On 4 April 2011, the Inspector-General of Taxation (IGT), Mr Ali Noroozi, announced his new work program into aspects of the administration of the Australian tax system, following an extensive community consultation process.

The IGT consulted widely with business, taxpayers, tax practitioners (legal and accounting), professional bodies and industry associations to identify aspects of the tax system's administration that could be improved. The office of the Assistant Treasurer and Minister for Financial Services and Superannuation, the Hon Bill Shorten MP, and a number of government agencies including, the Commonwealth Auditor-General, the Commonwealth Ombudsman, the Australian Taxation Office (ATO) and the Department of Treasury were also consulted.

The community raised a wide range of issues and concerns about the administration of the tax system for IGT review. The IGT wishes to express his thanks to all parties who assisted in the consultation process. Due to the IGT's resource constraints, it is not possible to review every issue raised. The IGT seeks to select topics for review that reflect the greatest levels of community concern or importance to the tax system's administration.

The IGT has also adopted a new approach to structuring his work program. This entails a shorter work program that can be completed within a quicker timeframe. This approach ensures that the work program is more flexible and better accommodates urgent review matters that may emerge during the work program life cycle.

The new IGT Work Program consists of the following reviews:

Review of ATO implementation of the Report on Aspects of Income Tax Self Assessment (ROSA) recommendations

Each year the IGT receives a number of submissions directed at various aspects of tax administration which are associated with the ROSA recommendations. Stakeholders have raised a range of concerns which include the ATO's performance of its advisory role such as its approach following adverse decisions, the procedures surrounding the exercise of the Commissioner's power of general administration, the exercise of various discretions by the Commissioner, uncertainty as to what constitutes reasonable care and when a position is reasonably arguable.

The improvements to the self assessment system resulting from ROSA, enacted through two tranches of legislation in 2005, were primarily designed to improve taxpayer certainty and mitigate detriment to taxpayers from interest and penalties arising from uncertainty. In this review, the IGT will examine whether aspects of the implemented ROSA recommendations have been successful in achieving their original aims and whether there are any further improvements that can be made.

Review into ATO use of benchmarking to target the cash economy

Many submissions have queried whether benchmarking data is being used appropriately to identify taxpayers who might be underreporting their income. Concerns have also been raised regarding the use of benchmarks to calculate default assessments where business records are deemed to be inadequate by the ATO.

The IGT would investigate whether benchmarks are an appropriate tool for identifying the potential underreporting of income and for the calculation of default assessments. The IGT also plans to investigate whether the ATO's expectations in relation to micro and small business record keeping are clearly communicated and reasonable.

Review into ATO use of Early and Alternative Dispute Resolution

Submissions have suggested that both the ATO and taxpayers could benefit from greater use of alternative dispute resolution. The ATO's commitment to resolving as many disputes as possible through early and alternative dispute resolution methods has been questioned. There is a perception that the ATO often favours litigation over resolving a dispute early or through methods such as mediation, conciliation and arbitration.

The ATO itself has also indicated that this as an area that would benefit from an IGT review.

As part of this review, the IGT will aim to determine whether the ATO is currently making sufficient use of early and alternative dispute resolution and whether the ATO and taxpayers could benefit by making greater use of these methods. The IGT would also examine the circumstances in which it is appropriate for the ATO to implement early and alternative dispute resolution methods.

Review into the ATO's Small and Medium Enterprise (SME) audit and risk review policies, procedures and practices

The IGT has already commenced a review of the ATO's audit and risk review practices in relation to the larger SMEs (i.e. companies with turnover of $100 to $250 million) and High Wealth Individual taxpayers. This review was initially included on the previous work program. However, at the Minister's direction the IGT undertook to review the ATO's change program, delaying the commencement of this review.

Submissions raised concerns relating to taxpayers receiving fair and equitable treatment and not being unduly burdened with unnecessary compliance costs stemming from the wide scope of ATO information gathering requests, delays, commercial awareness and conduct of ATO staff and the quality of ATO engagement on technical issues. The terms of reference for this review have been set and the review is currently under way.

Follow-up review into ATO implementation of IGT recommendations

Follow up reviews focus on the ATO's implementation of IGT recommendations contained in completed reviews. In this review, the IGT expects to follow up recommendations in a number of reviews released since November 2008.

The next stage

The IGT will undertake an analysis of the issues raised to date and thereafter issue specific terms of reference for each review to refine its scope and focus. Submissions will then be called for each review based upon their specific terms of reference to ensure all major issues are fully captured and considered.

Further issues considered

In the consultation process a number of issues and concerns were discussed with other government agencies. Some of these concerns were either being addressed by the ATO, or were identified as better suited to review by other agencies. The three specific matters addressed in this regard are as follows:

  • ATO technical decision making processes and proceduresThe IGT has been raising concerns in relation to ATO technical decision making from as early as 2005. Last year the issue was identified formally in our Review into delayed or changed ATO views on significant issues (the 'U-turns' review) and was identified for potential review in the 2009-10 IGT annual report. The IGT is pleased that the ATO has responded to his concerns by conducting an internal review which has made significant recommendations that have now been adopted by ATO management. Accordingly, the IGT will not undertake such a review at this time. Once the changes are implemented and bedded down, the IGT will consider whether a further review is warranted.
  • Project WickenbyA major area of concern raised with the IGT was Project Wickenby (which involves a number of member agencies). The IGT consulted with the Australian National Audit Office (ANAO) and the Commonwealth Ombudsman on this matter. The ANAO recently announced a cross agency review into Project Wickenby, the objectives of which are available on the ANAO website. The Ombudsman is also considering a cross agency review into Project Wickenby.

    The ANAO and the Ombudsman have much broader jurisdiction to investigate matters across various agencies, whilst the IGT is limited to those relating to the ATO. Accordingly, these agencies are better placed to conduct a review of this kind. The IGT will await the results of the ANAO review as well as a decision from the Ombudsman before considering whether the IGT should also conduct a review into the area. Should the Ombudsman conduct a review into Project Wickenby, the IGT would be pleased to provide appropriate assistance as required.

  • ATO approach to FOIStakeholders raised issues with the ATO's handling of information requests in particular timeliness and whether all requested documents that can be disclosed are indeed disclosed. Submissions also questioned whether the ATO takes an unnecessarily technical approach in many cases including those where taxpayers are simply asking for material they originally provided to the ATO. At this stage, the IGT considers that the new offices of the Information Commissioner and the FOI Commissioner, as well as the Privacy Commissioner may be better placed to investigate concerns of this nature.

Inspector-General of Taxation

4 April 2011