The Inspector-General of Taxation’s (IGT) review into the Australian Taxation Office’s (ATO) employer obligations compliance activities was undertaken in response to concerns raised by stakeholders and is based on submissions from a wide range of stakeholders, including employers, workers, superannuation funds and tax practitioners as well as their respective representatives.
Given the Government’s focus on reducing the compliance burden, particularly for small businesses, a number of other reviews, considering various aspects of employer obligations, had already been undertaken prior to this review. The ATO had also embarked on a program of improvements. Accordingly, this review seeks to build on existing or developing ATO practices to enhance the tax and superannuation systems as a whole whilst delivering improvements to all relevant parties.
A key focus of this review was the uncertainty associated with the employee/contractor distinction which can lead to misclassification of workers with adverse impacts for all parties. The ATO’s online Employer/Contractor Decision Tool is a useful aid and the IGT has recommended further improvements to it such as allowing use by workers as well as businesses to better inform them of their relevant obligations. Whilst the ATO has agreed to this recommendation, it has not agreed to the IGT’s recommendation to establish a Voluntary Certification System whereby workers and businesses can seek upfront certainty from the ATO to ensure correct classification of workers at the earliest opportunity and avoid adverse retrospective consequences.
This review has also examined opportunities for reducing compliance costs and improving voluntary compliance. Stakeholders had raised particular concerns with the high costs of complying with the Fringe Benefits Tax (FBT) regime. Accordingly, a recommendation has been made to Government to consider reducing compliance costs in targeted areas in the short-term and conducting a more fundamental review in the longer term. The IGT has also recommended that the Government considers expanding the Taxable Payment Reporting System to the engagement of contractors across all industries and ultimately for the reporting under this system to be automated.
The review has also identified opportunities for the ATO to reduce the FBT and Superannuation Guarantee (SG) compliance burden. The IGT has recommended that the ATO considers developing a capability for the Small Business Superannuation Clearing House to receive electronic and standardised files to remove the need for manual input. Recommendations have also been made for the ATO to publish its areas of FBT compliance focus for each year, provide detailed information on key FBT risks and to increase employers’ awareness of its differentiated approach to non-compliance with SG obligations. The ATO has agreed to these recommendations.
Another source of stakeholder concern explored in this review was the risks and costs associated with the implementation of Single Touch Payroll (STP). The IGT has recommended rigorous testing of third party STP software with certification being provided where all requirements are met. The ATO has agreed to this recommendation. Other STP concerns related to those who may not be able to comply with STP because of, for example, technological challenges in regional areas. The STP legislation specifically provides an exemption and allows the Commissioner to provide further exemptions. Accordingly, the IGT has also recommended that appropriate exemptions be made available in the short-term whilst exploring the possibility of providing low or no cost STP software and alternative methods of electronic access in the long-term as the full benefit of STP will only be realised when all employers comply with it. The ATO has not agreed to this recommendation.
Concerns have also been raised in respect of the ATO’s approach to employer obligations compliance activities, including the ATO’s heavy reliance on reporting by employers and employees to identify non-compliance. A key cause for these concerns is that employers who do not accurately report their obligations may remain undetected and create an uneven playing field. The ATO has acknowledged that there are opportunities to improve its risk identification process. The IGT has, amongst other things, recommended that the ATO analyse the utility of data from third party referrals in order to maximise the use of sources that yield the best results, such as referrals from superannuation funds. The ATO has agreed to this aspect of the recommendation, however, it has not agreed to obtain SuperStream data from superannuation funds for employers who are not required to use STP.
The ATO has also disagreed with a recommendation aimed at enhancing the ATO’s existing capability development framework. This recommendation sought improvements to its training packages, assessment of those staff who undertook such training, monitoring quality assessments to identify training needs and processes for documenting how the law applies to the facts of each case.
Overall, the IGT has made 11 recommendations. Two are directed to Government and nine were directed to the ATO. The ATO has agreed in full or in part with seven recommendations and disagreed with two. The IGT is of the view that the implementation of the agreed recommendations should result in significant improvements. However, given disagreement to some recommendations or parts thereof, the full benefit of this review may not be realised as the recommendations are an integrated package building on the improvements that the ATO has developed or is developing in this area.