Member feedback has been running hot on the ATO’s recent letters entitled “Delays in processing some of your clients’ income tax returns”.
For the benefit of members who have not yet received such a letter, the following is an extract:
“We are writing to let you know that we are contacting selected taxpayers whose return will be reviewed, as it has been identified as containing some information we want to further investigate prior to issuing an assessment…. We are using specialist technology to help us identify and review returns which may contain missing and or/incorrect information… we will hold your client’s return until our investigations are finalised. We anticipate these returns are likely to be delayed for a minimum of 12 weeks.”
We have expressed serious concerns with the delays that the ATO are anticipating in conducting these “pre-assessment reviews”. Whilst The Tax Institute understands the risks that fraud and misstatements place on the tax system, we are very concerned that the resolution of queries will take a minimum of 12 weeks. Members have reported to us examples of relatively straight forward tax returns (e.g. salary/wages, public company dividends, interest from major financial institutions) that will be subject to the 12 week delay.
The ATO has informed us that there are a variety of reasons why a return may be subject to a pre-assessment review, including (but are not limited to):
- a suspected fraudulent/incorrect payment summary (particularly where the amount of tax withheld is higher than expected);
- problems with the amount of franking credits claimed;
- overstatement or ineligibility to claim the education tax refund;
- overstatement or ineligibility to claim a spouse rebate;
- overstatement of work related expenses; and
- unexplained large variances as compared to prior year returns.
The ATO cannot give information about precisely why a return is subject to further inspection, as this could potentially compromise the detection models. The ATO is aiming to telephone all impacted agents. It is understood that the returns selected for review are roughly 50/50 split between agent and self prepared returns.
The ATO reports that returns that are found to have no issues will be returned to usual processing, and this may occur within days/weeks, rather than the 12 weeks previously advised. It is also possible that the ATO’s own investigations will successfully resolve the issue (that is, no action may need to be taken by the agent). However, more complex matters or those requiring additional substantiation, could take 12 weeks to review. In the case of actual fraud, refunds may be held for a much longer period or never released.
In response, The Tax Institute has recommended that the ATO:
- promptly contact affected agents and clearly articulate the reason for the return being subject to a pre-assessment review;
- advise agents what materials need to be provided for substantiation;
- precisely estimate how long the return will take to review, and advise any way that an agent can assist to speed up the process; and
- publish information on their website explaining why returns may be subject to pre-assessment review, and the delays that it may entail.
We are closely monitoring the situation, and will continue to advocate for fair treatment of agents and taxpayers that have correctly completed their returns.