Findings report summary

The 2023 top 100 income tax and GST assurance findings report shows the:

• continued contribution we make to maintain assurance over the tax affairs of our largest taxpayers
• positive impact of the justified trust program on taxpayer behaviour and compliance.

Our focus for 2023 has been building on the assurance we have already attained in our income tax program and progressing the remainder of our initial top 100 GST assurance reviews.

Income tax

Key highlights for income tax:

• We continue to see that most large businesses are meeting their tax obligations, with 83% of top 100 taxpayers maintaining either high or medium overall assurance ratings.
• We observed a small increase in the number of taxpayers obtaining high assurance for income tax. 52% of top 100 taxpayers have attained overall high assurance which suggests we have obtained assurance that these taxpayers have paid the right amount of Australian income tax for the year reviewed. 31% of top 100 taxpayers attained medium assurance.
• For top 100 taxpayers who have had more than one tax assurance report (TAR) issued, over 59% have increased their assurance rating between the first and last TAR.
• We have also seen a further reduction in overall low assurance ratings to 13%.
• We continue to build upon and improve assurance over previously identified tax risks flagged to market and significant and new transactions for top 100 taxpayers. We are seeing new significant transactions in monitoring and maintenance and refresh reviews. We have observed that 87% of monitoring and maintenance reviews and 91% of taxpayers in refresh reviews looked at new transactions or tax risks flagged to market. This number of new transactions is to be expected due to the agile and sophisticated operations of top 100 taxpayers.
• All taxpayers have maintained their overall high assurance ratings through ongoing reviews (i.e. monitoring and maintenance and/or refresh reviews).
• We continue to see a reduction in high risk transactions being entered into. This is a reflection of the efforts of taxpayers and the ATO to get tax outcomes right on lodgment.
• Although we are continuing to see fewer high risk arrangements year on year, transfer mispricing in relation to related party loans continues to be a key focus area and represents the highest proportion of unassured items that attract a red flag rating for top 100 taxpayers. Related party sales also continue to be a focus area for us and represents the second highest proportion of unassured items attracting a red flag rating for top 100 taxpayers in 2022.
• Tax governance is a critical pillar of the justified trust methodology for large public and multinational businesses. We have seen a notable increase in Stage 3 ratings from 12% to 20% in 2023. This signifies enhanced tax control frameworks that are being ‘lived in practice’ and independently verified.

GST

Key highlights for GST:

• We have now completed an assurance review for one or more GST reporters for 75% of the top 100 economic groups.
• The outcomes are positive with 93% attaining overall high or medium assurance. The majority, 70%, attained overall medium assurance.
• Just under half of the top 100 GST reporters have obtained a Stage 2 or Stage 3 rating for tax governance. Stage 3 was achieved by 8% of GST reporters reviewed.
• While 42% of the completed reviews had issues/concerns with correct reporting of GST obligations, the adjustments for these errors are typically not material in dollar terms. Governance and systems-related issues are significant drivers for errors in GST reporting.
• 80% of taxpayers who had the GST Analytical Tool (GAT) applied attained Stage 2 or 3 rating. The GAT uses a standard method statement applying a ‘top down’ approach to identify and understand key variances between accounting figures reported in audited financial statements and GST reported on BAS.
• GST food classification, recipient created tax invoices, financial services and investment as well as real property, accommodation and retirement villages continue to be an area of focus for GST.
• Whilst we see high levels of compliance, we continue to see taxpayers waiting for the commencement of a GST assurance review before undertaking self-review to verify the correct reporting of their GST obligations. However, our GST reviews are encouraging sustained compliance and we have noted that taxpayers with identified errors either have or plan to implement improvements to their controls, processes and procedures to prevent the recurrence of errors. Some taxpayers have further undertaken to continue to review their activity statements in relation to periods outside of the review periods to ensure compliance and to correct any GST errors identified.

We continue to see tax compliance gaining importance in corporate governance, with organisations using justified trust ratings to demonstrate their commitment to transparency and sustainability.

The justified trust program continues to evolve with more taxpayers achieving higher levels of assurance. Engagement, transparency, and collaboration between taxpayers and the ATO have led to improved assurance ratings. Ongoing efforts aim to enhance tax transparency and maintain high levels of compliance, benefiting both taxpayers and the community.