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Thursday, 1 March 2012
Page: 2608

Australian Tax Office: Regulatory Policy

(Question No. 743)


Mr Robb asked the Treasurer, in writing, on 21 November 2011:

(1) Is it a fact that the Australian Taxation Office (ATO) has implemented a new regulatory policy under which it will be conducting 'real time' audits on Australia's top 200 companies, thereby moving away from the long-standing policy of self-assessment and post lodgement audit.

(2) Are all major changes in regulatory policy the subjects of regulatory impact statements and examination and consultation with the Office of Best Practice Regulation (OBPR); if not, under what circumstances are proposed changes exempt from such scrutiny.

(3) Did the ATO consult with the OBPR in relation to the 'real time' policy initiative; if so, what was the outcome; if not, why not.

(4) Did the ATO complete a regulatory impact statement in relation to this policy initiative under the Government's best practice regulation policies; if not, why not.

(5) Did the ATO discuss its 'real time' audit proposals with representatives of umbrella groups such as the Australian Institute of Company Directors, the Business Council of Australia and others who uphold principles of good corporate governance in Australia, and report its findings to the OBPR; if not, why not.

(6) Did the ATO conduct any trials or pilot studies to gauge the impact of its new regulation on corporate productivity and governance; if not, why not.

(7) What is the anticipated cost to the Government of this new policy over the forward estimates, including the details of additional human and capital resources; and has an estimate been made on any additional cost to business; if so, can he indicate this sum for the same period.

(8) Is the OBPR aware that in the United States the Internal Revenue Service developed a similar policy by seeking volunteers from the corporate sector, thereby avoiding unnecessary expense and lost productivity; and would he consider introducing a similar system here.


Mr Swan: The answer to the honourable member's questions is as follows:

(1) No, the ATO has not implemented a new regulatory policy under which it will be conducting 'real time' audits on Australia's top 200 companies, thereby moving away from the long-standing policy of self-assessment and post lodgement audit.

The Commissioner's compliance program, which consists of a range of products, is implemented using the Commissioner's general powers of administration. The Commissioner's 'real time'' initiative, which does not change the policy of self assessment in the large business market, is one of these products.

In considering which businesses may need to be reviewed, and the frequency and intensity of that review, the ATO considers the relative likelihood of a large business taxpayer having a contentious position and the consequences of that potential non-compliance.

Using this intelligence the ATO categorises large businesses into one of four broad risk categories, each of which has a suggested compliance approach. The ATO calls this process risk differentiation.

For higher risk taxpayers in the large market, this 'real time' work is in the form of a 'risk review', not an 'audit'. The distinction is that a risk review only identifies whether there may be a contentious tax issue, while an audit seeks to gather the evidence necessary for an adjustment and possible litigation.

The majority of large businesses in the risk differentiation framework are categorised as relatively lower risk and will be receiving notification from the Commissioner that their affairs for that year will not be further reviewed unless evidence of a material misstatement comes to his attention. This provides certainty to the large businesses.

Alerting taxpayers to the ATO view of their relative risk allows large business to make better informed self-assessment choices about potentially contentious arrangements and how they engage with the ATO as the regulator of the system.

As set out in the ATO Large Business and Tax Compliance booklet, the ATO Risk Differentiation Framework (RDF) assists the ATO to prioritise and focus on those few taxpayers, less than 2 per cent - that is less than 20 businesses, that in its professional judgment present a higher level of relative risk to the integrity of the tax system. A further 8 per cent or so are categorised as key taxpayers - these are the largest businesses in the tax system and pay most of the tax.

(2) The Australian Government Best Practice Regulation Handbook (June 2010) states:

2.7 A RIS is mandatory for all decisions made by the Australian Government and its agencies that are likely to have a regulatory impact on business or the not-for-profit sector, unless that impact is of a minor or machinery nature and does not substantially alter existing arrangements. This includes amendments to existing regulation and the rolling over of sunsetting regulation.

However, the Prime Minister has discretion to grant exceptional circumstances to exempt a proposal from the RIS requirements.

The Handbook also states:

2.42 Where a proposal proceeds (either through the Cabinet or another decision maker) without an adequate RIS, the resulting regulation must be the subject of a post-implementation review (PIR). The review must commence within one to two years of the regulation being implemented, and will be required regardless of whether or not an exemption from the RIS requirements for exceptional circumstances was granted by the Prime Minister.

(3) The Commissioner's 'real time' initiative is administrative in nature with no new tax regulations being introduced. On that basis OBPR were not consulted.

(4) There has been no change to the tax regulations. Therefore a regulatory impact statement was not required.

(5) The Commissioner did not communicate with OBPR as the 'real time' initiative is administrative in nature.

The Commissioner communicates with the large business market using a range of channels, including the Large Business and Tax Compliance booklet which was co-designed with representatives of the Large Business Advisory Group. The booklet comprehensively outlines the Commissioner's approach to tax compliance issues, including risk differentiation and various compliance products.

(6) The Commissioner's initiative is administrative in nature with no new tax regulations being introduced. The approach was piloted with a number of higher risk taxpayers.

(7) There is no additional cost to Government anticipated. The Commissioner funds the majority of compliance activities from the general ATO budget. The ATO believes that early real time engagement can save both business and the ATO time and money. By working with the large business market to identify areas of possible contention as early as is practical, taxpayers can then make more informed self-assessment decisions in regard to those matters.

(8) The OBPR is not aware of the specific US Internal Revenue Service program. The OBPR does not determine what policies or approaches should be adopted by the Government. The OBPR's role is to administer the Government's regulatory impact assessment requirements (outlined in the Best Practice Regulation Handbook (June 2010) and Council of Australian Governments Guide to Best Practice Regulation (October 2007).