Published on: 19 Oct 2022
SYDNEY, Thursday, 20 October 2022: Second Commissioner Jeremy Hirschhorn took the stage at The Tax Summit 2022, presented by The Tax Institute, today. He announced that while Australians and Australian businesses, both large and small, exhibit world-leading levels of compliance, there is still a ‘tax gap’ that runs into the tens of billions of dollars.
Hirschhorn began his speech by pointing out that Australia’s tax system is “in great shape” and that while Australians may not be enthusiastic about paying tax, they realised doing so “was a small price to pay for living in a country like Australia”. This has resulted in a widespread voluntary compliance, which in turns means that Australia’s tax system is “operating at close to 93 per cent performance”.
That was the good news. The bad news is that operating at 93 per cent performance means a significant amount of tax revenue is not being collected. Hirschhorn noted that there was a “lot of community disquiet”, in Australia and other nations, about businesses, especially multinationals, gaming the system by engaging in profit shifting.
Hirschhorn argued that digitisation will be a silver-bullet solution to many of the challenges facing the ATO, allowing it to improve the user experience for taxpayers while making it less likely they will, inadvertently or deliberately, evade tax.
The tax gap and who is causing it
“There are huge opportunities to harness advancements in digitisation and data sharing to achieve a future where ‘tax just happens’. We see this as an opportunity for tax professionals to focus even more towards value creation and less on what is sometimes called ‘data shuffling’ or ‘data sherpaing’, which is a win-win for everyone.”
Hirschhorn went on to explain that the ATO systems will increasingly be integrated with ‘natural systems’. For instance, in future, banks may offer customers to nominate relevant purchases as work-related expenses when they occur. This kind of initiative is important because siloed data increases the likelihood that individuals, small business owners and investment property owners will, consciously or otherwise, evade tax.
Noting there wasn’t a “common community understanding” about “what is an allowable work-related expense claim is,” Hirschhorn noted, “Incorrect claims in this area account for almost $4 billion of the tax gap [i.e. the difference between how much money the ATO should be receiving and how much it actually receives]. We see that many claims are an optimistic characterisation of personal expense as work related. And so the challenge for us is – how can we work together to create a common community understanding of what is allowable? How can we shift the culture so clients don’t shop around for agents who will get them the biggest returns based on the most creative claims?”
Hirschhorn also noted that the turbocharged digital transformation of recent years hasn’t killed the shadow economy. “Omitted income, particularly cash wages and income earned from the gig economy [is another major issue]. We estimate the portion of the tax gap related to this is about $1 billion a year.”
Some of the two million Australians who own rental properties are also inclined to engage in creative accounting, Hirschhorn observed. “The third category [relating to the tax gap] I would like to call out is property investments, which covers the spectrum from true investment properties through to holiday homes that are occasionally rented, or which are not rented. We estimated this contributes about $1 billion to the net tax gap. In 2021, Australia’s rental property owners declared over $45 billion in income and about $43 billion in expenses. The [ATO’s] random inquiry program, when applied to these claims… showed nine out of 10 returns reporting net rental income required adjustment.”
Data isn’t gold, it’s ‘uranium’
“Digitisation [is about] integrating ATO systems with natural systems as much as possible,” Hirschhorn went on to say. “[It’s about] moving tax reporting, and perhaps [tax] payment closer to the tax event. Often that may require policy changes. It may require designing the [tax] system around verifiable data, rather than constantly trying to find data to bolster the system… Importantly, it doesn’t mean that all data must sit in ATO systems and be analysed there, in fact it may mean the opposite. In many cases, it may be more natural to move some of the ATO’s systems to the natural systems rather than require customers to send us information for checking. As someone in the room today once described it to me, data is not gold. Data is uranium. So, before you get it, you better know how you are going to use and store it. And there needs to be a very good reason for owning it.”
Of course, with personal data, or commercial sensitive data, increasingly being shared around between banks, super funds, tax agents and the ATO, there’s a larger attack surface for cybercriminals. Hirschhorn stated that the ATO was aware of this and taking all the necessary precautions.
“The flip side of digitisation is cybersecurity,” he said. “There is [the possibility] of cyber-enabled identity fraud and cyber-enabled information theft. In the time it takes me to make this speech, there will be 4,000 attempted hacks on the ATO’s system. There are three million attempted hacks of the ATO’s system every month. The systems of tax agents and super funds are also a ripe source of data. Increasingly, we see cascading penetration attempts, where criminals attempt to obtain information from different devices before putting it together for a fraud attempt… the Optus data breach has really brought home how vulnerable many businesses and organisations are to attack and dispelled any sense of hubris. That’s a topic on its own but the ATO will continue to strengthen our safeguards and think about how we can help the broader ecosystem that you [tax agents] are part of.”
The panel joins a compelling speaker lineup of the nation's most forward-thinking minds at The Tax Summit, including former Prime Minister The Hon Malcolm Turnbull AC, Atlassian Work Futurist Dominic Price and Allegra Spender MP.
On 25th October, the Labor Government will deliver its first Federal Budget since elected. The Tax Institute (TTI) experts will be producing insights and analysis to guide members through the tax measures announced and their impact on clients. TTI spokespeople will be available on the night for comment on tax measures. TTI’s in-depth report and access to its post-budget analysis webinar can be found here.
The Tax Institute is the leading forum for the tax community in Australia. It is committed to furthering tax education, representing its members and continuously improving the tax system for the benefit of all.
About Jeremy Hirschhorn, Second Commissioner, Client Engagement, Australian Taxation Office
Jeremy Hirschhorn was appointed to the Second Commissioner role from 16 April 2020. He has overall responsibility for the ATO’s Client Engagement Group, which fosters willing participation in Australia’s tax and super systems through well-designed client experiences.
Jeremy has more than 20 years' experience in roles managing complex tax matters.
As Deputy Commissioner of Public Groups & International from April 2015, Jeremy was responsible for ensuring that the largest Australian and multinational companies were meeting their corporate tax obligations and providing the Australian community with confidence that these large companies were being held to account.
Jeremy also worked as Chief Tax Counsel, with responsibility for the provision of the ATO’s legal advice in relation to interpretation of the tax and super laws, when he joined the ATO in August 2014.
Prior to joining the ATO, Jeremy was a senior partner in KPMG’s tax practice.
Jeremy holds a Bachelor of Commerce and Bachelor of Laws from the University of NSW. He is a Chartered Tax Adviser and Chartered Accountant.
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Azadeh Williams – Founder & Managing Partner, AZK Media