, access documents and view audit case files.
Other relevant documents
A2.7 During the course of the review, the Inspector-General was made aware of the following documents which related to aspects of the Tax Office's audit programme:
- Australian National Audit Office, Audit Report No. 37 2000-01: The use of audit in compliance management of individual taxpayers, Canberra, 2001.
- Australian National Audit Office, Audit Report No. 3 2001-02: The Australian Taxation Office's administration of taxation rulings, Canberra, 2001.
- Australian Taxation Office, Compliance Program 2004-05, Canberra, August 2004.
- Australian Taxation Office, Cooperative Compliance: working with large business in the new tax system, Canberra, November 2000.
- Cash Economy Task Force, Improving Tax Compliance in the Cash Economy, Canberra, April 1998.
- Commonwealth Ombudsman, Annual Report 2003-04, Canberra, 2004.
- KPMG, KPMG Survey of Corporate Taxpayers' Goods and Services Tax (GST) Audit Experience, February 2005.
- Organisation for Economic Co-operation and Development, Taxation Administration in OECD Countries: Comparative Information Series (2004), Paris, October 2004.
- Organisation for Economic Co-operation and Development, Taxation Compliance Risk Management: Use of random audit programs (2004), Paris, September 2004.
- Organisation for Economic Co-operation and Development, Taxation Compliance Risk Management: Managing and improving tax compliance (2004), Paris, October 2004.
- Organisation for Economic Co-operation and Development, Risk Management—Practice Note, Paris, June 1997 (amended May 2001).
- Sherman, Report of an Internal Review of the Systems and Procedures relating to Private Binding Rulings and Advance Opinions in the Australian Taxation Office, Canberra, August 2000.
- The Treasury, Report on Aspects of Income Tax Self Assessment, Canberra, August 2004.