This document is also available in Portable Document Format (PDF). Download The risk differentiation framework (NAT 73993, 696KB).
We use the Risk Differentiation Framework (RDF) approach to help us assess your tax risk and determine the intensity of our response in a coherent, consistent and considered way. It complements the compliance model which suggests an appropriate choice of remedy.
The RDF is based on the premise that our risk management approach will be different based on our perception of both your estimated:
- likelihood of non-compliance (that is, having a tax outcome we don't agree with)
- consequences (dollars, relativities, reputation, precedent) of that non-compliance.
Using the framework, we place you into one of four broad risk categories (higher risk, medium risk, key taxpayer and lower risk) for each tax type (income tax, GST and excise).
Our risk rating does not in any way influence the outcome of a possible risk review, but it does influence the likelihood of a review and the formality and intensity of it.
Quadrant 1 - higher risk taxpayers
For our higher risk taxpayers the framework suggests a real time/continuous risk review stance to enable us to identify and assess risks as they arise.
There will always be a small number of taxpayers who we see as having a higher relative risk because of, for example, their relative size, the nature of the transactions they undertake, their apparent effective tax rate or their compliance history.
The Commissioner notes:
Certainty for these taxpayers is not in relation to their tax position but rather a certainty that they will be reviewed by us. Such an experience will be fair and professional but may also be quite formal and intense.
Speech by Michael D'Ascenzo, Commissioner of Taxation, 22nd Australasian Tax Teachers Association Conference, Sydney, 22 January 2010
We will assign sufficient resources to enable us to identify and understand any significant transactions that have the potential for tax planning, so that we can quickly form a view on their appropriate tax treatment.
While we take all relevant facts and circumstances of a case into account, for higher risk taxpayers we are more likely to use our formal powers of information gathering.
Quadrant 2 - key taxpayers
For our key taxpayers the framework suggests a continuous monitoring stance.
Most of Australia's largest businesses fall into this category and they have significant influence on the tax system.
If you are a key taxpayer, what you do matters a great deal to the overall health of the tax system. Hence we have a particularly keen interest in your risk management and governance frameworks to mitigate tax compliance risks.
As a key taxpayer you are more likely to have approached us for a ruling in regard to a controversial or contentious tax matter and we aim to service your requests promptly to provide certainty.
We are less likely to use our formal powers of access and questioning and our choice of remedy for non-compliance is more likely to involve alternative dispute resolution approaches where this is appropriate.
Annual compliance arrangements (ACAs) provide key taxpayers with certainty and reduced compliance costs.
Quadrant 3 - medium risk taxpayers
If you are a medium risk taxpayer, the framework suggests a more periodic review stance.
We may involve you in specific risk reviews, where we follow-up matters of concern relating to specific issues. These are generally issues identified in our compliance program.
These reviews are likely to be part of a compliance project involving other businesses with similar issues. This approach helps us to consistently address the issue across the market and reduce compliance costs for you.
Quadrant 4 - lower risk taxpayers
The majority of large businesses have a lower risk rating.
If you are a lower risk taxpayer, the framework suggests a periodic monitoring stance. This can involve activities such as:
- targeted information about specific issues we have identified in the market
- visiting you
- our normal internal risk review process of monitoring your tax activities.
If we consider you are in this risk category, you are unlikely to be contacted for additional information and less likely to have significant matters of concern requiring follow up.
Last Modified: Wednesday, 28 March 2012