In media release No 2012/113, issued 3 October 2012, the Assistant Treasurer and Minister Assisting for Deregulation, David Bradbury, announced the release of the Inspector-General of Taxation's Review into the ATO's use of benchmarking to target the cash economy.
The Inspector-General (IGOT) conducted this review in response to concerns raised by small businesses, tax practitioners and their representative bodies about the ATO's use of small business benchmarks.
The IGOT made 11 recommendations to improve the use of benchmarks by the ATO. The ATO has agreed with nine of the recommendations in full and two in part.
In his Executive Summary, the IGOT stated at page vi:
"Whilst stakeholders considered benchmarks to be a useful way for the ATO to exclude large numbers of likely compliant taxpayers from compliance activities, they were also of the view that being significantly outside the benchmarks was, in and of itself, not enough reason to commence audits. It was considered that the ATO should take into account additional factors to determine whether the risk warranted an audit. The review found that of over 7,600 benchmarking audits, the ATO made adjustments in only 24% of cases. The IGOT believes that, whilst this is better than randomly auditing taxpayers in the cash economy population, the current approach can be improved to better exclude compliant taxpayers from audit selection.
The IGOT observes that the ATO can analyse the completed audit case data to determine whether other factors can be considered as useful predictors of taxpayer compliance or noncompliance. The IGOT has recommended that the ATO should use such research to refine its audit selection process, thereby ensuring that it focusses its resources on a higher proportion of non-compliant taxpayers and reducing compliance costs for compliant taxpayers."