On October 4th of 2012, the Assistant Treasurer, David Bradbury, released the Inspector-General of Taxation’s (the IGT) report of the review into the ATO’s use of benchmarking to target the cash economy.
This is the review as a consequence of concerns raised by small businesses, tax practitioners and accounting bodies during consultations for the IGT’s work program.
The IGT made 11 recommendations to the ATO and the ATO has agreed in part with two and in full with the remainder summarised in blow.
1. The ATO should improve community understanding and confidence in the ATO’s industry benchmark by publishing materials that provide methodology to develop benchmarks and by communicating in more broadly.
2. To assist taxpayers and tax agent in identifying the correct ATO business industry code, the ATO should take the necessary steps to provide public access to the ABS developed 5-digit Coder.
3. The ATO should improve its support for tax agents and taxpayers in helping them to include the correct ATO business industry code in the tax return form.
4. To minimise compliance costs and improve mixed businesses risk identification, the ATO should consult with tax agents and taxpayers with a view to developing and employing alternative risk models and approaches to assess the risk of underreporting by mixed businesses.
5. The ATO should seek to continue to improve the data integrity of benchmark inputs by, for example, better assisting taxpayers and tax agents to include the correct items of costs in the cost of sales label on the income tax return.
6. To more accurately target non-compliant taxpayers and reduce the number of compliant taxpayers being audited, the ATO should consider improvements including:
– Examining completed correspondence cases to identify whether additional useful predictors of underreporting and/or compliance exist and use such predictors to refine the risk identification process; and
– Implementing strategies to exclude compliant and low risk taxpayers from correspondence audits at the earliest point possible.
7. The ATO should consult with taxpayers, tax practitioners and their representative bodies with a view to publishing guidance on what taxpayers and their advisors can expect during cash economy benchmarking compliance activities.
8. The ATO should improve the robustness of correspondence audit penalty decision by, for example, providing clearer staff guidance on the specific types of evidence which would tend to indicate the application of different penalties.
9. The ATO should enhance the staff capability in terms of knowledge and experience in certain industries and businesses.
10. To reduce compliance costs and time frames, the ATO should make it easier for businesses to deliver their records electronically for inspection.
11. The ATO should foster better record keeping and accurate reporting of income in a manner that minimises overall cost for small businesses through variety of means.
