The Inspector-General of Taxation (IGT), Mr Ali Noroozi, today announced terms of reference for his review into the Australian Taxation Office's (ATO) use of benchmarks to target the cash economy and called for stakeholder submissions.
"My review will look at the ATO's use of cash economy benchmarks for small businesses. Taxpayers and tax agents are concerned about how these benchmarks are developed and applied", said Mr Noroozi.
The ATO has published benchmarks for over 100 industries covering small businesses with a turnover under $15 million. The ATO indicates that these key financial ratios provide guidance on the income it expects businesses in a particular industry to report. Taxpayers falling below the benchmarks may be contacted by the ATO and be required to explain the shortfall.
Mr Noroozi explained, "Taxpayers and tax agents have expressed frustration at what they see as an inference by the ATO that their business is just not making enough money".
Taxpayers and their agents are concerned that the benchmarks do not adequately account for legitimate differences between businesses. It is suggested that these differences may be due to external or internal factors such as locality, inaccurate business classification by the ATO or owner specific management decisions.
Mr Noroozi said, "Every business is unique in some way. Benchmarks like any rule of thumb may have limitations. We need to understand the extent to which taxpayers are being incorrectly captured and whether resulting compliance action is appropriate".
The ATO has indicated that, where taxpayers' explanations for benchmark variance are unsatisfactory, and their records are inadequate, benchmarks may be used as a basis for calculating default or amended assessments. Concerns have also been raised about the ATO's expectations of small business record keeping and its communication with taxpayers and tax agents.
Mr Noroozi said, "It has been suggested that the overall ATO approach in this area can be 'heavy handed' with too much faith being placed in benchmarks. My review will also consider whether record keeping requirements expected of such small businesses are too onerous and whether it is fair to use benchmarks as the basis for default assessments".
"I am actively seeking community input to this review. I welcome submissions with both positive and negative experiences with the ATO's compliance activities involving the use of benchmarks. Your submissions and identities are strictly confidential and not disclosed to anyone, including the ATO", said Mr Noroozi.
Terms of reference and submission guidelines for the review are available on the IGT website: www.igt.gov.au. Submissions are due by 3 February 2012.
28 November 2011
Media contact: Ali Noroozi – (02) 8239 2107