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24 Nov 2021 This week in tax

In this week’s TaxVine, The Tax Institute’s Senior Advocate, Robyn Jacobson, CTA, draws out the key points from the Commissioner of Taxation’s recent address  to the 14th International ATAX Conference on Tax Administration, held on 23–24 November 2021 in Sydney. The conference furthers the research and debate around the operation of the tax system and, in particular, that delicate balance between encouraging compliance and overloading the administration of the system.

Commissioner’s address on tax administration

On 23 November 2021, Chris Jordan, AO, CTA, Commissioner of Taxation (Commissioner) at the Australian Taxation Office (ATO), delivered an address titled ‘Challenges and opportunities for a new decade in Tax Administration’. The Commissioner discussed a number of aspects of tax administration in his address, the key points on which I provide some observations below.

Laying the foundations for the tax system of the future

The Commissioner spoke of the ATO’s transformation journey over recent years. The ATO’s Corporate Plan 2021–22 outlines the steps the ATO is taking to deliver on their aspirations for 2024. The ATO will continue their focus on the most critical and transformational strategic initiatives that build trust and confidence and contribute towards the ATO being a streamlined, integrated and data-driven organisation.

This vision continues to drive improvements in digital systems, the way data is used by the ATO, and how the ATO engages and supports taxpayers to meet their obligations. This transformation enabled the ATO to be in a strong position when called upon by the Commonwealth to deliver the COVID-19 economic stimulus measures. The Commissioner pointed out that the design of the ATO’s systems not only facilitated the fast and efficient delivery of the measures, but importantly, ensured their integrity.

Digital capability and data

The ATO is among the world leaders of tax administrators in their use of technology and data. Recognising that the ATO cannot rely on audits alone to maintain the integrity of the tax and superannuation system, the ever-increasing use of digital capability and data is fundamental to the design of their processes and systems. This allows the ATO to:

  • effectively administer the tax and superannuation system;
  • tailor their engagement with taxpayers based on their needs;
  • simplify taxpayers’ interactions with the ATO;
  • optimise embedding into natural systems so taxpayers can get it right the first time; and
  • minimise ATO intervention.

The use of ‘nudging’ has proven to be effective in getting taxpayers to think twice before lodging their tax returns. During Tax Time 2021, nearly 370,000 taxpayers were prompted to review their work-related expense deductions prior to lodgment based on comparisons to individuals with similar jobs and expenditure. These prompts caused taxpayers to make adjustments estimated to have a revenue impact of approximately $37 million.

The use of ‘pre-fill’ — whereby large volumes of data are received, matched and pre-filled into tax returns and other forms from a variety of third-party providers — is another effective technique the ATO uses to save taxpayers time and to help them get it right. In 2021, the ATO pre-filled more than 89.5 million pieces of data. Data sourced from cryptocurrency designated service providers, share registries and brokers prompts taxpayers where these investments may be inadvertently forgotten or not properly disclosed. The ATO’s cryptocurrency data-matching program (in place since April 2019) is collecting data on cryptocurrency transactions for the 2014–15 to the 2022–23 financial years.

The Commissioner attributed the prompt delivery of the COVID-19 stimulus payments in part to the successful implementation of Single Touch Payroll (STP). As of 31 October 2021, 806,000 employers were reporting through STP, covering 12.8 million employees. As I reflect on the rollout of JobKeeper and the cash flow boost in particular, the timing of STP was, in hindsight, a blessing for both the ATO as administrator and the business community. It allowed the support payments to be efficiently administered; in turn, this encouraged many employers with closely held payees to start voluntarily reporting through STP ahead of the mandated start date of 1 July 2021.

Data security

The huge reliance on data and digital technology brings equally huge challenges for the administrator. The ATO has one of the largest and most comprehensive data stores in Australia, which must be safeguarded from ever-evolving cyber security threats and data breaches. The Commissioner shared that protecting this data and digital systems is a massive undertaking and a responsibility the ATO takes very seriously. The ATO is entrusted with protecting the community’s personal information and this trust underpins the whole tax system.

Remarkably, the ATO defends against more than two million attempted cyber intrusions each month; in peak months (such as Tax Time) this rises to over 3.5 million intrusion attempts. The Commissioner summarised the ATO’s challenge in these terms:

In an increasingly volatile global technology environment, we know that the odds are stacked in favour of potential attackers: while they only need to find one weakness to gain access, we have to defend against them on all fronts.

Tax gap analysis and compliance

The Commissioner praised the majority of Australians who have a high level of willing participation, are honest and try to do the right thing. This is key to an effective tax system. While most taxpayers have a predominantly compliant attitude, tax gap analysis is an invaluable tool that allows the ATO to understand more about those who do not comply so engagement strategies can be tailored and resources can be directed to maximise effectiveness.

The Commissioner made the following key points about tax gaps and compliance:

  • Large businesses: The ATO has found that working in a collaborative, open and constructive way is far more productive than auditing after the fact.
  • Justified Trust program: The ATO are monitoring the ‘Top 100’ largest public and multinational businesses, and 80% have achieved medium or high assurance. The ATO have extended their approach to the ‘Top 1,000’ public and multinational businesses and the ‘Top 500’ and ‘Top 5,000’ largest and wealthiest private groups, and the number of entities achieving high assurance is expected to increase further as this work continues.
  • Individuals and small business sectors: Given the ATO cannot actively individually engage with the millions of taxpayers in these markets, technology and data do the heavy lifting. In the Individuals market, performance is approximately 94% (6% tax gap), and in the Small Business market, income tax performance is around 87% (13% tax gap).
  • Joint International Taskforce on Shared Intelligence and Collaboration (JITSIC): The ATO is one of 42 national tax administrations that make up this taskforce and which has been instrumental in tackling international tax evasion since its formation seven years ago.
  • Joint Chiefs of Global Tax Enforcement (the J5): Deputy Commissioner, Will Day, is one of the five chiefs who head up the taskforce and is joined by leaders of tax enforcement authorities from Canada, the Netherlands, the United Kingdom and the United States to increase collaboration in the fight against international and transnational tax crime and money laundering.
  • Panama, Paradise and Pandora papers: These major data leaks contribute to the already vast store of data available to the ATO. The ATO is compelled to use the data from these leaks. This makes it harder for Australians to avoid their tax obligations by locating bank accounts or assets offshore. Action has been, and will continue to be, taken in relation to those named in these papers.
  • Collaboration with OECD partners: This allows the ATO to target the strategies used by multinationals to exploit gaps and differences between the tax rules of different jurisdictions internationally. In October 2021, a minimum global level of corporate tax of 15% was agreed to that will redirect some of the taxes that large multinationals pay to the countries where their products or services are sold, rather than the taxes going only to the country they are headquartered in. This move will assist in preventing multinationals from shifting their profits to low-tax countries.

At an international level, the ATO’s work analysing criminal networks has value beyond the identification of tax crime. It also assists intelligence agencies around the world to investigate intermediaries who facilitate the transfer and hiding of funds from international tax crime who also have links to funds from arms dealing, drug trafficking, people smuggling and terrorist financing.

Closing remarks

The advancement of digital technologies, and the emergence of data-sharing and -matching will continue to influence how taxpayers interact with the system and the administrator enforces compliance with the law. Increasingly, there will be greater transparency of taxpayers’ activities, and this is expected to be further refined and developed as other technologies emerge.

Our Tax Policy Assistant, Zoe Beesley, has posted in Community about this preamble. Join the conversation and share your thoughts and ideas on digital and data capabilities and the administration of the tax and superannuation system.

Lastly, next week we’re running our final event of the year — the 2021 National GST Conference to be held at the Sofitel, Darling Harbour. This will be one of the final opportunities to catch up with your fellow members this year face to face or online and stay across the latest GST developments.

As always, we welcome your views and thoughts, which you can provide here.

 

Kind regards,

Robyn Jacobson, CTA

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