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Commissioner of Taxation Annual Report 2005-06
Commissioner of Taxation Annual Report 2005-06
Download the 2005-06 Annual Report in full in PDF format (5,446 KB)
To effectively manage and shape administrative systems that support and fund services for Australians. Reference.
We are the Australian Government's principal revenue collection agency. Reference.
We are the second largest payer of benefits. Reference.
We are also the custodians of the Australian Business Register. Reference.
Our business intent
To optimise voluntary compliance and make payments under the law in a way that builds community confidence. Reference.
Main areas we administer
We administer tax, superannuation and excise laws. Reference.
- 89% of Australian Government receipts, (reference) and
- more than $37.4 billion in GST for state and territory governments. Reference.
We make $7.5 billion in transfers and payments (not including GST input tax credits and income tax refunds) to the community, for example, for private health insurance and for family assistance. Reference.
We oversee the Australian Valuation Office, and the Australian Business Register. Reference.
The Commissioner of Taxation, Michael D'Ascenzo, leads the organisation, supported by three Second Commissioners and two senior executives, who together make up the ATO Executive. Reference.
Fairness in accordance with the law, integrity, accountability and transparency are the core values underlying our administration of the tax system. Reference.
Australian Public Service values and code of conduct. Reference.
At 30 June 2006 we employed 21,511 full-time equivalent employees in offices all around Australia. Reference.
Our operating expenditure budget for 2005-06 was $2,533.2 million. Reference.
- Net tax collections increased to $232.6 billion, which was $17.8 billion (8.3%) more than last year, and $4.8 billion (2.1%) above Budget forecast.
- We provided $7.5 billion in transfers and payments, which was 20.3% more than last year.
- We launched a new client relationship management system to improve our interactions with taxpayers, enhanced web services and updates to the Tax Agent and Business portals, and successfully trialled pre-population of tax returns.
- We successfully implemented around 100 new legislative measures, including the 30% child care tax rebate, superannuation choice, and improvements to our self-assessment system of taxation.
- Some 73% of taxpayers and 87% of businesses agree that the Tax Office is doing a good job, and tax practitioners expressed an increased level of satisfaction with our services and the tax system.
Our Annual report 2005-06 is our key performance accountability report to Parliament. It contains information about our role, how we are structured, our corporate governance arrangements and management accountability framework.
It also reports on our performance against the outcome outputs framework as outlined in the 2005-06 Portfolio Budget Statements.
When developing the content, we aim to meet our parliamentary reporting requirements and the information needs of the community as a whole.
Contains a review of the year by the Commissioner of Taxation and an assessment of the health of the tax system.
Provides an overview of how we are structured, as well as what we do.
Reports on our performance in relation to our outcome and outputs. This part describes in detail what activities we undertook and how we spent our budget.
Explains our management practices, including our approach to corporate governance and corporate planning, our integrity framework, internal and external scrutiny, and how we support our people and manage our finances.
Provides more detailed information on a range of matters, for example, our financial statements.
01 Commissioner's review
Download Part 01 in PDF format (331 KB)
As the main administrator of Australia's tax system, the Tax Office has a big job to do. More than 11 million individual taxpayers and 2.5 million businesses, non-profit organisations and government agencies are directly affected by taxation.
Taxation is the price we as a community pay for a civilised society. The challenge for the Tax Office is to help create an environment that promotes high levels of voluntary compliance with Australia's tax laws.
This year improvements in voluntary compliance are evident in the healthy revenue returned to government, and the continuing upward trend of community confidence in our administration.
Our commitment to the community is to administer the tax system fairly in accordance with the law. We do this by helping people do the right thing; by making it as easy as possible for them to comply; and by deterring, detecting and dealing with people who fall short of their obligations. The way we deal with people takes their individual circumstances into account.
We also recognise the contribution made by others to the efficient and effective operation of the tax system, including employers, tax agents, bookkeepers and software producers. This year we consolidated our work with tax agents into one area of the organisation to enhance our relationship with them.
Last year's annual report identified offshore schemes and debt as two particular areas of focus.
In relation to offshore schemes, this year we started to unravel the complex arrangements we saw following Project Wickenby - a joint taskforce of Australian Government agencies investigating revenue fraud.
We also have a responsibility to take reasonable steps to recover amounts for the benefit of the Australian public - this is simply a matter of maintaining a level playing field for business. While collectable debt as a percentage of total collections is no longer rising at the rate it was last year, unpaid tax debts remain a concern.
To collect this debt, we have trialled some new and innovative ways of contacting and engaging with people. For example, we used new telephony technology to increase the efficiency of contacting taxpayers by telephone.
Our approach is to ensure we are fair and support the majority of taxpayers (and agents) who want to do the right thing, and clearly demonstrate a firm approach, where necessary, to those who don't. Our easier, cheaper and more personalised (change) program, a $453 million investment in new technology and business re-engineering, is providing us with new analytical tools to help refine our risk management choices. It also allows us to provide more differentiated responses where possible.
We are also putting more emphasis on a user-based approach to developing administrative systems. Through processes of consultation, collaboration and co-design, and building systems from the 'outside in', we hope to make our systems user-friendly and minimise compliance costs for taxpayers.
We have a history of being open and transparent about what we do and how we do it - and this is critical to the confidence and trust the community has in our administration and their willingness to voluntarily comply.
We regularly make our challenges, risks and opportunities public. This year we continued the practice of publishing our Compliance program, as well as information on particular compliance issues such as service trusts and the general anti-avoidance provisions.
The third update to our change program, Making it easier to comply, was also published this year and reports the significant progress we have made in improving our systems. This major program of change is a complex and risky task.
So far our change program is running on time and within budget. Nevertheless, we have reached the limit of our ability to implement major new systems, and our wherewithal is stretched.
These inherent risks will need to be closely managed and may require different approaches. They also put a cap on our ability over the next two years to do more than is planned, without seriously affecting our current commitments.
Having said that, we do see technology as a way of making the tax experience easier for taxpayers. Almost 1.4 million income tax returns were lodged online using our e-tax service during 2005-06, some 27% more than for 2004-05.
Both the Business and Tax Agent portals proved increasingly popular with the community this year. There were 11.6 million log-ins to the Tax Agent Portal, supporting 3 million transactions, while the Business Portal had around 1.2 million log-ins, supporting 0.4 million transactions. In addition, our website had more than 87 million visits.
We processed more than 90% of activity statements lodged online in real time, with refunds posted overnight to business bank accounts.
To develop these administrative improvements, we sought input from the people who use them. For example, we relied heavily on this user-based approach to implement the government's 30% child care tax rebate. We asked tax agents, child care providers and individual taxpayers to sit down with us to develop administrative solutions - from planning the way the service is delivered through to getting their feedback on proposed marketing and educational products.
This year we implemented the recommendations from the government's review of self-assessment. While the majority of the recommendations required legislation, we worked with the community to develop administrative approaches, such as guidelines for the new shortfall interest charge.
We have made public what we do and how we do it, and actively involved the community in administrative design.
We also recognise that change involves more than just technology. In addition to our existing skilling and development strategies, we have rolled out large-scale training programs to our people, covering new business processes and the use of systems.
For example, 2,700 people were trained as part of the rollout of our new client relationship management system. This system provides our contact officers with details of a taxpayer's contact with us, enabling us to provide a more personalised service.
We have also sought to match proficiency skills with organisational values and human qualities, such as fairness in accordance with the law, integrity and commitment. And this is supported by a growing culture of listening to the community and being responsive to challenges and opportunities. Going forward, we have an organisational commitment to living our values.
Through a rigorous system of governance reporting and certificates of assurance, we monitor the health of our internal systems and processes. This year we formalised and published our integrity framework, which sets out the behaviour, values and ethics that underpin the policy, processes and procedures for our work. It complements our taxpayers' charter, which promotes a culture of mutual respect, and our compliance model, which requires a proportionate response to identified risks.
A recent independent review of the taxpayers' charter said our strengths were in treating people fairly, reasonably, and as individuals. But the review also found that we need to take extra steps to help people resolve their problems, and improve the quality of our written communication. We have taken these views on board.
The positive financial and qualitative measures of our activities reflect well on our planning, governance and risk management choices.
Each year we undertake a 'health of the system' assessment, focusing on the relationship between our environment, our tax administration efforts, our stakeholder engagement and enabling capabilities. This assessment informs our planning processes, identifies relevant risks and provides a forward looking view of how sustainable our organisation is. There is a copy of the 2006 assessment on page 9
Our final full-year operating expenditure budget was $2,533.2 million, including an allowance for a $15 million operating loss. Our total operating expenditure for 2005-06 was $2,525.9 million, a variance of 0.3% from the final full-year budget.
With a strong focus on financial management during the year, we were able to reduce the budget loss position by $6.6 million, recording a final operating loss of $8.4 million, after allowing for minor revenue adjustments. Given the size of the overall budget and the many priorities, risks and activities we manage, this is a strong result.
As the administrator of Australia's tax system, we seek to administer the law in a way that instils confidence in the community and to live by the values set out in the taxpayers' charter.
We do this by being professional, accountable and transparent, and treating people fairly and with courtesy. In the year ahead we will build on the guiding concepts of consultation, collaboration and co-design.
To ensure our administrative improvements work for the people who use them, we will listen to the community using our existing industry and stakeholder forums, and develop new opportunities to co-design these systems.
Our change program will support this work by providing the platform for these improvements and continuing to put the taxpayer at the heart of change.
Our client relationship management system is being further improved and in the year ahead we plan to roll out our enterprise-wide case management system and workflow technology, which will improve our timeliness and project management.
Additionally, in response to the research on our taxpayers' charter, we are doing a major review of our written correspondence.
On the compliance side, our efforts are directed at deterrence, in order to support taxpayers who want to do the right thing. In the coming year we will continue to make our risk management choices public and seek community input. We will also maintain our focus on lodgment, data matching, the cash economy, high-wealth individuals, large business, superannuation, offshore schemes and debt. In doing this we will use a 'prevention is better than cure' approach where possible.
The government has provided us with additional funding to ramp up our efforts to rein in the use of offshore schemes designed to avoid Australian tax, and we are doing this through a multi-agency taskforce.
We will also be working closely with Treasury to consult on the government's superannuation simplification measures announced in the 2006 Federal Budget, with a view to developing user-friendly systems to support the measures.
Money from the Budget will also see us taking a whole-of-government approach to making it easier for people to comply with their obligations. We hope to further simplify electronic tax returns by including tax information from other agencies such as Centrelink, and we are supporting concepts such as standardised business reporting.
To support all this we hope to benefit from the engagement and input of our people and we need to ensure they have the skills and systems they need to do their jobs. We see the professionalism, values and the commitment of our people as critical in nurturing the community's trust and confidence in us.
In preparing my first annual report as Commissioner, I am impressed with what we have achieved as an organisation this year and look to the future with optimism. However, it won't all be smooth sailing. The canvas of our role is large and complex, and the pathways to our aspirations are not without risk. If we or our systems stumble, I apologise, with a commitment to listen and learn so that we can continue to add value to our nation in the years ahead.
In reporting these achievements, I must acknowledge the strong leadership provided by my predecessor, Michael Carmody, over the past 13 years. In a career spanning 36 years, he was responsible for several landmarks in the history of Australia's tax system. The successful introduction of the goods and services tax (GST) and the new tax system more broadly - one of the largest tranches of tax reform in Australia's history - is an obvious example.
His work also included less well-known, but equally significant, contributions. These include drafting the instructions for the original fringe benefits tax legislation during the 1980s, and taking the largely paper-based Tax Office of the 1980s into the modern computer era.
Under his leadership we developed online services such as our Business and Tax Agent portals, and the immensely successful e-tax. We are now in the middle of a major program of change that was also initiated by Michael.
Michael focused the organisation on the importance of building and maintaining relationships with the community. The taxpayers' charter and our compliance model became a reality under his stewardship. And he recently commissioned a review into our relationships with large corporations, which has led to improvements in the way we work with large business.
On behalf of everyone in the organisation, I thank him for his contribution to good tax administration, and wish him well in his new role as Chief Executive Officer of the Australian Customs Service.
We are fortunate to have a tax administration with strong foundations - high levels of voluntary compliance, fairness in accordance with the law, openness and accountability. I intend to build on these foundations in the years to come.
None of what we achieve as leaders could be done without the work of our people, and I thank them for their commitment and professionalism.
Of course, the success of the tax system is also a credit to the Australian community. The vast majority of Australians and their agents are honest in their dealings with the tax system, and for this we are indeed a lucky country.
Commissioner of Taxation
A healthy tax administration
The 'health of the system' assessment focuses on the relationship between our environment, our tax administration efforts, our stakeholder engagement and our enabling capabilities, against the benchmark of the current tax system.
The Tax Office 'system' is in good overall health.
Our record on tax administration and our engagement with stakeholders over the past three years have shown both steady improvement and solid achievement.
There are aspects of the system where we need to continue improving. We need to work with taxpayers, agents and other government agencies to find ways to reduce the administrative burden of compliance. We also need to prepare our workforce for new ways of working with each other and with the community.
We cannot afford to be complacent about the future. We must be ready to anticipate and respond to emerging risks in our landscape and changes in how society operates.
1. Tax administration
This year revenue collected exceeded forecasts for the fourth year running, while transfers we administer are growing and operating satisfactorily. Taxpayers generally show high levels of voluntary compliance, and most compliance commitments are met on time.
Debt management and the cost of compliance, especially in the small business area, continue to be high on our priorities for improvement. We are also striving to improve the timeliness of our advice to taxpayers, especially where the value stakes are high.
We consistently deliver on new policy measures and increasingly design systems with the taxpayer in mind. We provide valued advice to Treasury about the system in operation. Progressively, we are advising them on areas where the tax law is not operating as intended or is imposing unintended or significant compliance costs. We do this by looking at the system from both sides, irrespective of whether or not the law favours the revenue.
2. Stakeholder engagement
We engage broadly through channels, segments and forums. Business and community confidence in our administration is reasonably high. Our engagement with and through intermediaries is critical to self-assessment and has improved greatly in recent years with innovations such as the Tax Agent Portal.
We are making major changes to improve the way we engage with large business and continuing to experiment with our approaches to differentiation among other taxpayer groups. We are committed to exploring improved ways to engage with small business that better reflect the way they do business.
Over the past four years we have made major improvements to the capabilities that shape our business. Our governance and integrity processes have been strengthened. Our workforce is skilled, relatively stable and, in terms of public sector standards, has attractive pay and conditions. We have just concluded a new agency agreement with our employees that helps secure these arrangements for another three years. However, we need to equip our people with more advanced problem solving and advisory capabilities.
As taxpayers and intermediaries change their preferred way of dealing with us, we face some challenges in helping our workforce become more flexible in handling the resultant shifts in work.
Our core systems and processes are undergoing major renovation through our change program. This project carries inherent risks, particularly the increasing scarcity of information technology skills. In addition, managing the transition to new systems over the next two to three years will also be an area of high risk. More work still remains to be done on whole-of-government solutions to reduce the compliance burden on business. And while the use of technology by business is improving, we still need to maintain less efficient channels for those who have not moved into the electronic world.
Effective tax administration also relies on the capabilities of others. The proposed new regulatory framework and work on building capability for tax agents and bookkeepers remain a challenge. Working with the professional bodies, we are focusing on getting this capability and regulatory environment right.
4. Risks and threats
We face a wide array of strategic risks that potentially threaten our care and management of the tax system. We have developed comprehensive processes to keep informed of these risks and make sense of them.
All our known strategic risks are under a level of active mitigation, and some improvements have occurred in our overall risk landscape over the past year. However, resource limitations mean that we cannot chase every dollar of tax and we try to allocate our scarce resources to the highest risks. Moreover, future risks may emerge over the coming two to three years that could threaten this relatively benign outlook, including from the international dimension. For example, we would have concerns about the potential migration of funds to private equity through tax haven based limited partnerships which have no transparency and high gearing.
We also need to be vigilant in looking for early warning signs, especially from external economic shocks and any sharpening of challenges to system integrity.
We are seeking to build new levels of sustainability into the Tax Office of the future. During the next two to three years we will be bedding down the wholesale replacement and upgrade of our core systems so that we can deliver further improvements to taxpayers in the years to come.
We intend to play a leading role in forging a new way of working across government which will benefit taxpayers by reducing their compliance costs. As we champion the notion of a community-based tax system and encourage the community to have a bigger interest in tax administration, this should give rise to administrative systems that better suit taxpayers, reduce their costs and make it easier for them to comply. We have made a start, but still have a long way to go in further developing the necessary trust, competencies and community engagement. We also need to continually renew our workforce and address some acute areas where we face skill gaps. In addition, there is the ongoing challenge of embedding our values into all our processes.
Australia has a good compliance culture, supported by a withholding regime and other structural features that encourage participation. As our society becomes more dynamic and complex, we need to do more work to help taxpayers and their agents understand their rights and obligations, and to make things clearer and easier for them.
6. Strategic shifts and actions
We are committed to bringing about some key strategic shifts in our business over the next four years. We will enhance our capabilities to work with taxpayers by better guiding and further personalising their interactions with us. We will continue to use co-design principles in our drive to develop simpler and more consistent processes to improve the taxpayer experience. We will raise the capabilities of our people to the next level of sophistication, and support improvements in the capabilities of others so they can focus more effectively on complex and exceptional issues. We will also continue to reduce work backlogs and response times so that taxpayers see real-time results as far as possible. Most importantly, we will strive to live our values as a fair, open and accountable tax administration.
Download Part 2 in PDF format (190 KB)
The Australian Taxation Office (Tax Office) is the Australian Government's principal revenue collection agency and is part of the Treasury Portfolio. Our role is to manage and shape tax, excise and superannuation systems that fund services for Australians. We are the second largest payer of benefits and play an important role in building a better Australia by giving effect to social and economic policy.
Our responsibilities encompass managing and shaping the administrative systems that support the tax system, collecting revenue (excluding customs duty) and administering both regulatory and expenditure programs, as well as our large and complex organisation.
The main areas of the tax system we administer are:
- income tax (including pay as you go (PAYG) withholding and instalments, capital gains tax and fringe benefits tax)
- goods and services tax (GST)
- wine equalisation tax
- luxury car tax
- excise duty
- fuel grants and benefit schemes
- higher education funding (jointly), and
- the Australian business number and Australian Business Register.
In 2005-06 we continued to modify and adapt our operational and administrative policies and practices to improve the experience for taxpayers and their representatives, as well as position ourselves to better deal with any risks to the integrity of the tax system. These risks include:
- serious evasion and fraud
- the cash economy, and
- tax debt.
Addressing risks to revenue involved adapting our policies and processes to embed a more robust intelligence and risk identification framework. We formed strong information sharing and working relationships with other law enforcement and government agencies, with the highlight being our role in Project Wickenby - a joint taskforce of Australian Government agencies investigating revenue fraud.
This year we also improved our services to the community.
Through all this, we provided the government with a viable and sustainable tax system and maintained the community's confidence in our administration of the system.
We also administer the Australian Valuation Office, the Development Allowance Authority and the Infrastructure Borrowings Tax Offset Scheme
Our organisational structure
The Commissioner of Taxation, Michael D'Ascenzo, leads the organisation and is responsible for administering a wide range of revenue and superannuation legislation through authority vested in him by Parliament.
For more information about the Commissioner's authority, general responsibilities and discretionary powers, see appendix 4
The Commissioner, three statutory officers (the Second Commissioners) and two senior executives make up the ATO Executive.
At 30 June 2006 our Second Commissioners were:
- Kevin Fitzpatrick, who, as acting Second Commissioner, Law, has overall responsibility for interpreting and implementing tax law and new tax policy. In addition, he has a leadership role for our financial, governance and integrity activities, and for the Australian Valuation Office.
- Jennie Granger, who leads our compliance program, which develops and implements strategies to ensure individuals and businesses comply with their tax, excise and superannuation obligations.
- Greg Farr, who leads the technology area and the easier, cheaper and more personalised (change) program, which is aimed at improving the way the community interacts with us.
The two senior executive members of the ATO Executive were:
- Anne Ellison, First Assistant Commissioner, who leads the people and place program, which provides a skilled and committed workforce, a safe and healthy work environment and efficient management of our resources.
- Margaret Crawford, Chief Operating Officer, who leads our operations program, which manages client contact, maintains taxpayer information, processes payments, refunds and other transactions, and manages taxpayer lodgment and debt liabilities.
See Leading the Organisation for more information about the people who lead our organisation.
At 30 June 2006 we employed 21,511 people in offices around Australia.
Figure 2.1 shows our organisational structure at 30 June 2006.
Download a PDF version of the organisational structure (276 KB)
Leading the Organisation
Michael joined the Tax Office in late 1977 as a double degree graduate in law and economics. In 1985 he was in charge of the Recoupment Tax Branch, and the following year, International Operations, concluding the world's first advanced pricing agreement. He then held senior positions in the Compliance Division, including the introduction of the large case audit program, and also orchestrated the 1992 improvements to self-assessment. From 1994, as Deputy Chief Tax Counsel and then Chief Tax Counsel (in 1995), Michael worked to raise the standard of our tax technical decision making. In 1997 he worked on assignment with the International Monetary Fund, advising the Sultanate of Oman on its tax system and administration. Before being appointed as Commissioner on 1 January 2006, Michael held the position of Second Commissioner from 1998 and Chief Tax Counsel. During this time his various responsibilities included people and place, compliance and law, as well as an overall focus on the interpretation of tax law, the implementation of new tax laws, and on corporate planning, finance and governance.
Jennie has spent over 20 years working in the Tax Office. In the early part of her career she worked in the traditional tax technical areas, as well as being Deputy Commissioner in charge of two of our branch offices - Wollongong and Bankstown (both in New South Wales). She then moved into less traditional areas including the Child Support Agency, Superannuation and leading the International Tax Division. Jennie's next appointment was as Deputy Commissioner of our Personal Tax area, focusing on the 8.5 million salary and wage earners and investors in Australia. In September 2002 Jennie was appointed Second Commissioner, leading our compliance program, which develops and implements strategies to ensure taxpayers comply with their tax obligations - whether they are a salary or wage earner, a home-based business or a large international corporation.
Kevin has a 40-year history with the Tax Office and is one of our most senior technical officers. He started in the Melbourne Office in 1965 and by 1988 he was heading up the Appeals Branch in Sydney. He was enticed to National Office in the late 1980s, and was head of the Legislative Services Group in the 1990s before taking on the leadership of the High Wealth Individuals Taskforce in 1996. In 1999 he was given the added responsibility of managing aggressive tax planning and in November 2004 took on the new role of Deputy Commissioner, Case Leadership - Large and Medium Business. Since December 2005, Kevin has been acting Second Commissioner, Law.
Before joining the Tax Office in June 2004, Anne had 20 years experience leading the people function in both public and private sector organisations. This included Head of Personnel in the NSW Department of Environment and Planning, Chief Manager Human Resources at the Commonwealth-owned corporate financier, AIDC Ltd, Chief General Manager Human Resources at St George Bank, and Head of Human Resources at the law firm Mallesons Stephen Jaques. During her time at St George, Anne was involved in three acquisitions, including Barclays Commercial Bank and Advance Bank, along with Bank SA.
Greg's career with the Tax Office spans more than 30 years and a wide variety of areas. He has been Deputy Commissioner in charge of two of our branch offices - Townsville and Upper Mount Gravatt (both in Queensland) - and has worked in technical areas, corporate programs and the Child Support Agency. Greg has also managed areas responsible for developing information technology applications, and overseen production management areas covering most of the processing of taxpayer information we undertake. In early September 2002 Greg was appointed Second Commissioner. Greg leads our information technology area and change program.
Margaret brings to the Tax Office a great deal of expertise in customer service strategies and service delivery, management of regulatory services, asset management and emergency response, and community development. Before joining the Tax Office in August 2005, Margaret had been the Divisional Manager of Customer and Community Services at Brisbane City Council and a member of the senior management group in charge of NSW Roads and Traffic Authority, including the 130-office motor registry network. In 1991 she was Manager, Licensing, at the Victorian Casino and Gaming Authority based in Melbourne, and before that was a senior policy adviser with the Victorian Department of the Premier and Cabinet.
Our outcome outputs framework sets out what we have agreed to deliver to government. The framework reflects the products and services we deliver and underpins our planning, budgeting and performance reporting processes. Each year details of the framework are outlined in the Portfolio Budget Statements, along with relevant performance information.
Our outcome describes the overall impact the government expects from the operations of the Tax Office. To help achieve this outcome we have identified five outputs, which are the actual goods and services we produce to generate the outcome specified by government. We are required to report on our performance against the agreed outcome and outputs in our annual report.
To effectively manage the outputs we have divided them into sub-outputs, which are the component goods and services of an output. We report against the sub-outputs for internal management purposes.
While our outcome outputs framework relates more to the business aspects of our work, we have four enabling outputs that relate to the internal support we need to deliver the outputs. The enabling outputs are plan and manage, people, workplace, and information technology services. While we do not report directly to government on the enabling outputs, we carefully plan, resource, manage and report on them through the people and place and information technology programs.
Figure 2.2 shows our outcome and related outputs and sub-outputs. Part 3 of this report provides detailed information about the performance of each output in achieving our outcome.
Figure 2.2 shows our outcome outputs framework, 2005- 2006.
Development Allowance Authority
The Development Allowance Authority was established in 1992 as a single-person statutory office responsible to Parliament for administering the Development Allowance Authority Act 1992. The Commissioner of Taxation is the statutory office holder. During the year the authority's powers were delegated to Ashley King, a senior tax officer working in the large business area.
The Development Allowance Authority administers two investment incentive schemes that were designed to make the Australian economy more internationally competitive - the Development Allowance and the Infrastructure Borrowings Tax Offset Scheme.
The Development Allowance provides a tax deduction of 10% of the value of an eligible investment, in addition to depreciation. The concession was subject to a statutory time limit, which has now expired. To qualify for the Development Allowance, eligible property must have been first used or installed ready for use before 1 July 2002. During the year the Development Allowance Authority considered several requests concerning previously approved investment schemes.
Infrastructure Borrowings Tax Offset Scheme
Legislation giving effect to the Infrastructure Borrowings Tax Offset Scheme is contained in Division 396 of the Income Tax Assessment Act 1997. We jointly administer the scheme with the Department of Transport and Regional Services.
No applications were called for during 2005-06, following the Treasurer's announcement in the 2004 Federal Budget that the scheme was being phased out.
03 Report on performance
Download Part 3 in PDF format (1467 KB)
This part reports on the Tax Office's performance in relation to our outcome and its five related outputs, as set out in the Portfolio Budget Statements. We contribute to Treasury's overall outcome of 'strong, sustainable economic growth and the improved wellbeing of Australians'. As Output Group 1.1, we are responsible for Outcome 1:
Effectively managed and shaped systems that support and fund services for Australians and give effect to social and economic policy through the tax, superannuation, excise and other related systems.
To achieve the outcome we have identified five outputs:
- shape, design and build administrative systems (see part 3.4)
- management of revenue collection and transfers (see part 3.5)
- compliance assurance and support for revenue collection (see part 3.6)
- compliance assurance and support for transfers and regulation of superannuation funds' compliance with retirement income standards (see part 3.7), and
- services to governments and agencies (see part 3.8).
Our integrated approach enables us to cost-effectively deliver both revenue products and transfers. Figure 2.2 describes the Tax Office outcome and the outputs we deliver to government.
We continue to improve our outcome outputs framework by reviewing and refining our sub-output activities and measures every year. Using the framework as the basis, in 2005-06 we focused on integrating risk, planning, budgeting and reporting to improve our governance processes.
This part also reports on our performance against the four indicators we use to measure how effective we are in managing and shaping the tax, superannuation, excise and other related systems (see part 3.2).
Output 1.1.1 - Shape, design and build administrative systems
In 2005-06 we continued to work with Treasury and other policy departments to develop new policy proposals affecting the tax system. We dealt with 890 requests for formal advice, as well as many informal requests for advice on potential policy changes.
We also implemented the government's tax legislation program. This required us to design and build administrative systems that give effect to the government's legislative intent, while making it as easy as possible for the community to comply or obtain the benefits intended for them. This year we helped implement the 30% child care tax rebate, choice of superannuation fund and the recommendations of the review of self-assessment.
Other significant work in implementing new policy measures included:
- Australian Equivalents to International Financial Reporting Standards
- promoter penalties
- business blackhole expenditure
- further work on consolidations, demergers and the general value shifting legislation
- further work on the review of international tax arrangements and the taxation of financial arrangements, and
- the entrepreneurs' tax offset.
We continued work on our easier, cheaper and more personalised (change) program. This is a major investment in new technologies and systems, and an ongoing commitment to improving taxpayer and tax agent experiences by offering better online, telephone and paper products and services.
Through the program, we introduced a client relationship management system to our client contact areas. This allows us to have a single view of a taxpayer's history on screen when they call, which is helping us to reduce call times and improve the accuracy and certainty of taxpayer interactions with us.
Output 1.1.2 - Management of revenue collection and transfers
Output 1.1.2 represents extensive interactions and transactions between the Tax Office and taxpayers as they:
- enter systems we administer, via the appropriate registration
- receive and provide information
- make payments
- receive refunds or other payments, or are notified of their obligations, and
- receive advice about outstanding obligations and any remedial action we are taking.
Our key driver is to facilitate interactions with taxpayers who comply with their obligations and to make all interactions with taxpayers as cheap and easy as possible. Where taxpayers do not comply, we aim to intervene quickly and effectively, differentiating our treatment of taxpayers according to their personal circumstances and opportunities to influence behaviour.
In 2005-06 net tax collections increased to $232.6 billion, which was $17.8 billion (8.3%) more than last year and above forecasts.
We significantly reduced the growth rate of collectable debt, which grew at a rate of only 6.4%, compared to 27.7% last year. Total collectable debt as a percentage of revenue was 4.40%, compared to 4.47% last year. We collected $56.5 billion from taxpayers with an outstanding debt, compared to $52.7 billion last year. This was a result of a campaign featuring early intervention on new debts, defaulted arrangements or escalating debt, and firmer action with taxpayers who failed to respond.
We administered $7.5 billion of transfers in grants, benefits, tax offsets or distributions of the superannuation guarantee charge, making us the Australian Government's second largest payer of benefits.
We processed 13,478,046 income tax returns, 12,865,735 activity statements and 18,118,305 payments through electronic and paper inbound channels. We continued to encourage taxpayers to lodge income tax returns and activity statements electronically. Overall, 86% of all income tax returns were lodged electronically, an increase of 1% compared to last year. Some 75% of income tax returns were lodged using the electronic lodgment service and 10% were lodged using e-tax. Overall, 40% of activity statements were lodged electronically.
We worked closely with stakeholders to improve and assure the integrity and usability of the Australian Business Register, the Tax File Number Register and registers held on behalf of the superannuation industry. We also worked with other Australian Government agencies to reduce the growing risk of identity crime.
Our dated and disparate systems continued to cause problems and frustrations for taxpayers and their representatives and generated extra work for us. We are investing substantial resources in implementing changes to our systems and processes to address the problems caused by these systems. However, these changes will not be fully implemented until 2008.
Output 1.1.3 - Compliance assurance and support for revenue collection
While the revenue generated from our compliance activities represents only a relatively small proportion of collections (around 2% each year), it is important that we deliver on our commitments to government and that the community continues to see us taking effective action against those who choose not to pay their fair share of tax.
This year we saw the resolution of the vast majority of the mass marketed investment schemes and employee benefit arrangements through settlement with taxpayers. Our experience with these schemes has taught us a great deal about taxpayer behaviour and about our responsiveness to new and emerging schemes. We have developed new products to help taxpayers avoid the pitfalls of schemes that are 'too good to be true'.
Today's abusive tax schemes are not widely marketed to taxpayers, and are much less visible. They are often targeted at taxpayers prepared to take the risk that we will not find out about the schemes, including the use of offshore arrangements. The government has also responded to this threat by providing new powers under the promoter penalty legislation to deter the promotion of abusive tax schemes. These powers allow us to take legal action to stop such schemes being promoted, and the courts to apply severe financial penalties to the promoters.
This year also saw a concerted whole-of-government response to the activities of certain overseas-based promoters of tax schemes. These arrangements use offshore structures to hide assets and/or income for tax purposes, to facilitate share market manipulation, to defeat creditors and to launder funds. The government's announcement of additional funding over the next six years to further resource a multi-agency operation directed at promoters of offshore tax schemes and fraud, and participants in the schemes, reflects how serious a threat these schemes could be to the integrity of our tax system. Promoters and participants will be pursued vigorously under all the powers available to the Australian Government, including tax law, criminal law and proceeds of crime legislation.
We also acted during the year to ensure that people using service trust arrangements understand and comply with their tax obligations, as explained in our public ruling and companion guide released in April 2006. Both publications were developed in close consultation with representatives of the accounting, legal and medical professions. We have provided advice on what arrangements are considered reasonable and will be reviewing cases that fall outside of those parameters, or where we believe that services may not have been provided by the service entity.
Where taxpayers make a genuine effort to meet their obligations, we focus on supporting them and removing unnecessary costs and irritants. This year we met the majority of our published service standards and made significant improvements in the timeliness of our responses to priority technical issues, especially for large business. We are now looking at how we can extend these improvements to other market segments.
We also continued to develop our suite of electronic services, which now includes:
- online calculators and decision support tools
- voice-activated telephone lodgment facilities
- a 24-hour self-help telephone enquiry service, and
- a wide range of help information via our website.
This year almost 1.4 million taxpayers lodged their tax returns online using e-tax, and we expect this to increase to 1.7 million in 2006-07.
We also focused on improving our audit capability by implementing new skilling strategies for our people and developing improved systems and support tools.
Recruitment into our compliance areas is now far more graduate-based and, in partnership with industry and the professions, we have developed an advanced audit skilling program for our senior auditors and case managers. Around 660 of our senior compliance officers have participated in this program.
We also focused on lifting computer-assisted verification skills, with around 600 compliance officers undergoing training in this area since August 2004.
New business systems introduced as part of our change program are also helping to improve our compliance capabilities. They provide a complete history of taxpayers' dealings with us, improved case management, and leading edge technology to support more effective data analysis, risk profiling and case selection.
We significantly widened the range of externally sourced data to verify claims made in returns and statements lodged by taxpayers, and identify omissions. We now access data from employers, banks and other financial institutions, other Australian Government and state and territory government agencies, overseas governments, the Australian Transaction Reports and Analysis Centre, land titles offices and planning authorities, motor vehicle registers, the Australian Stock Exchange, share registers and managed investment funds, professional associations, labour hire firms, building contractors, shopping centre lessors, the Yellow pages and many other sources.
Output 1.1.4 - Compliance assurance and support for transfers and regulation of superannuation funds' compliance with retirement income standards
In 2005-06 we continued our work to improve taxpayer compliance in relation to transfers, most of which relate to excise and superannuation. We also continued to improve superannuation fund compliance with regulatory obligations.
This year a major focus was preparing for the new fuel tax credits scheme, which commenced on 1 July 2006. This involved implementing a major communications strategy to ensure that taxpayers who would be affected by the changes understood their new obligations. As part of this we advised around 150,000 taxpayers (more than 90% of which were micro businesses) about the requirements for claiming the new fuel tax credits. We also undertook significant research to better understand affected taxpayers, the likely impacts of the initiative, and any risks that may emerge as a result.
We carefully monitored the energy grants credits scheme as it wound down to ensure that payments were accurate. We also established a new relationship with the Department of Transport and Regional Services, which will administer the new environmental criteria in the Fuel Tax Act 2006.
Our superannuation work comprised several major components, focusing largely on employers' superannuation guarantee obligations and the compliance of self managed superannuation funds with their regulatory obligations.
This year we finalised approximately 27,800 employee complaints, insolvencies, superannuation guarantee checks of employer compliance and referral cases from other areas in the Tax Office related to employers' superannuation guarantee obligations.
In addition, we resolved problems with the superannuation guarantee system that arose in 2004-05. These problems had resulted in delays in paying superannuation to employees' superannuation accounts.
Implementation of choice of superannuation fund, which commenced on 1 July 2005, was another major component of our work. During the year we advised all employers of their new obligations under this initiative and advised eligible employees of their entitlement to choose a superannuation fund.
We issued lodgment letters to more than 38,000 funds in relation to outstanding member contribution statements and income tax and regulatory returns. The majority of letters were issued to self managed funds. We audited approximately 4,500 self managed funds to check their compliance with a range of regulatory obligations.
We also reviewed auditor contravention reports and sought verification from trustees that breaches had been rectified.
Output 1.1.5 - Services to governments and agencies
This output covers the range of services we provide to the Treasurer and Minister for Revenue and Assistant Treasurer, Treasury, Parliament, Australian Government agencies, and state and territory governments. We also worked with the Australian Valuation Office to assist us in providing policy and strategic advice for government departments and agencies on valuation and related issues. We continued to build strong professional relationships by providing high-quality and timely services.
We worked collaboratively through a range of cross-agency support services to deliver whole-of-government initiatives. We have driven a pre-population project, which allows taxpayers and tax agents to download information such as Centrelink payment summaries, child care rebates and medical expenses from Medicare Australia directly to their tax returns. Such initiatives result in more accurate returns with easier processes and lower costs, making it easier for taxpayers to voluntarily comply with their obligations.
We also worked closely with the Australian Bureau of Statistics throughout the year to transfer information between our two organisations and successfully introduced the new Australian and New Zealand Standard Industrial Classification standard.
In administering the goods and services tax (GST) law, we worked collaboratively with the states and territories to provide assurance that the agreed performance outcomes were achieved.
We continued to provide services to ministers and the Parliament. Generally, the demand for these services increased in 2005-06, for example, we provided 360 formal minutes to ministers, compared to 314 in 2004-05.
Another aspect of our work involved assisting a number of external scrutineers, including the Auditor-General, the Inspector-General of Taxation and the Commonwealth Ombudsman
A number of significant changes in the Tax Office during 2005-06 influenced our performance in various areas. These changes are outlined below.
We were involved in whole-of-government initiatives, including a pre-population project, as discussed on the previous page. Such initiatives result in more accurate returns with easier processes and lower costs, making it easier for taxpayers to voluntarily comply with their obligations.
The Australian Government Information Management Office and the Australian Government have acknowledged our contribution to whole-of-government e-government activities, where we are improving taxpayer access to all government services, not just those of the Tax Office. We also supported the Australian Federal Police and other law enforcement agencies in cross-agency activities related to non-compliance by expanding our information technology forensics and incident response capability.
Significant changes arising from our change program this year included the successful deployment of our client relationship management system to client contact centres in December 2005 and enhanced portal products. This enables us to have a single consolidated view of a taxpayer's information and contact history. Easier and faster processing of transactions has resulted in improved personalised service delivery to taxpayers, including timeliness and accuracy, an increase in e-tax lodgments and an easier system for tax agents and taxpayers alike. The deployment of the second release of the program, including case, work, content and records management and reporting, will make the end-to-end process more visible and consistent and improve the time required to finalise a case.
The additional funding provided in the 2006 Federal Budget for the High Wealth Individuals Taskforce will see an increase in the monitoring of compliance of around 1,000 of the wealthiest taxpayers. This includes 900 people who each control net wealth of $30 million or more, and 100 people who each control net wealth close to $30 million, or control high-value assets and have high profiles in the wider community.
The resolution of most mass marketed investment scheme cases, along with new promoter penalty legislation, has improved our ability to deal with promoters of aggressive tax planning arrangements and the participants.
We significantly reduced the growth rate of collectable debt by successfully implementing a range of debt collection initiatives. Specifically, through an early intervention approach, we targeted defaulting and escalating debt and took firmer action. These initiatives increased coverage and engaged taxpayers to help them meet their debt obligations.
The shorter periods of review introduced by the Report on aspects of income tax self assessment will make us more timely in reviewing loss cases.
The creation of the law sub-plan in September 2005 has provided a more strategic focus on managing law issues within the organisation. It is aimed at assuring excellence in decision making and our ability to deliver on the government's legislative program, and to provide input to tax policy and law design.
We piloted innovative programs to improve safety and health. This has resulted in a decrease in the number of injuries reported and the stabilisation of the period of incapacity of injured employees, with a flow-on reduction in the upward trend of our Comcare premium.
We initiated a range of skilling and accreditation initiatives, including a new program for training compliance officers. We also rolled out extensive training to transition our people to the new systems and processes introduced by our change program, particularly training in our new client relationship management system.
By developing a new financial control framework, we have enhanced our financial assurance capability. This has strengthened our ability to demonstrate financial integrity consistent with our business objectives and our position as a large Australian Government agency.
Reporting errors in our Compliance program 2005-06 were highlighted and amended in our Annual report 2004-05. To ensure community confidence in our reporting, we engaged KPMG to review our performance reporting processes for the compliance program. The review found no other material mis-statements in the Compliance program 2005-06.
The review also found that, while there was scope to improve our approach to reporting, we have implemented significant improvements in 2005-06. We are committed to a program that will address the other system and procedural limitations identified in the review.
3.2 Our effectiveness indicators
We use the following four effectiveness indicators to measure how effective we are in managing and shaping the tax, superannuation, excise and other related systems:
- deliver to government
- maintain community confidence
- minimise compliance costs within Tax Office control, and
- efficient and adaptive organisation.
The effectiveness indicators are reviewed each year as part of a review of our outcome outputs framework. While there are no significant changes to the 2005-06 measures, we will continue to refine the outcome measures with a more significant review in 2007-08. This will better capture the impacts of the easier, cheaper and more personalised (change) program on the organisation and our work in the superannuation area, as well as exploring opportunities to develop other measures of effectiveness.
Table 3.1 shows how we performed against this effectiveness indicator in 2005-06
Total cash receipts collected by the Tax Office exceeded the 2005 Budget forecasts for 2005-06 by $4.8 billion, or 2.1% (see table 3.2). The most significant component of the excess was pay as you go (PAYG) withholding, where collections exceeded the forecast by $2.7 billion (2.7%), consistent with strong wages growth and solid employment growth.
Fringe benefits tax was $375 million (11.3%) above forecasts, while refunds to individuals were also higher than expected, by $413 million (2.5%). Collections from other individuals exceeded the Budget forecast by $483 million (2.0%) and company tax exceeded expectations by $1.5 billion (3.2%), both flowing from the positive business conditions in 2004-05 that continued throughout 2005-06. Collections from superannuation funds were higher than forecast, by $354 million (7.0%), following favourable investment conditions and strong growth in contributions, but a processing interruption to assessments caused a shortfall in superannuation surcharge collections of $199 million (17.3%).
High oil prices and commencement of new oil production projects were significant in the outcome for petroleum resource rent tax, which was $567 million (42.0%) higher than the 2005 Budget forecast. High oil prices, together with crude oil supply problems caused by interruptions for maintenance and cyclones, were the major causes of the shortfall in excise of around $676 million (3.0%). Collections from goods and services tax (GST) grew strongly, in line with strong sales values, and were slightly above the forecast (by $102 million or 0.3%).
Transfers have continued to grow over time and approached $7.5 billion in 2005-06 (see table 3.3). We conduct various grants, benefits, tax offsets and redistribution programs, sometimes in conjunction with other government agencies, to administer a range of government policies. The most significant in dollar terms are the various fuel grant schemes that provide assistance to users of various types of fuels, mainly for business purposes. These schemes include the energy grants credits scheme, the fuel sales grants scheme, the product stewardship for oil program and the cleaner fuels grants scheme. Reforms to these arrangements, which took effect from 1 July 2006, have resulted in the abolition of the fuel sales grants scheme and the substantial replacement of the energy grants credits scheme with a new system of fuel tax credits. Together, payments under these schemes totalled $3.8 billion in 2005-06.
Other transfers which provide assistance for families and individual taxpayers include the family tax benefit, the baby bonus and the private health insurance rebate. In 2005-06 payments of these benefits totalled more than $2.1 billion. Superannuation co-contribution payments and superannuation guarantee payments provide the mechanism through which certain superannuation transfers are effected, while the research and development tax offset and the large scale film production expenses tax offset provide targeted assistance to industry.
In 2005-06 these payments and transfers made by the Tax Office grew by almost $1.3 billion (20.3%). This was $55 million (0.7%) higher than forecast in the 2005 Budget. Growth in these payments was driven by the extension of the superannuation co-contribution and migration of family tax benefit recipients from the Department of Families, Community Services and Indigenous Affairs to the Tax Office.
It is difficult to determine the precise impact of Tax Office compliance activities on collections due to the number of other variables that affect revenue performance. However, there is a relationship between overall collections and the effectiveness of our compliance activities. Strong revenue collections relative to Budget forecasts in 2005-06 indicate that overall levels of compliance were not only maintained but improved over the course of the year. Parts 3.6 and 3.7 contain details of our compliance activities.
Tax legislation continues to be a significant part of the government's legislation program. Within any given year, around 100 new measures may be subject to implementation by the Tax Office. In 2005-06 Parliament passed 17 Bills, containing 62 tax measures.
Our Policy Implementation Forum oversees the implementation of all new policy measures to ensure they are implemented effectively and in accordance with the government's intent. The forum provides high-level input to the design of administrative systems to support new policy measures, including ensuring that the community is ready for any tax changes.
At the end of 2005-06, 127 projects were reporting to the forum, with 46 projects having been endorsed during the year and 64 approved as moving to everyday business. Each project reports regularly to the forum and, where required, strategies to overcome blockers to implementation are presented for endorsement. The forum also captures project highlights and key learnings for the benefit of other project managers.
In order to ensure that new measures are implemented in accordance with the government's intent, all new legislative projects have to comply with our corporate project management guidelines. Implementation must also be consistent with our design principles, which require consultation and co-design with the community wherever possible. For instance, this year we focused on implementing the government's 30% child care tax rebate through extensive co-design processes.
Table 3.4 show how we performed against this effectiveness indicator in 2005-06
The relationship we seek with the community is one based on mutual trust and respect. We aim to be professional and responsive, fair, open and accountable. We take into account taxpayers' circumstances and previous compliance behaviour in determining what action to take.
Table 3.5 outlines what we undertake to do in our relationship with the community.
The key elements of our relationship with the community are set out in the taxpayers' charter and include:
- taxpayers' rights under the law
- the service and other standards they can expect from us
- their important tax obligations, and
- what they can do if they are not satisfied with our decisions, actions or service, or if they want to make a complaint.
We aim to follow the charter in all our dealings with the community. To get an overall picture of how well we do this, we combine the results of our quality assurance programs with information from our professionalism survey to get a broad perspective on our performance. This year the results from the qualitative community research conducted as part of the 2005-06 review of the charter added to the overall picture.
All the research confirmed that we are following the charter and have improved in all elements over the last few years. Treating taxpayers fairly and reasonably, and with courtesy and respect, continues to be one of our strengths.
We received positive feedback about our oral communication, but taxpayers indicated that our written communication could improve.
We have more work to do in understanding taxpayer concerns in some areas (in particular, accountability and handling some of the more complex queries). However, this evaluation is helping us understand how we can better meet their expectations and improve community confidence.
Some key performance measures in other parts of this report are also relevant, as shown in table 3.6.
Community perceptions of how well the Tax Office is 'living the charter'
During the year TNS Social Research undertook qualitative research with the community as part of the review of the charter. In addition to revalidating the relevance of the charter's principles to the community, the research was designed to provide a detailed picture of how well taxpayers and tax agents think we are 'living the charter' in our dealings with them.
TNS Social Research spoke with some 200 non-business and business taxpayers, tax agents and other key stakeholders.
The research findings show that the community sees us as delivering on the commitments we make in the charter. While there are clearly some areas for improvement, the overall picture is very positive and there has been a substantial and consistent improvement since 2001 when similar research was conducted.
- Initial accessibility (via telephone) and the manner and approach of telephone 0fficers were two aspects that rated particularly favourably. The general consensus was that access and waiting times compare very favourably with other public or private organisations.
- There was a strong consensus that our employees are very courteous, polite and helpful. A real change has been noted in recent years, and this is seen as one of the major strengths of our service.
- Respondents generally felt that they are given a chance to explain their circumstances and are listened to - this was perceived as a marked improvement in recent years.
- There was consensus across all segments that we treat them fairly. All segments (especially tax agents) also felt that we treat them with respect.
- The clarity of our verbal communication was rated very favourably. Respondents across all segments regarded our verbal communication as clear and easy to understand. Notably, there was minimal mention of language difficulties in this research.
Areas for improvement
- Our written communication attracted some criticism. Two themes emerged about our letters - the tone can be impersonal at best, or intimidating or offensive at worst; and the language we use is often confusing and difficult to understand, with too much jargon and complex terminology.
- A significant proportion of respondents felt that our employees are not very accountable. Seeing an issue through to a resolution or closure was a common theme. Many respondents saw this as critical, with business owners in particular expressing a strong desire to see an issue closed so they could move on.
- The area of complex queries attracted criticism, particularly from tax agents and those business taxpayers who have a better understanding of the tax system. Two leading sources of irritation were our tendency to 'read from a script' rather than provide interpretative comment, and our reluctance at times to escalate queries within the same section.
We will continue to work at maintaining and improving our performance strengths in 'living the charter', and see how we can address the areas of concern.
We commission the community perceptions survey each June to provide a high-level measure of the general community's perceptions about the Tax Office, taxes and the tax system.
The survey is conducted by an independent consultant, Millward Brown Australia, and has maintained a number of core questions since 1996, allowing us to monitor community trends over time.
Each year approximately 2,000 people throughout Australia aged 18 and over are randomly contacted by telephone.
Table 3.7 and figure 3.1 show the most significant changes in attitudes over the last year.
The positive changes from last year reflect our dual focus on educating taxpayers about their rights and obligations while making their interactions with the system easier. This was particularly evident among those who prepare their own tax return. Their perception that we are doing a good job was predominantly stronger than for other groups.
Table 3.8 summarises some of the key findings over the last six years. The overall trends are positive for the Tax Office, with the majority of responses either maintaining or improving on last year's results. Overall, we have maintained the general confidence of the community, with 73% of taxpayers agreeing that 'the Tax Office is doing a good job'.
Since 1998 we have externally evaluated our employees' performance in achieving professional standards of service. These standards are set out in the taxpayers' charter and in our agency agreements with employees.
In December 2000 we started using a professionalism survey to measure employee professionalism across all market segments and business lines.
The objectives of the survey are to gain a professionalism benchmark score and measure community satisfaction with the level of professionalism they receive from our employees. This approach aims to achieve a benchmark score of 3.7 (out of 5) for the Tax Office and to have 70% or more of taxpayers being 'satisfied' or 'very satisfied' with the professionalism of our employees.
An independent consultant, Colmar Brunton Social Research, conducts and analyses the survey in May and November each year. The results are used to identify employees' development and training needs, with a view to improving professionalism across the organisation.
As in 2004-05, the two professionalism surveys conducted this year canvassed a broader range of taxpayer groups than in previous years, and included those who had contacted us with complaints. The results show an overall average of 79% of taxpayers being 'satisfied' or 'very satisfied' with the professionalism of our employees. The overall trend indicates that we continue to maintain a positive relationship with the community.
Figure 3.2 shows that 79% of businesses overall were satisfied or very satisfied with the professionalism of our employees this year, compared with 77% of individuals.
Nine characteristics of professionalism are used as the basis for this twice-yearly survey across all taxpayer groups. Our level of professionalism is measured by a benchmark score for each characteristic.
Table 3.9 shows that this year taxpayers were most satisfied that our employees demonstrate respect and communicate clearly. Their satisfaction with the other characteristics of professionalism remains above the benchmark.
We monitor tax agents' perceptions of our services through our ongoing tax agent research program, undertaken by an external research organisation, TNS Social Research. Our biannual tracking surveys (formerly quarterly surveys) provide us with valuable information that enables us to measure how well we are managing our interactions with agents.
Figure 3.3 shows trends in the satisfaction levels with our services. Overall, the measures indicate an increased level of satisfaction, with the greatest change in agents' perception that it is now easier to deal with the tax system than it was in the past.
Recent fluctuations in satisfaction levels may have been influenced by:
- the inclusion of micro tier agents in the March 2006 survey for the first time (8% of respondents), and
- the effectiveness of service initiatives such as the Tax Agent Portal and fast key codes (which agents can use when telephoning us), and the implementation of the client relationship management system in late November 2005.
We now have 22 service standards to measure how we perform in various areas.
Table 3.10 shows how we performed against each service standard in 2005-06 compared to last year.
We introduced a new service standard 'Resolution of complaints' in September 2005, in response to a recommendation from the Commonwealth Ombudsman and improvements to our reporting systems which made the data capture possible. While the new service standard has been internally reported, it will form part of the index from 2007-08.
Our full-year performance shows that we equalled or exceeded annual benchmarks in 18 of our 22 service standards (see table 3.10) and achieved an overall index of 1.26 on a benchmark of 1.0. This is a decline on last year's performance, when we achieved an index of 1.37.
We did not achieve the annual benchmarks for the following service standards this year:
- Tax practitioners premium telephone service (3.3% below benchmark), with a key factor being insufficient employees to manage call loads, particularly in the second half of the year. In 2006-07 we will implement strategies to further encourage tax practitioners to use the portal.
- Objections against private written binding advice (0.5% below benchmark), with a key factor being delays caused by the need to seek advice from specialist technical areas. The new case and workflow management systems to be rolled out in 2006-07 will improve matters.
- Objections other than to private written binding advice (5.6% below benchmark), with the main reason being processing the backlog of work associated with schemes marketed before June 2003. Only 352 of these scheme cases remain on hand at year's end (compared to 4,926 on-hand objections other than to private written binding advice). Given the low number of scheme cases yet to be finalised, the benchmark for this work should be achieved in 2006-07.
- Complaints (9.8% below benchmark), with key factors being a combination of system, procedural and training difficulties. Our new system will give us the ability to better capture complaints data and we will be able to measure performance against the service standard for all complaint categories for 2006-07.
We improved the robustness of our service standards reporting by formally documenting standards and practices and adopting common business terminology and definitions. This followed a review of the counting rules and definitions for service standards. We are also reviewing the service standard benchmarks as part of our new agency agreement process.
We review the technical quality of our interpretative decisions in February and August each year. These interpretative decisions include private rulings, objections, audits, debt collection cases and conformance with the Code of Settlement Practice guidelines. We then use information from the reviews to improve our work practices and our technical and interpretative decision making capability.
The reviews involve having a statistically sound random sample of interpretative work reviewed by specially convened panels of our experienced tax technical officers and external tax practitioners. Panels, which include experts from outside the Tax Office, review the cases using the judgment model. This model assesses our performance against the key elements of a good decision, that is, whether we understood the question and provided a correct, well-reasoned and clearly communicated decision.
The review also includes a range of conformance checks to measure compliance with the policies and practices that support our technical and interpretative decision making activities.
Table 3.11 shows the results of our last two technical quality reviews.
The general trend for technical quality has been positive up until the January 2006 review. In that review, a number of areas within the organisation recorded strong improvements in their performance, but an unexpected decline in performance in relation to a number of debt collection cases affected the corporate outcome.
We immediately put in place a range of new and improved business processes to ensure the specific issues identified in the review were resolved, and this has significantly improved the quality of cases.
The new processes included:
- endorsing a new coaching policy
- implementing monthly coaching forums
- enhancing learning and performance review processes for our employees, and
- undertaking real-time quality assurance reviews in key focus areas.
In addition, we conducted a specific technical quality review in June 2006, targeting the issues identified. The percentage of cases awarded a pass for technical quality in this review was 98%, which is well above the corporate benchmark of 85%.
We know that we sometimes fall short of our own standards, so we provide a service to resolve complaints and try to learn from the experiences of complainants.
In managing complaints, our focus is on implementing the principles of the taxpayers' charter and good complaint management practices. We see dealing with complaints as a means of improving our processes.
The charter advises taxpayers to first try to have a complaint resolved by the area of the organisation responsible for it. If they are still not satisfied, they can ring our complaints line on 13 28 70.
While we focus on resolving individual taxpayer complaints, at the same time we consider whether there were any underlying issues that led to the complaint. Where underlying issues indicate problems with processes, systems or policies, we work collaboratively across the organisation to identify and implement the necessary improvements.
The following information relates to complaints received through 13 28 70, our advertised complaints telephone line. It covers complaints to business lines and complaints handled by our specialised complaints area, and general feedback from the community.
In 2005-06 we received 10,704 complaints and items of feedback, mostly by telephone but also by email, fax and letter. This was a 12% increase from last year, mainly as a result of problems with telephone services.
The main reasons for complaints were:
- delays in issuing income tax and GST refunds (18% of complaints). Investigations have failed to identify specific causes for these delays, but we believe that one reason for complaints was that taxpayers have come to expect refunds in 14 days and complain when these expectations are not met
- access to call centres, for example, the time taken before a call was answered or a call being cut off (19% of complaints). These complaints partly reflect problems with technology and resources. We have now moved to enterprise-wide management of contact centres with a view to better managing our resources, which may minimise these types of problems. However, training requirements associated with implementing our change program, budget constraints, and unexpected technology problems may continue to compromise the quality of service we deliver over the next two to three years
- cases where advice was either not received (we did not reply to a letter or post out a promised booklet) or taxpayers were given incorrect information (17% of complaints)
- disputes about debts and payment arrangements (10% of complaints)
- taxpayer reporting obligations, in particular, issues around lodging activity statements (8% of complaints), and
- registrations, for instance, difficulties in changing name, address and banking details (9% of complaints).
In helping people to understand and meet their tax obligations, we are mindful of taxpayers who have special needs. We help taxpayers who have limited English or hearing, or are visually impaired, by providing communication services or assistance that specifically meet their needs.
This year assistance to special audiences included:
- providing in-language advice and assistance to ethno-specific business associations and business people through a team of bilingual community relations officers
- providing personalised, one-on-one tax help in a number of languages for taxpayers from non-English speaking backgrounds
- developing tailored in-language information products to meet special audience needs and delivering them through the ethnic media and at multicultural community organisations and cultural festivals. In-language information products are also published on our website and promoted through other delivery channels
- broadcasting over 300 in-language pre-recorded and talkback radio programs in 13 languages nationally and regionally, covering all aspects of tax. Our media program includes distributing editorials on relevant topics to non-English speaking and Indigenous press nationally
- establishing a Multicultural Tax Agents Forum and a Community Consultation Forum to obtain views about how to improve the tax services and products we deliver to ethnic communities, and
- consulting the Indigenous Tax Advisory Group to address issues around financial literacy, tax, and communication and service requirements of individuals, non-profit organisations and businesses; and assisting Indigenous non-profit organisations and businesses by conducting seminars, workshops, advisory visits, field audits and single-issue reviews.
Our work to make our products and services accessible for special audiences includes:
- continuing to provide as much information as possible in accessible formats, including print information such as TaxPack, TaxPack supplement and TaxPack for retirees, electronic services such as e-tax and the electronic versions of paper products on our website
- partnering with Vision Australia to produce audiotapes and compact discs for TaxPack and the TaxPack supplement free of charge
- consulting with peak bodies for people with a disability to ensure our products and services are more accessible, and
- enhancing our online services to allow for screen reader and screen magnification software support for the visually impaired.
Our change program has provided the platform for significant improvements to our administrative products and processes. These are aimed at reducing compliance costs and red tape, especially where requirements to provide evidence of compliance with the law are onerous for taxpayers.
Table 3.12 shows how we performed against this effectiveness indicator in 2005-06.
We use corporate research surveys to evaluate whether our administrative products meet the needs of the community. These include surveys that look at the general perceptions the community has of the Tax Office and the various channels they use to deal with us (such as the portals or telephone), as well as evaluations of specific products.
This year there was a significant increase in tax agent use of services available through the Tax Agent Portal, and their levels of satisfaction with our products and services were quite high. However, in the most recent survey period, where the survey sample was changed to include micro tier tax agents, there was a slight downward trend in satisfaction. A high proportion of agents indicated that it is easier to deal with us than in the past (86%) and that information and assistance they receive from us is tailored to their needs (81%). They also thought that we are improving our systems and business processes to make it easier for them to deal with us (89%) and that the effort involved in dealing with us is less than in the past (80%).
Among businesses, overall results were stable. Of the eight indicators tracked, four trended upwards and four downwards. Research found that 85% of businesses felt that the Tax Office is doing a good job. However, they did not believe as strongly as tax agents that dealing with us is now easier, cheaper and more personalised. For example, in May 2006, 59% of businesses thought that it was easier to deal with us than in the past, and 54% thought we took their circumstances into account when making a decision. We recorded an increase in the number of individual taxpayers using e-tax and have received good feedback from them about the product. Between June 2004 and June 2005 (the latest available results), all indicators tracked for individuals trended upwards. However, they were not as positive as businesses in believing that dealing with us is now easier, cheaper and more personalised. In June 2005, 46% of individual taxpayers indicated that less effort was involved in completing a tax return than in previous years and 51% thought that we look for new ways of doing things to help them. Overall, 81% of respondents to the community perceptions survey agreed that the Tax Office provides them with the information and tools needed to manage their tax affairs.
We are working with professional associations involved in one of our peak advisory groups, the National Tax Liaison Group, to implement a program of work designed to align tax administration as closely as possible with existing community and business practice. We call this our practical compliance program. This program of work, which is published in our Making it easier to comply booklet, addresses issues raised in consultative forums as well as our day-to-day work in compliance and education. Priorities are set by a sub-committee of the National Tax Liaison Group, based on issues identified through professional associations and our industry partnerships.
In developing solutions we ensure that:
- the approach is consistent with the policy intent of the law
- we achieve compliance at a reduced cost
- the approach reflects industry practice, as far as practical
- any resulting risks to revenue are appropriately managed
- adverse impacts on third parties are avoided, and
- taxpayers can choose whether to adopt the approach.
The solutions are communicated through a range of products, including a dedicated series of practice statements. Practice statements published this year include:
- PS LA 2005/2 (GA) GST and time of choice to apply the margin scheme
- PS LA 2005/3 (GA) Division 7A extended timeframe for repayment of a loan agreement for the 2003/04 income year
- PS LA 2005/17 Pay as you go instalment income and foreign exchange realisation gains and losses
- PS LA 2006/2 (GA) Operation of Division 7A of the Income Tax Assessment Act 1936 on loans that have become statute barred, and
- PS LA 2006/3 (GA) Calculating the value of trading stock - oyster farmers who use the stick farming method.
We also introduced streamlined processes, including:
- providing a single notice of assessment when revisions are made to multiple activity statements, and
- giving taxpayers who are new to business the ability to change their activity statement lodgment from monthly to quarterly over the telephone.
Our Consolidation reference manual was also updated to make it easier for businesses to calculate over-depreciation adjustments.
We worked with Arrow Research Corporation to expand on the eAS (electronic activity statements) web services. Other software producers are now planning to develop a similar service. We are also working with software producers to design more web services, including those related to tax file number declarations, annual payment summary reports and viewing and updating taxpayer registration details. We expect these and other services to be implemented as part of our change program over the next two years.
Another initiative that seeks to reduce the costs of compliance for taxpayers is the tax return pre-population project. The project enables income tax return data to be electronically downloaded to taxpayers and tax agents when they are preparing income tax returns. We obtain the data from financial institutions, employers and other government agencies and have traditionally used it to reconcile information supplied in income tax returns. Providing the data to taxpayers will help them prepare their returns and provide more certainty about the accuracy of the information.
Taxpayers who use e-tax to lodge their 2006 tax return can download Centrelink payment summary information, child care rebate information and net medical expenses information from Medicare Australia. Some taxpayers are also participating in a pilot to download bank interest information from the larger financial institutions. Tax agents can access Centrelink and child care rebate information through the Tax Agent Portal. We will expand this initiative in coming years to include payment summary information from employers and enable the information to be downloaded to agents' tax return preparation software.
Through our change program, we are reducing the costs of compliance by delivering improved products and services to help taxpayers.
The program includes initiatives to reduce costs by offering more services online through our Tax Agent and Business portals, for example, being able to register for GST and submit activity statements for real-time processing. In designing and developing these products, we try to achieve a seamless interaction with taxpayers' work processes so that additional tasks are kept to a minimum.
In the last week of February 2006 around 28,000 tax agents used the portal to do 2.7 million transactions. Use of the portal is steadily increasing as more agents come online and more functions become available through it. The latest enhancements enable agents to send correspondence securely and electronically through the portal, instead of by mail or fax.
Ongoing portal improvements are giving tax agents greater access to our systems and information - making the tax process easier and more accurate for agents and, subsequently, for their clients.
Our new client relationship management software helps us provide a better service to taxpayers when they telephone us. Using a unique identifier, such as a tax file number, a contact officer can immediately access details of a taxpayer's situation and their dealings with us. This enables us to provide a more personalised service and respond more quickly to calls.
Wherever possible, we consult with the community to reduce compliance costs when implementing new law. The consultations carried out around the new entrepreneurs' tax offset and the 30% child care tax rebate (see case study) illustrate our approach of consultation, collaboration and co-design.
The entrepreneurs' tax offset provides a discount of up to 25% of the income tax liability of eligible small businesses. Throughout the year we consulted with tax agents and small businesses about the design of the income tax return form and instructions to deliver the offset to taxpayers. Our aim was to make the form and instructions easy to understand and use. We have incorporated feedback from the co-design process into the 2006 income tax return form and instructions. For example, in response to taxpayer concerns about the complexity of calculating the offset, we have included labels on the return form that enable us to automatically calculate the offset for individual taxpayers.
Case study - Consultation, collaboration and co-design
Consultation, collaboration and co-design took centre stage this year as we implemented the 30% child care tax rebate
We worked with a range of stakeholders to co-design how best to implement and administer the rebate. Stakeholders ranged from parents, tax agents, child care providers, peak child care bodies and software producers to Treasury, the Department of Families, Community Services and Indigenous Affairs, the Department of Human Services, and Centrelink.
Through workshops, market testing sessions, seminars, end-to-end simulations and core design team meetings, we gained an understanding of the industry and how it interacts with government and the community.
We developed an arrangement for Centrelink to provide information directly to the Tax Office, removing the need for most parents to keep records of their child care costs.
The cooperation and participation of such a wide range of stakeholders meant that the rebate could be implemented in a way that meets the needs of parents, while minimising the impact on child care providers. We will continue to work with the community and the other government agencies to refine the system as we move past the first year of claims into the second year.
Table 3.13 shows how we performed against this effectiveness indicator in 2005-06.
Operating expense against budget
We managed effectively within our allocated operating expenditure budget in 2005-06 and achieved a small underspend against our approved loss. Our operating expenditure was 0.3% below budget (compared to 0.06% above budget in 2004-05) and below our target of within 0.5% of budget.
Capital expenses against budget
Our capital expenditure in 2005-06 was 9.1% below budget (compared to 4.3% above budget in 2004-05) and above our target of within 5.0% of budget. The underspend was largely a result of deferred systems development work associated with our superannuation systems rebuild.
Current ratio: indication of Tax Office's ability to satisfy its obligations in the short term
Our current ratio in 2005-06 was 0.39 (compared to 0.49 in 2004-05) and below our target of ≥ 0.5. The reduction in this ratio was largely the result of a change in classification of much of our long service leave provision from non-current to current, in line with changes in accounting standards. The result reported in our Annual report 2004-05 was 0.75, but this has now been re-stated to incorporate Australian Equivalents to International Financial Reporting Standards requirements. We have also re-stated our 2005-06 target in line with these changes.
Debt to asset ratio: indication of Tax Office's ability to satisfy its obligations in the long term
Our debt to asset ratio in 2005-06 was 1.06, which is the same level we achieved in 2004-05.
This year we demonstrated the effectiveness of our key processes by:
- exceeding our commitments to government under the compliance challenges and substantially meeting more than 500 commitments published in our Compliance program 2005-06, and exceeding our active compliance commitments under our formal GST performance agreement with the states and territories
- successfully piloting our new analytics capability to improve our strategic focus on lodgment compliance by using the analytics capability to select the top 10% of high risk-to-revenue cases. This has resulted in an increase of revenue liability established for activity statements of 47% and for income tax returns of 22% over the existing business model capability n meeting the majority of our service standards and delivering a range of new help and support initiatives to the community, including online calculators, decision support tools and other self-help products n maintaining service delivery to taxpayers despite a 10-15% increase in the volume of accounting work, and exceeding the 92% in 28 days benchmark for refund requests and repayments of overpaid tax
- successfully managing a 78% increase in the volume of tax litigation cases and a 20% increase in the volume of compensation claims, significantly exceeding the planned 10% increase in output
- successfully deploying all of the first release and the initial rollout of the second release of our change program. The first release was fully deployed in line with the revised schedule and was one of the largest rollouts of a client relationship management system in the world
- supporting the successful implementation of around 100 new policy initiatives within our existing budget, including choice of superannuation fund and the 30% child care tax rebate, and
- delivering a range of information technology initiatives that give taxpayers greater access to government services or reduce compliance costs. In particular, we successfully delivered pre-population pilot programs with other government agencies, including Medicare Australia and Centrelink, and ATO digital certificates for whole-of-government use.
Acquiring and retaining appropriately skilled employees, when needed most, is a challenge we are likely to face for many years to come. This year we enhanced our internal capabilities and maximised the effectiveness of our workforce by:
- implementing a transfer at level process that gives internal candidates the opportunity to apply for vacancies before they are advertised
- developing and delivering improved support tools and skilling programs for our people
- positioning ourselves to consider our business needs beyond the implementation of our change program
- continuing to develop our internal leadership capabilities through targeted senior executive service and executive leadership programs
- managing our workforce through detailed resource plans to ensure our staffing resources are effectively allocated and utilised
- engaging extensively with business and employees during the 2006 agency agreement process
- developing and implementing a safety and health program to turn managers' attention to prevention and early intervention. Due to the rollout of a number of initiatives under this program, we have seen our Comcare premium stabilise, and
- significantly raising employee awareness of security and fraud, with 86% of employees completing training using the fraud awareness interactive DVD Make the right choice, and 95% completing training courses in security, privacy and fraud.
3.3 Our outputs
Resources for outcome 1
Table 3.14 shows the budget and staff resources allocated to each of our outputs to achieve our outcome.
Total active compliance results for 2005-06
We report our active compliance results under two outputs - Output 1.1.3 (see part 3.6) and Output 1.1.4 (see part 3.7).
Tables 3.15 to 3.18 give a consolidated view of our active compliance results for both outputs.
3.4 Output 1.1.1 - Shape, design and build administrative systems
Our role in shaping, designing and building administrative systems involves:
- providing policy advice and advice on legislative design to Treasury, reflecting our insight into administration, compliance and interpretation
- designing, building, implementing and maintaining administrative systems and products that achieve the intent of the law and minimise compliance costs for taxpayers
- designing, building, implementing and maintaining administrative systems and products that allow us to be efficient and effective in meeting our corporate objectives, and
- collaborating with other agencies on the design and implementation of whole-of-government initiatives.
To ensure we delivered on the output we undertook the following broad strategies:
- continued to develop integrated tax design processes, together with Treasury input, for the development and implementation of new tax laws
- continued to engage with the community in shaping our administrative systems
- continued to ensure our products, services and systems are designed to integrate with products commonly used by taxpayers, and are flexible enough to incorporate future legislative changes
- introduced a number of new products and services through our easier, cheaper and more personalised (change) program, and
- obtained user input into the design of new products and services to ensure they minimise compliance costs.
- Our advice to Treasury resulted in changes to the shape of our tax laws and administrative systems. For example, basing eligibility on visa types instead of tax law residency rules reduced complexity in the changes related to temporary residents.
- We implemented around 100 tax law changes, including choice of superannuation fund and a number of recommendations from the review of self-assessment.
- We completed the first major release of our change program, which saw a new client relationship management system deployed to our client contact centres. The system was supported by the introduction of enterprise-wide business processes.
- We collaborated with other agencies in designing whole-of-government initiatives.
Table 3.19 shows how we performed against this output in 2005-06.
Policy advice provided to Treasury
A key element of our work on policy advice is our close working relationship with Treasury. We have weekly meetings with Treasury to discuss important issues, including the quality and timing of our advice. At a higher level, the Tax Policy Coordination Committee, a joint committee of senior Tax Office and Treasury officers, oversees the ongoing relationship between the two agencies and provides advice and leadership on significant issues.
During 2005-06 processes continued to be improved to ensure we have an effective relationship with Treasury in developing tax policy and law design. We focused on providing advice to Treasury about the administrative and compliance costs of potential changes to the tax laws, as well as interpretative advice. New procedures were introduced to ensure all relevant Tax Office stakeholders are involved in compiling this advice.
Our advice is based on making sure that policies can be effectively implemented and that it is as easy as possible for taxpayers to comply.
This advice takes the form of:
- our view on the current law
- the impacts on taxpayers, and
- the effects on our administrative systems.
We also provided advice to Treasury on areas where the tax law was not operating as intended, whether that resulted in more or less revenue, or where a measure gave rise to higher than intended compliance costs.
Review of self-assessment
Throughout the year we continued to deliver the changes required to implement the recommendations contained in the Report on aspects of income tax self assessment.
We worked closely with Treasury to shape the law and to get the best administrative outcomes for the community. We continued to consult with tax practitioners and industry forums to ensure that the impact of the changes was understood, and took into account their advice on how the recommendations should be implemented.
Legislation to support the changes is covered in:
- Tax Laws Amendment (Improvements to Self Assessment) Act (No. 1) 2005, which contains changes to penalties and the shortfall interest charge. The new provisions generally apply to penalties for 2004-05 and later years. The shortfall interest charge applies to amendments of income tax assessments for 2004-05 and later years.
- Tax Laws Amendment (Improvements to Self Assessment) Act (No. 2) 2005, which contains changes relating to advice and periods of review. It received Royal Assent on 19 December 2005, with the advice changes taking effect from 1 January 2006. The changes to periods of review apply to income tax assessments for 2004-05 and later years.
During the year we implemented most of the recommendations that fall within our responsibility. We continue to implement the remaining recommendations, which include improving the language in some of our advice products and working with tax agents to improve our services to them.
Costings and estimates
We provided assistance to Treasury in our role of advising the government on revenue collections. This involved monitoring revenue collections and providing advice on how collections were tracking against estimates. We provided advice regularly throughout the year, and more frequently when Treasury was preparing the revenue forecasts for the Federal Budget and the Mid-Year Economic and Fiscal Outlook.
We also provided advice to Treasury to help estimate how proposed changes to the law might affect revenue forecasts. The 379 specific revenue costings provided to Treasury this year included elements of the 2006 Federal Budget and significant variations to administration of the tax system. In addition, we provided advice to help with preparation of the 2005 Tax Expenditures Statement and the forecasting review.
Our work in this area involves designing and building administrative systems to:
- implement tax policy changes announced by the government, and
- make it easier for the community to meet their obligations under the law.
Integrated tax design
Designing, developing and implementing high-quality administrative systems and products that deliver policy intent and meet community needs remained a high priority. One feature was a more integrated focus with other Australian Government agencies in delivering new measures, such as choice of superannuation fund and the 30% child care tax rebate. Implementation of both measures was overseen by the Cabinet Implementation Unit in the Department of the Prime Minister and Cabinet.
Another feature was implementing measures announced in the 2006 Federal Budget. This included ensuring the community obtained the benefit of reduced personal tax rates and the new depreciation changes for business from 1 July 2006.
We continued to develop our relationship with tax practitioners as together we look for opportunities to suggest amendments where prescription in the detail of a law is out of line with business practices or creates an undue compliance burden. This work is managed through a sub-committee of the National Tax Liaison Group. We referred a number of suggested law changes to the government for consideration as a result of work done by the sub-committee. One amendment has already been introduced into Parliament and we expect the others to be considered next year.
We also worked closely with tax practitioners to identify issues we could resolve without changing the law, where this was possible within the Commissioner's powers of administration. Each year we identify these issues in our published practical compliance program, and in 2005-06 resolved eight issues under the program.
Our change program is made up of a number of projects that deliver new products and services for the community, and new business processes and systems for the organisation. Overall, the program continues to be on track against both plan and budget. The delay of the first release did not lengthen the time of the program. Nor did it materially increase the costs as Accenture partnered with us to deliver the program under a fixed-cost and outcome-based contract.
The program is being delivered in three main releases, with the first release delivered in 2005 and the final release due to be completed in 2008. As part of the program, we are introducing two core systems for our taxpayer-related work, and enterprise-wide business processes for our employees.
The two core systems are:
- a workflow system with three components - client relationship management, case management and work management, and
- a single accounting, processing and registrations system called integrated core processing.
These two core systems are supported by systems that:
- receive correspondence from the community (independent of channel) for actioning in these systems
- generate correspondence to the community from these systems
- store, retrieve and dispose of taxpayer documents and information products used internally and externally
- author, approve and maintain information products used internally and externally, as well as letter templates, and
- generate reports for all levels of management within the organisation.
The new processes and systems help us to provide better services to the community. They also allow taxpayers and their representatives to manage more of their tax affairs online and deal with a contact officer who has access to the history of a taxpayer's dealings with us.
The first release of the program included introducing the client relationship management system to our contact areas. This allows us to have a single view of a taxpayer's history on screen when they call.
The rollout of this system was one of the largest rollouts of such a system in the world. More than 85 million images had to be migrated to the new system so that our contact officers can easily see correspondence from taxpayers while they are actioning a call. The rollout of the first release was delayed for six months as we did not want to implement a new system during Tax Time. We also wanted to thoroughly test it to make sure it would work as expected when we started to use it.
Rollout of the second release commenced in May, with completion due in December 2006. It will affect close to 12,000 employees in more than 50 tax offices.
It is introducing the case management and work management parts of the new system for our employees involved in correspondence and active compliance activities. We will also roll out a new reporting system to enable us to make informed decisions, and a content management system that will ensure consistency of information across our electronic and paper products. There will also be further enhancements to our Tax Agent and Business portals.
Integrating new products
We have a dedicated team to ensure that our products, services and systems are designed to integrate with our existing products and products commonly used by taxpayers, and be flexible enough to incorporate future legislative changes.
We evaluate new products from the design stage, using key facilities such as the Model Office and Simulation Centre. These facilities allow us to observe users as they interact with the early design of products and then feed the results into the next iteration. Providing the opportunity for people who will be using new systems and products to be involved in the design of the systems and products from an early stage has been a key to the program's success.
There have been instances where a new service was identified, but not fully delivered. For example, in 2005 we ran a pilot of specialist industry telephone services for primary producers and those in the building and construction industry, but an evaluation of the trial indicated that these groups no longer required the service.
Each year we document planned improvements and progress in our publication Making it easier to comply. We also monitor whether the community's experience of the tax system is actually improving.
Case study - Portal a winner
Our Tax Agent Portal has proved to be a real winner with tax agents and we are constantly looking at ways to make sure it stays that way.
We want agents and the community to be confident that access to the portal is secure. So in July 2005 we changed the way agents log onto the portal so that they now use a more secure digital certificate, rather than a user ID and password.
We started introducing digital certificates with agents in small practices in September 2005, followed by agents in medium practices in October 2005 and agents in large practices in November 2005.
During the process we discovered that we could improve the way digital certificates are used to access our online services. This included simplifying and speeding up the certificate registration process, managing access for staff within agent practices, and providing mobile solutions for agents when using computers away from their practices. We are making these improvements before finalising the project.
3.5 Output 1.1.2 - Management of revenue collection and transfers
In managing revenue collection and transfers, we aim to facilitate taxpayer interactions with us as they:
- enter the tax system and other systems we administer through the appropriate registrations
- receive and provide the required information
- make payments
- receive refunds or other payments, or are notified of their obligations, and
- receive advice about outstanding obligations and any remedial action we are taking.
To ensure we delivered on the output we undertook the following broad strategies:
- used our registers, tax accounts and other internal and external information sources to ensure timely receipt of payments from and to taxpayers, and timely transfer of funds for taxpayers
- intervened quickly and effectively in cases involving non-compliance, differentiating our treatment of taxpayers according to their compliance history and personal circumstances, and
- capitalised on new technology and operational changes to improve our efficiency, effectiveness and responsiveness in dealing with taxpayers.
- We collected $232.6 billion in net tax and effected transfers of $7.5 billion.
- Collectable debt grew at a rate of 6.4%, compared to 27.7% last year.
- Total collectable debt as a percentage of revenue was 4.40%, compared to 4.47% last year.
- We collected $56.5 billion from taxpayers with an outstanding debt, compared to $52.7 billion last year.
- We managed:
- 45.0 million taxpayer forms, including 18.1 million payments
- registers with an active client base of 5.4 million Australian business numbers (ABNs) and 26.6 million tax file numbers, and other registers, including the Lost Members Register and the Register of Complying Super Funds
- 21.9 million active tax accounts, and
- 12.3 million refunds.
Table 3.20 shows how we performed against this output in 2005-06.
Collections increase by 8.3%
The Tax Office collected net tax of $232,648 million in 2005-06, an increase of $17,798 million (or 8.3%) over last year. The largest increase occurred in company tax collections, which grew by around $8.5 billion (21.3%) over last year. This was driven by strong company profits and incomes across the whole economy, led by the resource and finance sectors. Pay as you go (PAYG) withholding collections increased by $5.8 billion (6.0%) over last year as a result of strong growth in wages and solid employment growth. Collections on assessment from other individuals increased by $2,327 million (10.4%) over last year, reflecting high profitability of the small business sector in 2004-05 and higher incomes in 2005-06. Goods and services tax (GST) collections in 2005-06 exceeded last year by $2,379 million (6.8%) due to the strong demand for goods and services through the year.
Other categories that experienced significant growth in collections over last year were petroleum resource rent tax, by $458 million, tax on contributions and earnings of superannuation funds, by $402 million, and fringe benefits tax, by $379 million. This growth was offset by an increase in refunds to individuals of $2,120 million and a reduction in superannuation surcharge collections of $282 million, following a shortfall in assessments issued during 2005-06.
The small fall in excise collections of $74 million reflected dampened demand for petrol and diesel associated with high oil prices, as well as interruptions to production of crude oil. Small changes for luxury car tax and wine equalisation tax were driven by their respective market conditions.
Tables 3.21, 3.22, 3.23, 3.24 and 3.25 and figures 3.4, 3,5, 3.6, 3.7, 3.8, 3.9 and 3.10 provide details of collections and transfers.
During 2005-06 we administered $7,454 million of transfers in grants, benefits, tax offsets or distributions of superannuation contributions. This represents an increase of $1,260 million (20.3%) over last year. The largest increases came from the extension of the superannuation co-contribution scheme and migration of family tax benefit recipients from the Department of Families, Community Services and Indigenous Affairs to the Tax Office.
As custodians of the Australian Business Register, the Tax File Number Register and the registers held on behalf of the superannuation industry, we need to assure the community and government of the integrity of these registers. In 2005-06 we laid important foundations to reduce the risk of fraud, increase the integrity and robustness of our registers, and to enable further whole-of-government opportunities to improve service delivery.
Our work saw a significant focus on:
- improving the integrity of the registers we maintain, including increased use of third-party data for verification purposes n developing the infrastructure and processes that support our online services, not just for the Tax Office but for all of government
- working with other agencies to deliver a more collaborative approach to delivering government services
- preventing fraud in the tax and related systems, at the earliest possible point of intervention, and
- improving the efficiency of our superannuation registers.
We improved the robustness and integrity of our business registers by validating the information held on them using external data sources. This was done to ensure the operating status of corporate entities and superannuation funds is aligned with the records held by the Australian Securities and Investments Commission and the Australian Prudential Regulation Authority. We undertook further validation to verify the growth of individual tax file numbers with population and migration data. As a result of an increased focus on inactive taxpayers in the registers, we were able to archive more records, reducing the potential for fraud.
Working with agencies to improve services
We worked closely with government agencies to identify:
- services that can be packaged with those offered by other agencies to reduce the compliance burden on businesses and individuals, for example, tax file number registration and change of business details, and
- initial proof of identity processes that can be leveraged to improve the integrity of our registration processes.
We now have partnerships with 74 agencies to provide information stored on the Australian Business Register. These partnerships are pivotal to streamlining business reporting processes with government, and provide the basis from which the community can make better use of ABNs.
We undertook a pilot with the Queensland Office of Fair Trading to leverage state-administered processes that will provide updates to the Australian Business Register, thus saving businesses time. We are continuing with a range of initiatives to benefit the business community, including some highlighted in the Rethinking regulation report of the Taskforce on Reducing the Regulatory Burden on Business.
This work will continue in 2006-07, with work under way to:
- integrate ABN and other registration transactions for new businesses, thus reducing the complexity and amount of time involved in setting up a business, and
- link government-administered business registers with a view to sharing information so as to reduce the number of times businesses need to tell government that their details have changed.
New standard - Australian and New Zealand Standard Industrial Classification
Industry classification is an important economic and statistical tool for government and non-government agencies. We rely on this information for a range of important functions, including compliance and analysis activity. The Australian Bureau of Statistics (ABS) relies on the high quality of the Australian and New Zealand Standard Industrial Classification (ANZSIC) data we provide to ensure economic data it produces in official statistics reflects any changes that have occurred in industries.
This year we worked with the ABS to recode businesses from the 1993 ANZSIC code to the new 2006 code. Our joint approach delivered the project on time and within budget, with nearly 9 million accounts recoded. As a result, the quality of industry data held on our business registers has improved and we identified and implemented a number of improvements to our systems and processes, for example, improved coding systems.
Electronic dealings with clients
This year we concentrated on issuing digital certificates to increase the number of business taxpayers with access to our online services. As a result, we saw a significant trend towards businesses interacting electronically with us. We managed an active population of more than 274,000 digital certificates and dealt with a 43% increase in certificate registration requests compared to last year.
Our digital certificates are now recognised as being suitable for broader use across a range of government agencies and this year saw them piloted for use with Centrelink's online services.
Business registration numbers stabilised this year and the Australian Business Register no longer reflected the exponential growth that resulted from the introduction of major tax reforms in 2000. However, there was a 6% increase in individual tax file number registrations compared to 2004-05. In addition to normal increases because of the birth rate, migration and overseas visitors, there was also an increase associated with international sporting events held in Australia.
Table 3.26 shows how we received registration applications this year compared to last year.
There was an increase in the use of electronic channels for business registrations, reflecting an increase in the reliance on online services generally within the community.
During the year there were more than 15 million updates to the Australian Business and Tax File Number registers. These included changes to name, address, bank details and roles. Most changes were made systematically through changes indicated on income tax returns, electronic changes made by tax agents and changes made on the Tax Agent and Business portals.
Approximately 1 million of the updates were made as a result of taxpayers advising changes to their details via forms or correspondence.
The 5,532,365 tax file number declarations processed this year represented a 1% decrease from last year.
Lost members register
The Lost Members Register is a central register of lost superannuation fund members and retirement savings account holders. We maintain the register, using information supplied by superannuation funds, to help individual members claim their money and consolidate their accounts. Monies associated with the accounts on the register are still held by the funds on behalf of the lost members. At 30 June 2006 there were 5,676,510 accounts, which were valued at $9.7 billion.
We are working with the Australian Prudential Regulation Authority and superannuation funds to improve the quality of data held on the register. We are improving the way information is reported to and from superannuation funds by increasing our data specifications, improving feedback on the results of data exchange, changing the status of members (from lost to transferred) in funds we know are wound up, and further developing policy that supports our administration, including when we can amend data on the register to better help users.
Register of complying super funds
The Register of Complying Super Funds allows taxpayers to search for the contact details of complying superannuation funds. It includes contact details of funds regulated by the Australian Prudential Regulation Authority and the Tax Office. The superannuation industry uses the register to search for ABNs, determine the eligibility of a fund to receive superannuation guarantee and co-contribution payments, and facilitate rollovers between funds. The register can be accessed on our website.
The Australian tax system is based on self-assessment, with individuals and businesses determining their obligations and entitlements by providing monthly, quarterly or annual information statements. We are responsible for processing various forms, payments and correspondence efficiently, accurately and on time.
The accuracy and timeliness of our processes and data quality continued to improve this year. This was partly a result of encouraging taxpayers to lodge electronic rather than paper returns, which has advantages for both taxpayers and the Tax Office. Advantages include speeding up refunds, reducing the number of corrections required, and increasing the accuracy and quality of data because of inbuilt system checks and balances.
Overall, 86% of all income tax returns were lodged electronically, an increase of 1% compared to last year and reflecting a corresponding decrease of 1% in paper lodgments.
As with income tax returns, the trend to lodge activity statements electronically increased during the year. Use of the Business Portal to lodge activity statements electronically increased to 9%, which was 4% more than last year. Overall, 40% of activity statements were lodged electronically, mainly using our electronic lodgment service. Our 2005 online marketing strategy has successfully encouraged more businesses to register for digital certificates and start lodging their activity statements electronically.
We use targeted data validation techniques across all inbound channels to process and store information accurately. This year fewer exceptions were generated that required manual intervention or error correction.
Imaging is used to capture data and leads to shorter processing times and fewer data problems. We expanded our imaging activities this year so that additional items of correspondence could be electronically distributed across the organisation. This allows us to distribute correspondence and resolve issues more quickly.
Taxpayers lodging excise claims electronically generally preferred to use the telephone lodgment service because it allows those who do not operate from an office to claim after normal business hours. Approximately 94% of claims lodged this way were for the energy grants credits scheme.
Taxpayers currently lodge claims for excise credits through a variety of channels, which results in unpredictable claim patterns throughout the year. As a result of fuel excise reforms this year, taxpayers will report fuel tax credits on their activity statement in 2006-07. A two-year transitional period for some taxpayers will support the introduction of the new reporting system.
We had a dedicated project team to undertake appropriate checks to allocate money to taxpayer accounts where possible, and reduced the volume of payment cases (for all taxes) held in suspense during the year. Suspense amounts are payments we receive that cannot be attributed to a specific taxpayer account until we first ascertain the correct ownership of the monies received and offset appropriate account information.
In response to requests, we provided information to Centrelink, the Department of Veterans' Affairs and the Department of Immigration and Multicultural Affairs during the year. Primarily, these agencies requested copies of tax returns, income tax details, including taxpayer name and address history, income and tax information, spouse information and ABN details. This contributes to the work of other agencies and the relationships between government agencies.
The volume of our account maintenance work increased by 2.5% this year, yet we managed to maintain our service delivery to taxpayers while reducing administration costs. Where appropriate, we changed our procedures to meet community expectations that refunds are paid correctly, on time and to the right taxpayer. We balanced this with our need to be confident that the right checks and integrity controls are in place.
This year we managed 21.9 million accounts and issued 12.3 million refunds. This was 26% more accounts and 3% more refunds than last year. A significant component of the increase in accounts was a result of including superannuation accounts in our reporting for the first time. Refunds included 9.5 million income tax refunds and 1.9 million activity statement refunds.
During the year we streamlined our processes to ensure that, where all information had been provided, we issued refunds promptly. We introduced an automated process where activity statement accounts with small credit balances are checked weekly and automatically refunded provided there is limited risk of incorrect payment. Implementing this process removed the need for taxpayers to contact us to request a refund of a small credit, while substantially reducing the need for manual intervention on our part. This resulted in us transferring credits between accounts for the same taxpayer or paying 181,427 refunds worth $78.0 million, which would otherwise have remained as a credit on the account.
We continued to review income tax refunds to assure the integrity of the refund process and mitigate the risk of errors and incorrect refunds. This strategy proved to be effective, with account corrections of $2.9 billion. These reviews do not adjust any claims by taxpayers, but simply correct errors such as those caused by forms being filled out incorrectly. They are in addition to the reviews reported under 'Active compliance' , which adjust claims made by taxpayers.
The value of refunds held as a percentage of the net value of refunds issued was 1.9%. The majority of these refunds were held because taxpayers had not provided financial institution details for their activity statement accounts. We are pursuing strategies to encourage taxpayers to comply with this legislative requirement.
During the year we implemented a recommendation from the Inspector-General of Taxation to publish weekly processing statistics for activity statement refunds on our website, showing the percentage of refunds processed within the performance standard. Every week we also published expected processing times for routine activity statement refunds to give taxpayers an indication of how long it would take to receive their refund. This should help taxpayers manage their cash flow with more certainty. The average processing time for electronically lodged activity statements this year was 4.9 days, and 7.4 days for paper lodged activity statements.
When an activity statement is lodged and a refund is expected, the performance standard is to issue 92% of those refunds within 14 days of all information being provided by the taxpayer. This year we processed 1.9 million activity statement refunds and issued 92.2% within 14 days. This represents an increase of 0.1% in activity statement refunds being processed compared to last year, and a slight increase in performance from 92.1% issuing within 14 days.
We also concentrated on the end-to-end processing of refund activity statements in order to provide a better service to taxpayers. This created a clearer picture of the interdependencies that processing one item of work has on helping taxpayers comply with their obligations. For example, where a taxpayer advises us that their financial institution details have changed, we aim to update their records before their next activity statement is due, thus minimising any delays in receiving refunds.
We delay non-routine activity statement refunds to verify them or if we require additional information from a taxpayer. This year the average value of activity statement refunds held at any time for more than 14 days after lodgment was $4,989. This was 13% less than last year, but our checking activities inevitably give rise to some delays.
Where a taxpayer or their representative requests a refund of overpaid tax, the performance standard is to issue 92% of refunds within 28 days. This year we actioned 242,487 requests and issued 92.7% within 28 days. We also automated the actioning of low-risk cases, which reduced the time taken to issue refunds and improved the efficiency of our case actioning.
The Tax Agent and Business portals continue to provide taxpayers and their representatives with easier access to their tax accounts. During the year use of the Tax Agent Portal increased by 19% and use of the Business Portal increased by 67%. While the portals have increased the transparency of our records, they have also increased the number of taxpayer requests related to managing their accounts. The increased interactions make us more confident that accounts are accurate.
Access to deferred company instalments ceased on 30 June 2006. The majority of taxpayers who chose to use this option have met their obligations and their accounts have been reconciled, with only 7,793 cases to resolve in early 2006-07. The remaining unresolved accounts are for taxpayers who have incomplete lodgment obligations, or have substituted accounting period reporting approvals that carry over the normal financial year.
This year we paid $238 million in interest on overpayments and early payments under the Taxation (Interest on Overpayments and Early Payments) Act 1983.
Case study - A productive partnership
Changes to our call centre scripting, improved letters, new fact sheets, and updates to the Tax Agent and Business portals to reduce confusion for taxpayers and reverse workflows for tax agents were just some of the positive outcomes of our with the Accounting Working Group this year.
The Accounting Working Group represents one of the many ways we work with agents to improve the administration of the tax system.
The group gives agents the opportunity to openly discuss matters and alert us to the problems they face in meeting their clients' needs. Together we can then discuss solutions aimed at improving the experience for agents and taxpayers, without affecting the integrity of the tax system.
The integrity of Tax Office accounts, refund processing controls, interactions between accounts, and the administration of PAYG withholding were just some of the varied topics discussed this year.
The group also provides the opportunity to update agents on how we are progressing with our change program, thus allowing them to experience this major journey of change with us.
We look forward to building on the collaboration and trust developed through such groups in 2006-07.
The Higher Education Loan Programme supplements the funding of Australia's higher education system. It replaced the Higher Education Contribution Scheme on 1 January 2005. The programme is jointly administered by the Department of Education, Science and Training, higher education providers and the Tax Office.
Students contribute to the cost of their higher education by paying their higher education provider or repaying through the tax system. Compulsory repayments for Higher Education Loan Programme debts are made through income tax assessments when a person's income is above a minimum threshold. The threshold for 2005-06 was $36,184. If taxpayers choose to make voluntary repayments, they receive a bonus, which reduces their outstanding balance. This year there were 15% fewer voluntary repayments and a 29% decrease in the value of repayments from last year. Trend analysis indicates that this was largely a result of the voluntary repayment bonus being reduced from 15% to 10%.
The new legislation has also required an administrative change in the time allowed for the Department of Education, Science and Training to notify us of debts. The new arrangements are included in a memorandum of understanding we have with the department to provide Higher Education Loan Programme data.
There was a 13% increase in the higher education debt for 2005-06, which was consistent with Department of Education, Science and Training projections.
Higher education debts are indexed on 1 June each year, adjusting them in line with the cost of living to maintain the value of the debt. The indexation figure is based on changes in the consumer price index. The indexation rate applied to the accumulated Higher Education Loan Programme debt on 1 June 2006 was 2.8%. In June 2006 we sent information statements to eligible taxpayers with a Higher Education Loan Programme debt to advise them of their new accumulated debt.
Where we receive a request to amend an income tax assessment related to a deferment, variation or remission of a Higher Education Loan Programme debt, the performance standard is to finalise 92% of those requests within 56 days. This year we received 1,290 amendment requests and finalised 98.5% within 56 days.
Table 3.27 shows Higher Education Loan Programme debt and repayment statistics for 2005-06.
The Student Financial Supplement Scheme was a voluntary loan scheme that gave tertiary students the option to borrow money to help cover living expenses while studying. The scheme commenced in 1993 and no new loans were issued after 31 December 2003.
Students start repaying their loan in the fifth year after the loan was taken out if their taxable income is above a minimum threshold. The threshold for 2005-06 was $39,218.
The value of the Student Financial Supplement Scheme debt increased by 9% this year due to the annual transfer of loans from Centrelink and the indexation of existing Student Financial Supplement Scheme debts.
Where we receive a request to amend an income tax assessment related to a deferment or variation of a Student Financial Supplement Scheme debt, the performance standard is to finalise 92% of those requests within 56 days. During the year we received 169 amendment requests and finalised 99.4% within 56 days.
Table 3.28 shows Financial Supplement debt and repayment statistics for 2005-06.
This year we transferred 487,515 payments, with a value of $946.67 million, under various programs managed by other departments and agencies, including the Department of Education, Science and Training, Centrelink and the Child Support Agency. Table 3.29 shows the breakdown of total funds transferred.
Transfers to Centrelink result from a garnishee notice being served on the Tax Office, while the Child Support Agency uses a Commonwealth offset. We apply appropriate indicators to taxpayer records (after receiving taxpayer details from other agencies) and report to the relevant agencies when a potential credit or refund is available.
The remaining transfers were made to the Department of Education, Science and Training and related to the Higher Education Loan Programme and the Student Financial Supplement Scheme.
People lodging tax returns and paying on time underpins a healthy tax system. Most taxpayers comply with their obligation to lodge income tax returns and activity statements and we continue to help them do so. But some taxpayers either are unable to lodge returns and statements on time or deliberately avoid lodging.
Initial follow-up action commences with reminder letters. During the year we issued 1.75 million letters and accounted for 2.2 million overdue activity statements and 436,000 overdue income tax and fringe benefits tax returns. The strong response we receive from our reminder letters continues to reinforce the importance of this strategy.
Where people do not respond to our initial approaches, we take further action, particularly against those who deliberately and consistently fail to meet their lodgment obligations. To make the most effective use of our resources, we concentrate on taxpayers who present the highest risk to the integrity of the tax system.
Case study - Lodging Tax returns by phone
Taxpayers with simpler tax affairs who would have been able to use the Short tax return in 2005 were invited to use our telephone lodgment service to lodge their 2006 tax return (excluding e-tax and tax agent clients). This means they can lodge their return in less than 12 minutes and receive their refund within 14 days.
This follows a pilot of interactive voice response (IVR) technology to provide electronic lodgment solutions that began in 2001. The technology recognises taxpayers' responses to pre-defined questions and records and processes their data electronically.
The pilot of the telephone lodgment service started with a number of taxpayers in South Australia and was extended to the other states and territories, with similar take-up rates across the country.
During the pilot we used feedback from taxpayers, system analysis and technological developments to improve the IVR applications and infrastructure supporting them. Throughout 2005 we saw a stable infrastructure, steady growth, and very solid IVR applications.
In consultation with Centrelink, and learning from their experience with telephone solutions, we are looking for other ways to use IVR technology to reduce demands on our taxpayer contact centres and increase the number of returns and forms lodged electronically.
In the interests of fairness and a level playing field for business, we have a responsibility to take reasonable steps to recover amounts owing to the Tax Office.
Due to strong debt collection performance during 2005-06, total debt holdings increased by only 7.2% to $18.78 billion.
This year we limited the growth of collectable debt to 6.4% by using sharper and more targeted approaches. These involved intervening early in the case of new debts, broken arrangements and debt cases that escalate in value, and taking firmer action where taxpayers did not respond. Collectable debt is debt not impeded as a result of dispute or an entity being insolvent.
The strategies to achieve our 2005-06 outcomes were based on:
- tailoring our approaches according to taxpayer circumstances, behaviour and risk profiles
- making early contact and following up with taxpayers who fall into arrears
- closely managing large debts
- being firmer in our response to taxpayers who are not willing to pay their debts, and
- providing certainty for taxpayers at all points of action.
Our debt collection approach is consistent with the intent of the taxpayers' charter and the compliance model. In dealing with any non-compliance, we consider a taxpayer's compliance history and adopt the remedy most likely to improve current and future compliance. The intervention options available to us include:
- making initial contact, generally by correspondence and/or telephone, to request compliance with tax obligations
- where there is no response or taxpayers break promises to pay, issuing default assessments or taking firmer action, including director penalty notices and garnishee notices, or
- taking legal or insolvency action.
Where new tax debts are not paid by the due date, we issue computer-generated reminder letters. This year we issued around 1 million reminder letters. We also responded to 327,000 letters and answered 1.55 million telephone calls related to debt collection and lodgment. The strong response we receive from our reminder letters continues to reinforce the importance of this strategy.
While we want to help people get over the line, and accommodate arrangements for those who are prepared to work with us to pay outstanding debts, we will take a firmer approach for those who choose to ignore us or break promises to pay, or businesses who simply are not able to trade out of their problems. This year we commenced 9,241 legal actions and issued 4,067 judgments, 3,776 bankruptcy notices, 1,224 creditors petitions and 1,723 wind-up notices. This is significantly more than we issued last year.
More than $73.15 billion of new debt was referred for collection action and $70.66 billion of debt was finalised during the year. The number of debt cases slightly increased due to a group of taxpayers remaining continually in arrears. This group typically comprises small business operators with income tax or quarterly tax liabilities who fail to clear small residual amounts on their accounts, or underpay their current payment obligations because of other business pressures.
During 2004-05 we introduced a small business debt assistance initiative, giving small businesses with a debt under $25,000 a one-off opportunity to clear their debts under favourable terms. We made it clear that we would take firm action against those who failed to take up the opportunity.
While we had some success in helping businesses clear their tax debt through such initiatives, many small businesses still do not engage with us. This year we took further action to engage these taxpayers. This included taking garnishee action on funds held in businesses or payable to them by others, and advising businesses that we would require financial institutions to pay us a proportion of amounts transacted through their merchant card facilities.
Early in 2006 we also trialled alternative ways of contacting and engaging with people who had a longstanding debt with us. One way was telephoning them at home in the early evening if we could not reach them through letters and calls to their businesses.
To enhance our productivity, we piloted new automated telephone dialling. This technology enables cases to be presented to one of our experienced contact officers for action only when a call is answered, without any pause experienced by the person called.
We also piloted work with a highly experienced external collection agency, which was authorised to secure full payment or negotiate payment arrangements with taxpayers on behalf of the Tax Office. The agency met all Australian Government privacy and security requirements. No debt was sold to the collection agency and uncollected debt remains the responsibility of the Tax Office. Nevertheless, in fairness to other taxpayers we have increasingly had to take firm action in appropriate cases.
We continually rebalance and improve our strategies to deliver fair and proportionate debt collection responses. As part of this continuous improvement, we are developing an analytical tool to better distinguish our treatment of debt cases by predicting the payment risk associated with individual taxpayers. We are also exploring other strategies for reducing debt, particularly the level of longstanding debt.
Total debt at 30 June 2006 was made up of:
- $10.23 billion in collectable debt
- $6.83 billion in debt subject to objection or appeal, with most of this debt being in the large business market segment, with the greatest value represented by a small number of significant income tax cases, and
- $1.72 billion in insolvency debt.
Table 3.30 shows debt collection results for the past four years, while table 3.31 summarises our results in terms of collectable debt as a percentage of total collections. Figure 3.11 shows the percentage value of debt collections for each of our market segments.
The information in table 3.30 does not align with our financial statements as it is sourced from our debt case management system. The total receivables disclosed in the financial statements is slightly higher than total debt in that it also includes current debt that has not yet been moved to the debt case management system.
Case study - Having problems paying your tax debt?
Bill and Kerry operate a partnership, which earns income from farming and machinery hire. In August 2004 they contacted us to say they could not pay their activity statement liability immediately, but could manage it over time. We arranged for them to pay off their debt in instalments, but they defaulted on their first payment.
In November 2004 they contacted us again to explain that their area was in severe drought and they were having to hand-feed their cattle. But they were looking at selling some property and this would help pay their debt. They asked for more time to pay their debt, which had now increased to $4,000.
We granted them an extension of time to pay and advised them that general interest charges that apply to debts would be remitted in full because of the drought.
In June 2005 we received a payment and a thank you note from Bill and Kerry. They had managed to pay off all but $900 of their debt, which by then had increased to almost $6,000. Bill and Kerry were granted a further payment arrangement. This arrangement has now been completed and the case finalised in December 2005.
We want businesses to contact us if they have a problem paying a tax debt. Where they have been affected by circumstances beyond their control, such as drought or floods, they may not have to pay interest and penalties.
Schedule 1 of the Taxation Administration Act 1953 gives the Commissioner responsibility for determining applications for release from debt on the grounds of serious hardship. The legislation allows release from certain taxes and penalties, including income tax, general interest charge, Medicare levy, and PAYG and fringe benefits tax instalments, but excludes GST.
Only individuals and the trustee of the estate of a deceased person can apply to the Commissioner for release where paying the debt would cause serious hardship. An applicant who is dissatisfied with the Commissioner's decision can lodge an objection and, depending on that decision, appeal to the Administrative Appeals Tribunal (Small Taxation Claims Tribunal).
For 2005-06 the Commissioner received 1,679 applications, with a total value of $80 million.
Table 3.32 shows details of the Commissioner's decisions on the cases processed during the year. The Commissioner granted full or partial release in 33% of cases processed, compared with 27% of cases processed last year. There were 51 appeals lodged.
Table 3.33 shows the outcome of the cases that were heard.
The Minister for Finance and Administration (or their delegate) has the power to waive a debt due to the Commonwealth in accordance with the Financial Management and Accountability Act 1997. A waiver expunges the debt such that it becomes irrecoverable at law.
The Minister has an unfettered discretion to consider each request for waiver, however, the most common condition under which a waiver is granted is where he concludes that there is a moral obligation, rather than a legal obligation, on the Commonwealth to extinguish the debt. A moral obligation may arise due to the continuing financial hardship of a person or entity, or where an inequity has arisen.
An application for a waiver of debt may be lodged by any entity and can apply to any revenue product. Information on how to lodge a waiver request is available on the Department of Finance and Administration website and also on our website.
While the Commissioner does not have the power to waive a debt, the Department of Finance and Administration will seek his opinion where the application for a waiver relates to a tax debt. The opinion provides background on the tax liability, the history of interactions with the taxpayer and further information on the taxpayer's circumstances. In 2005-06 the Minister waived a debt for 13 applicants, with a total value of $192,459.
Table 3.34 shows the number of cases where assistance was provided to the Department of Finance and Administration for the different revenue products.
3.6 Output 1.1.3 - Compliance assurance and support for revenue collection
To provide assurance that taxpayers are complying with their obligations and that the correct revenue is collected we:
- ensure that people understand their rights, responsibilities and obligations by providing them with information and self-help tools, answering their questions and informing the community of our view of the law on contentious issues
- provide certainty to taxpayers through the public binding rulings system, and the private binding and reviewable rulings system
- provide easy and effective ways for people to send us information, make payments and receive refunds, and
- apply a risk management approach to deter, detect and deal with non-compliance, collect the revenue that is payable under the law, and promote voluntary compliance in the community.
We aim to maximise the number of people who choose to voluntarily comply by helping taxpayers and their advisers understand their rights and obligations, and by making it as easy as possible for them to meet their obligations. At the same time, we adopt a risk management approach to deter, detect and deal with non-compliance, taking into account a taxpayer's circumstances.
We try to find the right balance between providing help (for example, education and advice), making it easy to comply (for example, pre-populating electronic tax returns), and our verification and enforcement activities (for example, risk reviews, audits and prosecutions).
Our approach is based on managing risk and responding quickly to changing circumstances. We monitor the tax system to identify risks and develop appropriate compliance strategies. We then actively tell people about the risks, what our position is and what they can expect from us.
The taxpayers' charter and the compliance model continue to guide our compliance work.
The charter is about being open and fair in our treatment of people, within the framework set by the law. It sets out our commitment to inform people of their rights, obligations and entitlements, and directs the way we behave towards the community and what the community can expect from us. This relationship has a starting point of mutual trust and respect.
The compliance model directs that we better understand why people are not complying, and develop appropriate and proportionate responses.
We verify compliance using a risk management approach. This means that how intensively we scrutinise taxpayers' affairs depends on the level of risk to revenue or to the integrity of the tax system. Each year we publish our view of the key risks and our planned compliance activities in our Compliance program, which is available on our website.
Where we identify a serious or widespread risk, we increase and intensify our scrutiny. We also differentiate our approaches and responses between those taxpayers who want to do the right thing and those who do not. We complement our market segment focus with compliance analysis of the various taxes we administer and the key points of contact that taxpayers have with us, namely:
- registering in the system
- keeping proper records
- lodging forms
- correctly reporting information, and
- making payments.
We focus on these areas because they are fundamental to taxpayer compliance. If taxpayers meet their obligations in these areas, we can be confident that the tax system is operating efficiently and effectively.
A large amount of our compliance effort goes into supporting people who want to do the right thing. This includes providing taxpayers and their advisers with help and information through our:
- dedicated telephone services
- publications and products specific to market segments and/or topics
- oral and written advice and rulings, and
- educational seminars and assistance programs.
We also try to make it easier for people to comply with their obligations by finding out how they want to deal with us and then offering products and services that they can understand and are practical to use.
We outline these activities in more detail in our publication Making it easier to comply, which is available on our website.
- We exceeded our commitments to government under the compliance challenges (which are specifically funded by the government).
- We substantially met the more than 500 commitments published in our Compliance program 2005-06.
- We exceeded our active compliance commitments under our formal goods and services tax (GST) performance agreement with the states and territories.
- For the first time, the number of those who do their own tax returns who lodged electronically (using e-tax and telephone lodgment) surpassed the number of paper returns lodged.
Table 3.35 shows how we performed against this output.
Our marketing and education activities support our business strategies and, in informing the community, build community confidence in our administration of the tax system and in our regulatory role in superannuation and excise. In August 2005 we appointed Buchan Consulting Pty Ltd to review our marketing and education capability.
As a result, we are redesigning our marketing and education capability to deliver a more cost-effective return on investment for both the community and the organisation.
Work has started on projects to redesign our marketing and education program, including:
- consolidating paper and web publishing into larger publishing teams to support the introduction of our new content management system
- establishing a central marketing services group to oversee the development of appropriate communication strategies, and
- further reviewing our seminars, workshops and expos currently provided to tax agents, intermediaries, small business operators, associations and community groups to consider how we can reconfigure these services to promote a capable and well-regulated tax profession, and support community education and information needs.
Through our provision of written advice program, we provide advice on our view of the law as it applies to the community generally, or to an individual's specific circumstances. Our aim is to help the community understand their obligations and entitlements so as to make it easier for taxpayers to comply with the law.
The precedents contained on our legal database help us deliver timely, consistent and accurate advice. We regularly review the database to ensure it remains current and accurate. As part of this work, we publish a range of 'precedential material' on the database, including public rulings, tax determinations and interpretative decisions. In uncluttering the database this year, we withdrew outdated advice, including 122 public rulings and tax determinations, 1 GST advice, 31 product and class rulings and 372 interpretative decisions.
Timeliness is also promoted by continually reviewing work practices and working with the community to develop processes and systems that best meet their needs. For instance, while there is no public rulings regime for the excise revenue system, we consulted with industry to produce The alcohol industry - excise technical guidelines to help taxpayers and reduce the need to seek further advice.
In 2005-06 our key focus areas included:
- implementing the recommendations of the Report on aspects of income tax self assessment related to private rulings, public rulings, oral advice, other written advice and publications
- implementing facilities on the Tax Agent Portal to enable us to electronically receive and classify tax agent correspondence, including requests for private rulings and objections
- bringing together the right knowledge and expertise to resolve complex issues
- consolidating our priority private ruling process
- developing real-time performance reporting for all areas involved in providing written binding advice n improving timeliness of written advice by monitoring and better managing delayed cases, especially those related to schemes marketed before 30 June 2003 and superannuation cases, and
- developing and maintaining mechanisms to assure our capability, for example, professional accreditation.
Case study - Making our decisions transparent
We help taxpayers and their advisers understand their rights and obligations and the reasons for our actions by making our technical decisions and research material publicly available.
Much of the research material our employees use is available on our legal database, including legislation, case law, public rulings, interpretative decisions and law administration practice statements. This reflects an open and accountable tax administration.
Some of the enhancements we made to the database this year include:
- improved searching - we introduced a summary of search results that groups results by document type, making it easier to locate information
- improved table of contents - we introduced a topic-based table of contents for public rulings, interpretative decisions and law administration practice statements for easy browsing, and
- more intuitive navigation - we improved the general layout and labelled functions more appropriately to make the system easier to use.
We have more improvements in the pipeline, including the consolidation and presentation of public rulings, and continue to receive positive feedback about the database. We are also considering whether a new search engine is required for our website.
Public rulings express the Commissioner's view on the interpretation of the laws the Tax Office administers. They are primarily aimed at tax practitioners but also help the community understand their obligations and entitlements under those laws. They are not binding on taxpayers, but are binding on the Commissioner to the extent that they advantage taxpayers.
The National Tax Liaison Group monitors our public rulings program to ensure that the topics reflect the community's priorities. To ensure that public rulings are of a high quality, we issue draft versions of rulings for comment by the professions and the community.
Most public rulings are reviewed by a public rulings panel before they are issued as drafts and again before they are finalised. During 2005-06 we had three public rulings panels: the Public Rulings Panel, the International Tax Rulings Panel and the Indirect Taxes Rulings Panel. They involve Tax Office technical experts and leading members of the legal and accounting professions and academia. Details of the membership of our panels are available on our website. However, in 2006-07 the International Tax Rulings Panel will be folded into the Public Rulings Panel to provide flexibility and continuity in the management and development of public rulings.
This year the time taken to issue draft rulings and determinations has been reduced overall, however, the time taken to issue final rulings and determinations has increased.
In 2005-06 we issued 446 public rulings:
- 100 public rulings and tax determinations dealing with a range of income tax, international, GST, superannuation and excise issues
- 96 draft public rulings and tax determinations, and
- 116 class rulings and 134 product rulings.
We are working with Treasury to ensure that new law is intuitively clear. We are also working with the National Tax Liaison Group to develop processes to ensure that only topics that have a wide impact on the community and that are generally uncertain come within the public rulings program.
Significant areas covered by public rulings issued during the year included GST and the margin scheme, guidance on a range of consolidation issues, and the deductibility of service fees paid to associated service entities. We also issued a further 23 GST advices during the year, converting logs of issues raised by industry to more accessible, more clearly explained and more accurate public rulings.
In addition to removing outdated material from the precedential database, we continued to ensure the currency of public rulings already issued by revising 115 product and class rulings and 17 public rulings and tax determinations. The substantial increase in revised product rulings was due to changes to the simplified tax system.
Case study - An innovative way to correspond with us
Private ruling requests, objections and responses to requests for more information can now be sent to the Tax Office electronically - thanks to further innovation in the very popular Tax Agent Portal.
Tax agents said they wanted to be able to correspond with us electronically - and be sure they could do so securely.
And we have responded.
As a starter, we co-designed private ruling and objection application forms, new portal screens and processes with agents so that, where possible, the forms and processes can be integrated with
their business systems. This saves me, acknowledges receipt immediately and enables tracking.
Private rulings and objections are just the first step in providing agents with the capacity to lodge all their correspondence with us via the secure Tax Agent Portal. We plan to expand this innovative medium to all correspondence early in 2006-07.
Private rulings provide individuals with a means of obtaining the Commissioner's view of how the law applies or may apply to their specific, actual or proposed circumstances. In essence, they allow taxpayers to request that they be 'assessed' in relation to an existing or proposed transaction.
Taxpayers can request private rulings by providing the Tax Office with a full and true disclosure of the material facts in relation to an actual or proposed transaction. An easy to use form is available on our website. Tax agents who seek private rulings on behalf of their clients can use a similar form but are expected to apply a basic understanding of the issue the ruling relates to. The Commissioner is legally bound to the view expressed in a private ruling and cannot assess a taxpayer to any more tax than is payable by applying the private ruling. However, taxpayers are not obliged to follow a private ruling.
Taxpayers can object to private ruling decisions (except those relating to indirect tax) and have them reviewed by the Administrative Appeals Tribunal or the courts. With the changes resulting from the review of self-assessment, taxpayers can also object to the Commissioner's failure to make a ruling after being given notice to do so, but no such objections were received for 2005-06.
The number of objections against private rulings we received remained low, at less than 2% of the total number of private rulings issued.
Figure 3.12 shows the number of private rulings issued by each business line in 2005-06.
This year saw further development of the priority private ruling process, which helps company boards actively manage the tax risks associated with major transactions. It enables us to provide advice on complex matters in timeframes consistent with taxpayers' business needs, and continues to generate positive feedback from taxpayers and their representatives. The principles underpinning the priority process are now being applied to other areas of our work, including active compliance.
Our client contact area provides frontline telephone services to tax practitioners and the community, including our self-help telephone services. This includes providing essential services that offer information and support for taxpayers across market segments to help them comply with their tax obligations. Successfully implementing a client relationship management system in this area brings alive our commitment to make the tax system easier, cheaper and more personalised for the community.
In May 2006 we incorporated several different management streams into a single business line. The purpose of this change was to further improve the way we manage our interactions with taxpayers.
Number of calls received
In 2005-06 our client contact areas received 1.9 million calls from tax practitioners and 9 million calls from individuals and businesses. The calls involved providing advice and transactional assistance to taxpayers.
Our 24-hour, 7-days a week, self-help services received 1.6 million calls, which was 1% more than last year. The increase was partly a result of promoting new options - the ability to elect annual GST lodgment, search for lost superannuation, quote a tax file number for superannuation surcharge purposes, and order publications. The services were promoted directly by writing to taxpayers, through advertisements and on our website. We are investigating opportunities to introduce more self-help alternatives for taxpayers.
Calls disconnecting before being answered
Around 7.3% of calls ended before the taxpayer spoke to a contact officer, which is an increase of 1.6% from last year. Calls are abandoned when we receive a high volume of calls and are unable to meet the demand from taxpayers for short intervals. Centralising our client contact activities into a single line will improve planning and management of resources to better address peaks in demand and reduce the number of calls abandoned because of extended waiting times.
Overall, we answered 97% of all calls received within 10 minutes.
For general calls, we achieved the service target, but not the target to answer the majority of calls within 10 minutes. We answered:
- 83.4% of calls within 5 minutes (target of 83.0%), and
- 96.5% of calls within 10 minutes (target of 99.5%).
The average wait time for general calls was 2 minutes and 44 seconds. or tax practitioner calls, we achieved our target to answer the majority of calls within 10 minutes, but not the targets for service or average wait.
- 86.7% of calls within 2 minutes (target of 90.0%), and
- 99.9% of calls within 10 minutes (target of 99.5%).
The average wait time for tax practitioner calls was 52 seconds (target of 30 seconds), an increase of 3 seconds from last year.
The first half of the year showed a strong performance against standards for client contact and saw the successful implementation of a client relationship management system for contact officers under the first release of our easier, cheaper and more personalised (change) program.
However, performance in the second half of the year was weaker, being adversely affected by a number of factors. These included a number of instances of portal failure, power outages, local flooding, telephony platform problems and competing budget priorities. The need to support the development and implementation of the second release of our change program and the requirement to support the development of a whole-of-government national emergency call centre also impacted on services to taxpayers and their representatives.
We are working with tax agents on ways to improve their access to technical advice.
The client relationship management system allows us to provide a better service to taxpayers by recording interactions with them and streamlining our proof of identity procedures. We launched an updated release in May 2006, providing further enhancements and extending the system to other areas of the organisation.
This year 86% of calls sampled passed the quality standard, which is a 1% improvement from last year. The overall quality assurance result includes aspects of how we interact with taxpayers (for example, ensuring we protect their privacy and provide courteous service). The result for technical accuracy was 88%.
Early in 2006 we introduced a standardised quality assurance model to provide immediate feedback to contact officers on all calls assessed. It also incorporates an issues register, which captures ideas on how to improve quality and reduce complaints and call volumes. We have seen positive results since introducing the new model, including more calls being escalated to the correct area when contact officers cannot finalise an enquiry.
We developed and implemented a new reference system. Consolidating our reference material onto one website has improved communication and understanding between business lines, increased the quality of the content, and reduced duplication and maintenance costs associated with multiple reference systems.
We also improved some of our self-help services. For example, recent improvements to our online publications ordering service include an easier log-in function, increased order limits, a better search facility and previous order history. Similarly, modifications to the automated payment facility (interactive voice response application) have seen the volume of auto-serviced payment arrangements increase by 100%. These enhancements have helped us provide a high level of service and reduce the number of calls that require intervention from contact officers, and have increased levels of voluntary compliance.
This year we supported major government campaigns, including choice of superannuation fund, the 30% child care tax rebate and the fuel excise reform project. We also met our commitment to support the whole-of-government initiative for a national emergency call centre by training around 600 employees, who are now ready to handle such calls at short notice.
We are also taking part in a range of initiatives under the Tax Practitioner Improvement Project, designed to improve the experience tax agents have when dealing with us and make it easier for them to help their clients comply with tax obligations. The initiatives include promoting the payment arrangement self-help (interactive voice response) service and educating tax agents on use of the Tax Agent Portal. We continue to receive excellent feedback on our services through surveys, including the Taxpayers' charter research report (PDF 816KB).
In 2005-06 we continued to meet the service standard for our shopfront service. We interviewed 93.5% of taxpayers (target 90%) within our service standard. Between July and October the standard is 15 minutes, and 10 minutes for the rest of the year.
As we develop other channels for interacting with taxpayers, we continue to examine the cost-effectiveness of our shopfronts. As a result, this year we closed two appointment-only sites operating for one day a week, in Penrith and Chermside. We are promoting alternative channels of access such as the internet, our call centres and e-tax. However, we recognise that some taxpayers will always prefer to deal with us face to face. Accordingly, we continue to provide face-to-face assistance in a range of our sites.
eRespond is an online email service provided by the Tax Office to answer general tax enquiries from the public. It can be accessed via the 'Individuals' home page on our website. eRespond is an unsecured transmission channel that is restricted to general information requests only, but we are exploring the feasibility of extending this service to a wider range of advice requests.
In 2005-06 we exceeded the service standard for eRespond, handling 7.7% of interactions within 3 days (target 90%). We received more than 29,000 emails from taxpayers using this service during the year.
We have developed a risk assessment framework to help us understand lodgment patterns to better focus our compliance efforts. This has allowed us to develop strategies to address identified groups of high-risk taxpayers and apply differentiated treatments.
Although our strategies are aimed at visible and effective deterrence in areas of high risk, we also strive to educate and help taxpayers and positively influence their future compliance behaviour.
This year we placed more emphasis on small to medium enterprises and large businesses, as well as on high-risk areas.
One high-risk area is taxpayers who are expected to have a tax liability of more than $20,000. Through a combination of educational and enforcement strategies, we improved the lodgment performance of these taxpayers. In 2003-04 only 49% of this group lodged on time. This improved to 60% in 2004-05 and 82% this year, which represents a significant and progressive shift in behaviour.
We continued to effectively use external information to help identify people and businesses who are not meeting their lodgment obligations. An example is using professional registration for the legal profession to identify all practising solicitors, magistrates and barristers.
The lodgment performance of barristers, solicitors, judges and magistrates continued to improve. We focus on those moving into and within the legal profession, including new graduates who are now practising solicitors and individuals admitted to the bar.
We also used external information to review the lodgment compliance of high-profile sports professionals. We identified 2,807 players and player- managers connected with the Australian Football League, the National Rugby League, the Australian Rugby Union, Soccer Australia, the National Basketball League and Cricket Australia, and high-income earning golf and tennis professionals.
At the start of the review in September 2005 there were 306 sports professionals with overdue income tax returns. At 30 June 2006 this number had dropped to 73.
We also reviewed the lodgment performance of 202 high-profile taxpayers from selected fields and professions, including business people, people involved in entertainment and the arts, and senior public servants. Initially, 24 had outstanding returns, but by 30 June 2006 this number had reduced to three.
While the revenue raised from these exercises has been relatively low, the intent is to address the community's expectation that high-profile taxpayers comply with their tax obligations.
We continued to match data provided by Australian financial institutions offering low documentation loans with our taxpayer records. We reviewed 133,000 records and identified more than 19,500 taxpayers with outstanding income tax returns, and almost 7,000 with outstanding activity statements. Enforcement action was taken against these taxpayers, and is continuing.
We also conducted a pilot audit program of a small number of loan brokers. Six out of eight cases were adjusted, with tax, penalties and interest raised exceeding $500,000. Some of the issues identified related to poor record keeping, non-return of cash payments, Division 7A and fringe benefits tax. In addition, a number had poor lodgment histories and have been referred for further action. Further work in this area is planned for 2006-07.
During the year our overall targeted enforcement strategies resulted in 231,320 lodgments and revenue of $758.7 million. There was also an increase in the numbers of cases finalised as a result of legal action. At 30 June 2006, 4,895 cases had been successfully prosecuted, compared to 4,192 last year.
We recognise the important assistance that tax agents and professional and para-professional groups provide to taxpayers and their important role in the efficient operation of the tax system. Accordingly, we continually improve the support we provide to them and this year focused on improving our communication with agents and their clients.
We have extended our working relationship with agents and other groups through the Lodgment Working Party, a consultative forum that includes tax practitioners. Together we have improved the tax agent lodgment program and developed ways to help agents manage their lodgment workloads. An example is the new 'one for one/like for like' deferral option, which allows agents to defer lodging returns for clients who are up to date to help ease the burden of preparing and lodging returns for clients who have been operating outside the system. This deferral option recognises the effort required to bring clients up to date and the impact it has on agents' lodgment workloads.
Active compliance includes advisory, verification, enforcement and prosecution activities that can be undertaken in the field, by telephone or by letter or, in some cases, without any taxpayer contact. The aim of active compliance activities is to deter non-compliance and ensure that taxpayers who comply with their obligations are not at a personal or commercial disadvantage relative to those who do not want to comply.
Accordingly, it is the indirect effects of our active compliance activities that are more important than the direct results (revenue and penalties). While we are exploring whether there are better measures of effectiveness, it is worth noting that overall collections this year exceeded Budget forecasts.
We actively manage taxpayer compliance with a number of revenue products that make up the different elements of the tax system, with the main ones being income tax (including capital gains tax), GST, superannuation and excise. Other revenue products include fringe benefits tax, luxury car tax, petroleum resource rent tax and wine equalisation tax.
The nature and level of risk, and the revenue derived from each product, varies according to the type of taxpayer. We therefore separate compliance risks into six market segments so that we can differentiate our responses according to the level of risk presented by the characteristics and circumstances of different taxpayers.
The market segments are:
- individual taxpayers
- micro businesses - businesses with an annual turnover below $2 million
- small to medium enterprises - enterprises with an annual turnover of between $2 million and $100 million
- large businesses - business groups with an annual turnover above $100 million
- non-profit organisations, and
- government organisations.
Material that is not specific to a particular market segment is covered under 'Cross-market revenue product information'. Information on revenue products that is specific to a particular market segment is covered under each market sub-heading.
How intensively we scrutinise a taxpayer's affairs depends on the level of risk to the effective operation of the tax system. Where we identify a serious or widespread risk, we increase our level of attention to that risk.
We use a range of mechanisms to identify and evaluate emerging risks. For instance, large businesses come under intense scrutiny, given the size and complexity of their transactions. At the same time, we differentiate between taxpayers who are trying to do the right thing and those who are not. Accordingly, taxpayers may receive help, have their affairs reviewed, be subject to audit, or be prosecuted where deliberate acts of evasion or fraud are involved, depending on their circumstances and levels of culpability.
Case study - Compliance capabilities boosted
The half billion dollar investment in our change program has already boosted our audit capabilities, in particular, through technologies such as data mining and analytics. These technologies involve analysing a set of data to detect trends and patterns, from which we can then establish risk parameters.
For example, we are using data mining to identify taxpayers who are at a high risk of not lodging returns and forms, or of lodging them late. We can then develop specific follow-up action for these taxpayers.
In a lodgment compliance pilot, we developed a range of tailored strategies for different taxpayer groups who had ignored previous requests to lodge or pay. The strategies, which included tailored letters and more focused telephone contact, raised additional net revenue of $118 million.
Using data mining to improve the way we process income tax high-risk refunds is another example of how these new technologies are boosting our capabilities.
To achieve the right balance between issuing tax refunds quickly and confirming the validity of refunds, we automatically test all tax returns
lodged against a broad set of risk criteria. If the criteria are triggered, we verify claims made on the tax return before releasing the refund.
This process has been enhanced by a new risk profiling tool that enables us to do further tests using data mining and automatically release refunds assessed as low risk.
This has reduced the number of refunds requiring manual review, and the associated delays, and this year resulted in more refunds being automatically released within 10 days of lodgment.
We expect to achieve even faster turnaround times for income tax refunds next year, reducing the number of cases referred for verification while still protecting the revenue.
All this complements our skilling and accreditation programs for our compliance officers (see part 4.3).
We report our active compliance results under both Output 1.1.3 and Output 1.1.4. This section contains the results for Output 1.1.3. See part 3.3 for consolidated results for both outputs.
In 2005-06 we raised $6,244 million in total liabilities (tax, penalties and interest) from our active compliance work. While large businesses continued to make the largest contribution to active compliance results, this year's results also reflect our increased focus on the upper end of the small to medium enterprises market segment.
We previously reported all lodgment enforcement with our debt collection activities under Output 1.1.2 - Management of revenue collections and transfers. Starting in 2005-06, we now include lodgments achieved as a result of specific compliance strategies within our active compliance results. This aligns with an increased active compliance focus on this area during the year.
Disputes over adjustments made as a result of our active compliance activities can take several years to resolve. This is especially so for cases involving large businesses because of the complex issues involved. Our Large Business and International area tracks the impact these credit amendments have on its active compliance results.
Figure 3.13 shows the amount of total liabilities we have raised in the large market segment each year over the last four years, before and after adjusting for these credit amendments resulting from resolution of disputes. Credit amendments made during 2005-06 reduced liabilities by approximately $596 million. While $20 million of these amendments related to liabilities raised in 2005-06, most related to liabilities raised in previous years.
Of the $2.5 billion liabilities reported for the large business market segment for 2005-06, approximately $1.3 billion relating to significant cases is under dispute. Of this amount, approximately $1 billion is subject to objection and $0.3 billion is subject to appeal or litigation.
Our active compliance results include a range of activity types. These include activities to secure certain lodgments, pre-issue activities to prevent incorrect refunds or payments being issued, as well as post-issue activities such as reviews and audits.
The outcome of some active compliance activity is to protect revenue in the future, for example, by reducing (where appropriate) carried forward losses and potential rental and work-related expense claims. This year our active compliance activities protected an estimated $1.7 billion in revenue (this amount is shown separately in tables 3.36 and 3.37 and tables 3.39 and 3.41 to 3.45).
Table 3.36 shows our active compliance results by revenue product, while table 3.37 shows the same results by market segment.
Our active compliance results include tax, penalties and interest. Following a recommendation in the 2004 Report on aspects of income tax self assessment, a shortfall interest charge applies to shortfalls arising from amended income tax assessments for 2004-05 and later income years.
The shortfall interest charge is lower than the general interest charge. Shortfalls for other income years or other tax obligations will continue to attract the general interest charge from the original due date for payment. In most cases, this will be a date before a shortfall is notified. Commencing in 2006-07, interest reported will include separate results for the general interest charge and the shortfall interest charge.
This was the second year we received specific funding from the government for a range of compliance challenges, which will continue until 2007-08.
The additional investment has been provided to allow us to:
- increase our risk analysis and intelligence gathering, and undertake more audits and reviews of employer obligations such as pay as you go (PAYG) withholding, superannuation guarantee and fringe benefits tax
- undertake more tax performance reviews and audits on small to medium enterprises to assess their overall tax performance against their economic performance
- focus more on the tax affairs of individual taxpayers in light of the significantly higher rates of participation in share and property markets over the last few years. The additional funding has enabled us to scrutinise more returns, looking in particular at capital gains tax, rental deductions and fraudulent refunds
- leverage compliance in the individuals market by increasing our investment in examining tax agents who are most at risk of not preparing tax returns correctly, and undertaking more work-related expense audits, and
- address a number of superannuation risks, including:
- clearing the backlog of superannuation surcharge exceptions
- issuing more letters requesting that a tax file number be quoted so we can raise surcharge assessments
- auditing more self managed superannuation funds
- writing to superannuation fund members on the Lost Members Register to reunite them with their superannuation entitlements, and - following up employee complaints about employers who fail to pay the superannuation guarantee.
In our second year of compliance challenge commitments we exceeded the total liabilities target by 61%, the total cash collections target by 61%, and the total coverage target by 1%.
We were funded to improve the skills and knowledge of our employees to deal with existing and emerging challenges through our learning programs. We also assured our active compliance capability through assessment and accreditation. There is additional information on our skilling and accreditation in part 4 of this report (see 'Skilling and learning').
As part of our change program, we started to implement a new case management system in May 2006, with approximately 1,000 active compliance officers using the new system by the end of 2005-06.
The remaining 4,000 officers will be phased onto the system by the end of December 2006. We will measure the effectiveness of the new system in a number of ways, including the number and percentage of cases completed within a specified time period. We recognise that productivity and service standards may be affected during the implementation period and have asked taxpayers and their representatives for their patience and understanding during this transitional period.
We started preparing to move to the new system in 2004-05 with a review of our audit, review and other active compliance processes. As a result, we rationalised the number of processes and established new benchmarks for how long it should take to complete different types of cases, leading to more efficient management of our activities. These processes and benchmarks have been built into the new case management system. We will refine the benchmarks and measures based on our experience.
While we deal with many tax system integrity risks using a market segment approach, some risks are common to a number of segments and these are reported on in the following section. Risks that are specific to particular market segments, and the results of our active compliance work in those market segments, are reported immediately after the cross-market information.
There are also other major risk areas, such as aggressive tax planning and serious evasion and fraud, that are common to many or all of the market segments. So we also undertake compliance activity around risks in specific focus areas, which are covered under 'Risks in specific focus areas'.
Goods and services tax
In 2005-06 estimated net GST cash collections were $37.4 billion (including net GST of $2.5 billion collected by the Australian Customs Service). This is 0.3% above the original Budget estimate of $37.3 billion. This year GST collections represented 16.1% of total tax collections.
We raised $1,617 million in GST liabilities (including penalties) as a result of our compliance program. During the year our focus shifted from broad-based compliance activities to addressing more specific GST compliance risks, particularly among micro businesses and small to medium enterprises.
The number one risk for GST is refund integrity. A high-risk refund is a potentially incorrect refund claimed through an activity statement, payment of which could result in a significant loss of revenue, or undermine the community's confidence in our administration of the tax system.
The risk exists in all market segments but the majority of refunds are made to micro businesses. Large businesses account for the greatest percentage of refunds by value. We must balance the need to assure the accuracy and entitlement of a claim against the service standards outlined in the taxpayers' charter.
We have a system of pre-issue reviews and post-issue assurances to identify and check high-risk refunds through a client manager, or desk-based or field activity. We have, however, implemented all recommendations relating to active compliance activities arising from the Inspector-General of Taxation's 2004 review of our processing of activity statement refunds, which accept a slightly higher level of risk. The recommendations relate to more timely processing of refunds and more effective monitoring and tracking of refunds as they are processed.
Property and construction
This year we had a centralised, coordinated program across the property and construction industry. We also addressed risk issues through our aggressive tax planning and cash economy work.
In relation to aggressive tax planning, we challenged schemes designed to avoid GST payable on the supply of new residential premises through the use of joint ventures, grouping or going-concern provisions. Some taxpayers corrected their treatment of GST on these sales as a result of our educational materials and information products. However, others are challenging our view of the law on these matters.
We released a number of public rulings, tax determinations and practice statements dealing with how the margin scheme operates, following changes to the law at the start of the year. We also developed products addressing settlement adjustments and improvements on land.
We conducted 450 audits or reviews under a coordinated program focusing on undeclared income, valuations, inappropriate claiming of credits or underpaid GST in complex corporate structures, and correct registration or de-registration of taxpayers.
Wine equalisation tax
We administer A New Tax System (Wine Equalisation Tax) Act 1999, which creates a liability for assessable dealings in wine and allows for a rebate to eligible producers.
This year we continued to work with the wine industry on issues identified through our risk assessments and compliance activity, including registration and claims for the extension of wine equalisation tax to New Zealand wine producers from 1 July 2006.
There were no criminal prosecutions or administrative sanctions imposed, however, eight breaches resulted in penalties of $75,099 being imposed.
A significant development during 2005-06 was the implementation of a new superannuation compliance business model that is characterised by a stronger regional management structure and a more diversified approach to compliance activity.
This year we followed up on the lodgment of member contribution statements and income tax and regulatory returns for superannuation funds that failed to lodge on time. In 2005-06 we issued lodgment letters to more than 38,000 funds for outstanding member contribution statements and income tax and regulatory returns.
We also integrated operational aspects of superannuation with our enterprise-wide processes. This has significantly improved our ability to clear superannuation surcharge and superannuation guarantee backlogs.
Luxury car tax
The 25% luxury car tax was introduced on 1 July 2000 to replace the 45% wholesale sales tax on luxury cars. The tax is additional to any GST payable and is generally paid when a car is sold or imported at the retail level.
A luxury car is a car with a GST-inclusive value exceeding the luxury car tax threshold. The luxury car tax threshold for 2005-06 was $57,009, and remains unchanged for 2006-07.
This year we collected $322 million from luxury car tax and raised $5.1 million in luxury car tax liabilities as a result of our compliance activities.
Since the introduction of GST, sales tax has become a legacy tax, with a reducing need for compliance activity. The main area for compliance checks has been verifying refunds, which have continued to reduce.
In the main, sales tax refunds are now restricted to claims for bad debts and refund claims that were held pending the outcome of litigation in the Federal Court in relation to electrical cables used for local area networks. This litigation has now been finalised, establishing the entitlement to these refunds, and checks have been made to verify the claims.
Fringe benefits tax
Approximately $3.7 billion is collected annually from about 73,000 employers under the Fringe Benefits Tax Assessment Act 1986. Car and expense payment fringe benefits together comprise just under 70% of fringe benefits tax revenue. Around 1.3 million employees receive taxable benefits, and annual reportable benefits exceed $7.8 billion.
Fringe benefits tax generally has high compliance costs for employers and many compliance requirements are subject to detailed statutory prescription, which can lead to administrative difficulties. In April 2006 the Treasurer announced changes designed to reduce the costs of complying with the fringe benefits tax legislation.
This year we increased our active compliance focus in this area, reviewing the fringe benefits tax obligations of around 5,000 employers as part of their employer obligations. We conducted another 146 fringe benefits tax specific audits, raising $23.1 million in additional revenue. There were also 261 requests for private binding rulings on fringe benefits tax matters completed during the year.
In 2005-06 no breaches of the Fringe Benefits Tax Assessment Act 1986 resulted in prosecution action. No breaches of the Fringe Benefits Tax (Application to the Commonwealth) Act 1986 were identified in 2005-06.
We focused on helping employers meet their obligations to forward all PAYG amounts withheld from employees' wages by the due date and reconcile these amounts in a yearly report.
In 2005-06 we completed 20,988 desk-based reviews, which established more than $121.3 million in additional liabilities and an additional $93.2 million in collections. Improving the way we selected cases for review increased the value of additional liabilities raised per case reviewed, minimised delays in low-risk cases and improved the efficiency of our case actioning.
We also reviewed and audited employers identified as high risk. Our activities included case selection, case profiling reviews, special issue enquiries by outbound telephone calls, and field visits to review employer records or conduct full audits of compliance with employer obligations.
This work was established as part of the compliance challenges in 2004-05 and has exceeded both coverage and revenue estimates. The return on investment is significantly above expectations, with the program raising $176.6 million this year, including more than $32.4 million collected by active compliance officers in the field.
Two highlights of our work in this area this year were:
- development of an online decision tool for the building and construction industry, and
- our WorkCover project.
We developed an online decision tool to help employers in the building and construction industry determine whether their workers are employees or contractors. The decision tool is available on our website and has been well received by industry participants for its ease of use and the greater certainty that it provides. We are planning to extend the tool to help employers in other industries make these decisions.
As part of our WorkCover project, we matched WorkCover third-party information to identify employers who were potentially operating outside of the PAYG withholding system. We then telephoned businesses to determine the reasons for the apparent discrepancy between WorkCover information and our information. Where we determined that a business was employing workers, we followed up with a field investigation.
Under our WorkCover project this year we:
- profiled and contacted 1,317 businesses
- escalated 237 cases to field activity, and
- completed 44 audits that returned more than $4.4 million.
We learnt that there may be legitimate reasons why an entity is not registered for PAYG withholding but is registered for WorkCover. For example, in more than 60% of cases examined, the correct PAYG withholding had been reported by related entities. We can easily verify these obligations through profiling and telephone contact, thereby optimising coverage and minimising disruption to taxpayers.
We also found that most employers who were failing to meet their PAYG withholding obligations were also not meeting their superannuation guarantee obligations.
Risks that are specific to particular market segments, and the results of our active compliance work in those market segments, are described in detail on the following pages.
Active compliance - individual taxpayers
Table 3.39 shows our active compliance results for individuals
Capital gains tax
Taxpayers failing to report capital gains on the sale of property and shares continued to be of concern. In 2005-06 we matched property and share sales data with the tax returns of individuals and conducted 3,380 targeted audits, which raised $35.2 million in tax from omitted or incorrectly calculated capital gains.
We continued to match external data from state government authorities and other external providers with our data to identify the highest risk cases.
We sent letters to 22,000 taxpayers who purchased investment properties or shares in 2005-06, advising them of their capital gains tax obligations if they dispose of the asset. We also sent letters to 5,463 taxpayers who appeared to have made a large capital gain from disposing of property or shares in 2004-05, before they lodged their income tax return.
We continued to enhance our range of information and help products, including online calculators, and our work with intermediaries to ensure the information and products satisfy taxpayer needs.
Work related expenses
In 2005-06 we targeted common mistakes taxpayers make in claiming work-related expenses, as well as claims that appeared to be false or could not be substantiated. We reviewed and amended claims where necessary, and audited 4,629 high-risk cases, which resulted in revenue adjustments of more than $12.7 million in tax and penalties.
We wrote to more than 226,000 taxpayers before they lodged their 2004-05 income tax returns to inform them of our concerns and where they could find information to ensure their return was correct. Some 16,000 of these taxpayers were asked to provide more information with their return. We paid particular attention to taxpayers who lodged returns late and had higher than average claims, and to those in occupations with a high rate of mistakes in work-related expense claims in the past.
We selected 16,533 returns for review or audit where, for example:
- claims for deductions seemed high or excessive compared to the salary and wage income declared
- claims for deductions were outside the regular pattern for a particular occupation or industry
- we had sent an advisory letter to a taxpayer before tax time and their claims had increased
- we had not received a response to requests for information, or
- tax agents had deduction claim averages or increases outside the regular pattern for their clients or their clients' occupations or industries.
While the rate of growth in work-related expenses slowed during the year, we continue to be concerned at the rate of mistakes we observe, and this area continues to receive our attention.
Rental income and expenses
Following the 19.5% increase in the amount of rental deductions claimed in 2004-05 compared to 2003-04, we extended our education activities to explain the correct extent of deductions available in this market.
We sent advisory letters to 100,000 taxpayers who recently entered the rental market to help them complete their returns. In September 2005 we sent 30,000 letters to taxpayers already in the rental market. The letters detailed common mistakes and were sent before these taxpayers lodged their returns, reflecting our 'prevention is better than cure' philosophy.
In November 2005 we sent an extra 15,000 letters specifically addressing interest expenses and minimal rental income.
We completed 11,152 audits and reviews of rental income and expenses, resulting in revenue adjustments of more than $6.9 million in tax and penalties.
The increase in deductions in 2005-06 was 15%, not all of which can be explained by market movements.
High risk refunds
We continued to review income tax high-risk refunds to individuals to maintain the integrity of the refund process, protect government revenue and mitigate the risk of fraudulent refunds. This strategy proved to be effective, with 31,560 income tax high-risk refund reviews resulting in the protection of $41.2 million in revenue.
Data matching allows us to electronically compare information from a variety of government and non-government sources to identify compliance issues. During the year we used data matching to review more than 10 million taxpayers. Our automated systems match income tax return information with large volumes of external information from companies, financial institutions, government agencies, employers and private health funds to verify details such as:
- interest and dividend payments
- government benefits and other payments
- Medicare levy surcharge
- employment income, including salary and wages, allowances, lump sum payments and reportable fringe benefits, and
- health insurance premiums paid.
Where there is a discrepancy between what is included in tax returns and the information we get elsewhere, we follow it up with taxpayers and give them the opportunity to check any information other parties have given us. Where the third-party information is correct, we amend the return and penalties may apply. Overall, there is a relatively high level of voluntary compliance in relation to these matters.
Case study - Third-party data reveals omitted income
Third-party data is a powerful tool that we are increasingly using to identify taxpayers who fail to declare cash income. The data includes records from the Australian Transaction Reports and Analysis Centre (AUSTRAC), Centrelink, motor vehicle auction houses, local councils, state government licensing data and racing industry payment data.
In one instance, third-party data revealed that a publishing company had omitted $462,000 from its business accounts by using a cheque cashing facility. The company made a voluntary disclosure when we contacted them, and we also became aware that the practice was being promoted by word of mouth. This case raised around $219,000 (including penalties) in revenue, and we are currently investigating several related cases.
In another instance, a past employee of a landscaping business told us that many employees were regularly being paid 'cash in hand' amounts of around $150 and that 75% of the business income was received in cash.
On investigation, we found major discrepancies between financial institution records and amounts returned in tax returns and activity statements. The business operator was transferring cash between various trading and private accounts (including credit card and TAB accounts) to pay wages, and was not accounting for business income. We identified further undisclosed income using AUSTRAC data. The extra liability established (including penalties) was $328,000.
Superannuation contributions surcharge
Surcharge arrangements operated under the provisions of the Superannuation Contributions Tax (Assessment and Collection) Act 1997, the Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Assessment and Collection Act 1997 and associated Acts. Amending legislation was enacted during 2005-06 to abolish the superannuation surcharge. It is no longer payable on contributions made, or certain employer termination payments received, after 30 June 2005.
In administering the abolition of the superannuation surcharge this year we:
- established a project team to address the effects it will have on our systems and on taxpayers
- provided information to the community, including taxpayers, funds and the media, about the abolition of the surcharge. This included advice that we will still collect the surcharge for 2004-05 and previous years, and
- consulted with stakeholders through our external committee arrangements.
In 2005-06 funds still had to report member information for 2004-05 and previous years and we continued to process surcharge assessments for contributions made before 1 July 2005. A processing problem prevented assessments being issued during February 2006, but we issued the affected assessments in May 2006 and the normal processing schedule will be fully resumed by August 2006.
Reporting by funds through member contribution statements will continue largely unchanged beyond 2005-06 for the purposes of calculating entitlements to the co-contribution and for the superannuation guarantee.
We maintain debt accounts for members of constitutionally protected superannuation funds, and will continue to provide members with annual account statements, including interest applied for that year. A fund member's final surcharge liability is not determined until a member exit statement is lodged by the fund. We then issue a notice of final liability to the member.
Unfunded defined benefit funds are responsible for maintaining members' debt accounts and will continue to notify members annually of any outstanding surcharge debt, including interest applied for that year. Funds withhold the final surcharge liability from a member's exit payment and remit it to the Tax Office.
Reasonable benefit limits and eligible termination payments
Retirement and termination of employment benefits, such as pensions and eligible termination payments (ETPs), are eligible for special tax treatment. An ETP is a lump sum paid by an employer or a superannuation fund that may be eligible for a tax concession under the provisions of the Termination Payments Tax (Assessment and Collection) Act 1997. The tax concession reduces the amount of tax associated with the payment of ETPs and pensions. But there are limits on the maximum amount of benefits a person is entitled to receive on a concessionally taxed basis during their lifetime. These limits are called reasonable benefit limits.
Payers of retirement and similar benefits are required to report ETPs and the commencement of pensions or annuities to the Tax Office so that we can determine whether the benefits have exceeded an individual's reasonable benefit limit. Every time a new benefit is reported, a determination is made, adding the current benefit to any previous benefits and measuring them against the reasonable benefit limit.
This year we processed approximately 1 million benefits, with approximately 8,000 of these benefits exceeding the reasonable benefit limit for approximately 5,000 taxpayers, as shown in table 3.40.
Where an ETP exceeds the reasonable benefit limit, the excessive amount of the ETP must be reported in the individual's tax return so that the correct tax treatment is applied. Pensions and annuities that exceed the reasonable benefit limit are not eligible for the 15% superannuation pension or annuity tax offset.
This year our compliance activities focused on assuring that ETPs and pensions were correctly reported for reasonable benefit limit purposes.
We did this by:
- monitoring payments of golden handshakes made by employers to check they had been reported, and following up where they were not
- matching PAYG withholding payment summary and reasonable benefit limit data to identify employers and superannuation funds that failed to report, and following up where they did not
- matching self managed superannuation fund income tax return and reasonable benefit limit data to check that ETPs and other retirement benefits were reported, and following up where they were not
- undertaking field checks of employers to ensure they met their obligations
- checking if excessive ETPs had been correctly declared in tax returns by matching tax return and reasonable benefit limit data, and following up where they were not, and
- determining whether taxpayers whose pensions exceeded their reasonable benefit limit had over-claimed the superannuation pension or annuity tax offset.
We contacted payers who failed to meet their reporting obligations and secured the lodgment of approximately 900 reasonable benefit limit reports. We amended 78 income tax assessments for an additional $1.8 million, including general interest charge and tax shortfall penalty, where individual taxpayers over-claimed the superannuation pension or annuity tax offset or failed to declare excessive ETP components in their tax returns.
The work showed there is still a high rate of non-compliance by payers of benefits and individual taxpayers.
Our work highlighted that funds and employers are concerned about the complexity of the calculations required when paying and reporting an ETP. In response, we developed an online ETP calculator to help calculate and report ETP components. The calculator is available on our website and was accessed approximately 26,000 times during 2005-06.
In the 2006 Federal Budget the Treasurer announced that the government was seeking comment on a plan to simplify and streamline superannuation. This plan includes changes to the treatment of ETPs.
Self managed superannuation funds
Our work with self managed superannuation funds under Output 1.1.3 is closely aligned with our role in the regulation of superannuation funds' compliance with retirement income standards (see part 3.7).
Departing Australia superannuation payments
Temporary residents who depart Australia can choose to be paid their accumulated superannuation benefits, subject to tax being withheld at the appropriate rate. We are responsible for administering departing Australia superannuation payments, in line with the provisions of the Superannuation Industry (Supervision) Regulations 1994.
Temporary residents can apply directly to their superannuation provider for a departing Australia superannuation payment, or to the Tax Office if an individual has a superannuation holding accounts special account. We also provide an online facility that allows people to apply for the payment from anywhere in the world, 24 hours a day, 7 days a week. It is linked to Department of Immigration and Multicultural Affairs systems, and applicants using the facility can establish their immigration status immediately, free of charge.
We conduct a number of marketing and education activities to inform temporary residents of the opportunity to recoup their accumulated superannuation benefits. These have addressed a number of communication barriers identified in market research. The outgoing passenger card that people complete when leaving Australia is the chief means of informing temporary residents of the departing Australia superannuation payment.
Table 3.41 shows our active compliance results for micro businesses
Good record keeping is fundamental to good business management and the correct reporting of income and expenses. Poor record keeping is a major contributor to inaccurate reporting and the failure of micro businesses to pay the correct amount of tax.
To help micro businesses meet their obligations we provide:
During 2005-06 we assessed the records of 6,780 businesses as part of other compliance activities and revisited 1,410 businesses that we found to have inadequate records.
Overall, about 25% of the business records we assessed did not meet a reasonable standard on the initial visit, but this varied significantly depending on the industry, size and structure of the business. Our results show that businesses engaged in cash economy industries typically have poorer record keeping practices.
We also found that when we advised businesses with inadequate records what they needed to do to improve, 90% of them met a reasonable standard when we revisited them.
Our cash economy activities are predominantly focused on micro businesses, which are typically family owned and controlled. These businesses often operate in industries where cash dealings are common, and non-disclosure of income or not being registered are issues in this market. Our cash economy activities also extend to small to medium enterprises.
We address non-compliance by educating taxpayers about their obligations and appropriate record keeping practices. We also take firm action against taxpayers who make a conscious decision not to comply, in order to demonstrate the consequences of not complying.
We actively support a whole-of-government approach to cash economy compliance through joint agency activities focused on the cash economy. A number of agencies, in particular Centrelink and the Department of Immigration and Multicultural Affairs, are working with us to develop strategies that include joint field work, data exchanges and cooperative work practices. In addition, we continue to take advice from the Cash Economy Task Force, an advisory body to the Commissioner.
In 2005-06 we actively addressed non-compliance in high-risk areas of the following industries:
- building and construction
- restaurants, cafes and takeaways
- motor vehicle wholesaling and retailing
- adult industries
- licensed hotels and registered clubs
- fishing, and
- horse racing.
As a result of our cash economy compliance strategies this year we contacted 54,400 businesses. We audited 5,700 of these businesses, based on a risk identified by our internal risk analysis or from external information received from third parties or the community. We sent letters to another 36,650 businesses, requesting them to review amounts reported on their activity statements because they were outside industry norms.
Our officers visited 12,050 businesses to verify their identification and registration details. The visits were unannounced and included a number of building sites and major project sites throughout Australia.
This year we increased our focus on business-to-consumer transactions. We are conducting a range of compliance activities that involve matching appointment and quote books to invoices, tracing owner-builder transactions using local council records, matching information from trade suppliers to domestic service businesses, and analysing local advertisements.
We will also continue to identify high-risk mortgage brokers and work with the industry associations to actively influence the compliance behaviour of mortgage brokers and their borrowers in 2006-07.
We continued to devote a significant amount of resources to reducing the flow of tobacco to the illegal market. Our activities included the following.
- We undertook a major multi-agency operation aimed at disrupting the distribution network for illicit tobacco. Some 24 prosecution briefs are being progressed with the Commonwealth Director of Public Prosecutions and 33 penalty infringement notices were issued as a direct result of this operation.
- We worked collaboratively with the Victorian, Queensland and New South Wales police to prevent the movement of tobacco from the growing regions to the illicit market. During the year 53 prosecutions for unlawful possession of excisable goods and other offences were finalised.
- We maintained a strict licensing regime for tobacco growers, which included conducting detailed probity checks before issuing new licences. During the year one producer licence was suspended and one cancelled, two applications for new licences were unsuccessful, and we granted two new producer licences. Following recent changes to the excise laws, all existing tobacco producer licences will be reviewed in 2006-07.
- Throughout the growing season we regularly visited the properties of identified high-risk growers to ensure their crops were properly recorded and accounted for and their licence conditions met. Yields reported by these growers have increased significantly.
Early indications are that legal sales of tobacco leaf this year were higher than last year, from a similar area under production. Clearances of tobacco products (on which duty has been paid) were in line with expectations.
We visited 36 taxpayers who had recently applied for an excise licence to ensure they understood and could meet their licence obligations. We also completed 45 audits and tax reviews of high-risk taxpayers and continued our assurance activities on major taxpayers. This resulted in the cancellation of two licences and non-renewal of another two.
Our compliance activities with taxpayers in the alcohol industry raised $889,902 in liabilities.
Table 3.42 shows our active compliance results for small to medium enterprises.
While small to medium enterprises generally comply with their tax obligations, we are concerned that some are adopting more aggressive tax practices. Over the past few years our income tax compliance activities have detected patterns of non-compliance among some privately held groups and the individuals who control them. In general, these businesses are not subject to the same level of scrutiny as public companies. The lack of scrutiny appears to be behind a number of cases where we are finding inadequate governance arrangements and internal controls relating to decisions affecting tax compliance. We have similar concerns about the migration of funds to private equity in the large business market.
The financial affairs of many privately held small to medium enterprises are intermingled with those of their controlling individuals. Often, due to close family involvement in these groups, issues such as succession planning, privacy and domestic arrangements add intricacies not normally associated with the management of public companies or funds.
Non-compliance within privately held groups takes many forms, ranging from basics such as poor record keeping and non-lodgment to more sophisticated tax planning around capital gains tax, losses, shareholder loans, service trusts and international transfer pricing.
In May 2006 we aligned our resources for managing compliance among small to medium enterprises with those of our High Wealth Individuals Taskforce in order to better understand the overall tax performance of these privately held groups and the individuals who control them.
Australia's ageing population will see a significant number of business owners nearing retirement age and, consequently, turning their minds to exit strategies. Many individuals in this market plan to fund their retirement by realising the capital investment in their business. The concurrence of the recent asset boom with such retirements and the proposed changes to superannuation raise potential compliance issues relating to capital gains tax and succession planning.
Based on our compliance work this year, we continue to focus on those few who inappropriately restructure their business in order to qualify for the small business capital gains tax concessions, or undertake complex arrangements to reduce capital gains tax via the demerger, share buy-back and consolidation provisions. This year our capital gains tax reviews raised more than $21 million in tax adjustments from around 200 specific reviews and audits.
Goods and services tax
Small to medium enterprises pay approximately 33% of GST collections and represent about 32% of the liabilities raised from our activities.
This year we focused on enterprises that had grown rapidly over the previous 12 to 18 months. Generally, we found that some had neglected to keep their internal controls and systems up to date and were making errors classifying their GST or in relation to their entitlements to input tax credits. We will continue to focus on high-growth entities in 2006-07.
We also concentrated on financial supply issues and found that 10% of small to medium enterprises we audited that had financial supplies had treated them incorrectly.
Table 3.43 shows our active compliance results for large business.
Our compliance work with large businesses has two main themes:
- ensuring large business taxpayers (defined as businesses with a turnover of more than $100 million) have the guidance and support they need to understand and meet their tax obligations and entitlements, and
- identifying and responding to non-compliance through our active compliance work.
A key focus during 2005-06 was encouraging large businesses to strengthen their links between tax compliance and good corporate governance principles. We are promoting that material tax risks should be considered in the same way as other risks in terms of corporate governance. Another key focus was improving the quality and timeliness of our compliance activities.
Large market initiatives - income tax and goods and services tax
In October 2005 we announced a range of initiatives in response to feedback from various sources, most notably the Burges review.
The strategies put in place build on some of the better practices already operating, and can be divided into three overlapping areas - implementing process improvements, strengthening relationships and enhancing internal capabilities.
Many of the issues raised related to the uncertainty of our processes.
To improve this we have put in place the following measures:
- when concluding a risk review and commencing an audit, the issues will be workshopped within the Tax Office with relevant experts
- before finalising a risk review, the taxpayer will be given a draft for comment
- at the conclusion of a risk review, a senior tax officer will discuss the outcomes and implications with corporate executives
- at the commencement of an audit, the project plan for that audit will be discussed with the corporate executives by a senior tax officer explaining the stages, scope and protocols
- audit cases will be subject to a regular review before a panel of senior officers, and
- a new ground for remission of the general interest charge will be introduced based on an expectation that it is reasonable for a large corporate audit to be concluded within two years of the notification of its commencement.
Taxpayer engagement and relationship issues
During workshops arranged following the presentation of the Burges report, it became apparent that where both parties have made a clear effort to establish an open and professional relationship, the experience for the taxpayer is quite positive, even where they agreed to disagree.
Accordingly, to strengthen relationships we have:
- arranged for senior tax officers (senior executives for the top 30 corporate groups and executive level officers for the balance of the top 100 large business taxpayers) to meet with corporate group executives twice a year to discuss progress of any compliance activities in train and significant events related to a group's business or revenue performance. These visits have proved to be very beneficial in terms of ensuring a shared understanding of the perspectives of both the taxpayer and the Tax Office, and
- made considerable progress in developing forward or real-time compliance approaches.
Enhancing internal capability
We have also expanded our use of industry and topic specialists at various stages during our casework. These experts come from both within and outside the Tax Office, and have been very successful in strengthening our understanding of the economic and industry environment that large businesses operate in. The introduction of a new case management system as part of our change program will further improve our project and case management capabilities.
Our income tax active compliance work generated significant results this year:
- raising $2.1 billion in liabilities
- raising $1.5 billion in collections, and
- protecting $1.5 billion in revenue.
Our risk reviews covered a number of areas, including the implementation of the income tax consolidation regime for grouped entities. The reviews indicated that taxpayers are generally applying the laws on forming consolidated groups correctly, but there are some areas of risk, such as entry cost setting and on exit from consolidation. We started some audits in this area.
Capital management was also included in our program of risk reviews and audits, including examining in-house financing, foreign exchange, capital raising and capital reductions, and share buy-backs. We will continue compliance work in this area.
Capital gains tax and losses remain important aspects of tax liability. Accordingly, we have incorporated the clarification of derived profits and losses arising from the decision in Commissioner of Taxation v Sun Alliance Investments Pty Ltd into our active compliance risk reviews and analysis. We also established a program to check losses in response to the review of self-assessment. We have started some risk reviews and will do more next year.
We also completed Australia's first tax information exchange agreement with Bermuda. We supplied information under our tax treaties exchange of information program to 42 countries and received information from 21, aiding our efforts to prevent international tax avoidance.
To provide greater certainty for large businesses in the area of transfer pricing, we completed 19 advance pricing arrangements and, to ensure that Australian businesses are not subject to double taxation, we completed 7 mutual agreement cases with treaty partners. As part of our transfer pricing compliance program, we finalised 24 reviews on significant risks and 10 audits.
In other international compliance work for all market segments, we conducted risk profiling and reviews of non-resident taxpayers regarding their tax obligations, and promotional activities, including coordinated approaches to tax matters associated with the Commonwealth Games held in Melbourne in 2006. The work outlined in the Tax havens and tax administration booklet continued, including issuing seven taxpayer alerts and using information from other agencies and tax administrations to reduce the use of tax havens to avoid tax.
We also worked with the states under the National Tax Equivalent Regime arrangements to undertake compliance assurance activities.
Following the review of the GST large corporate compliance program, we have worked to implement all recommendations to improve both the quality of our compliance activities and the capability of our employees. These strategies continue to refine our current best practices and procedures to ensure interactions with taxpayers are transparent and professional.
As a result of recommendations arising from the review of the large corporate compliance program we have:
- carried out audit debriefs for all finalised audits to ensure best practices are implemented in future audits
- set up a case leadership team to mentor and provide support to audit teams. The team's role is to help develop the correct focus in audits and anticipate technical and evidentiary issues at the planning stage. It also helps formulate strategies to minimise 'blockers' to finalising audits, and provides feedback on best practice, risk management and capability
- established a client relationship management practice to further strengthen our relationships with large businesses. This practice will support our client relationship managers in managing a number of the large business market segment initiatives
- implemented strategies to improve productivity, including product rationalisation and business process improvements, and
- developed a risk management framework, which included forming a risk management committee to prioritise compliance risks across the whole of GST and ensure the risks are appropriately resourced.
In addition to the large corporate compliance program review and in line with recommendations from the Australian National Audit Office (ANAO) report Administration of goods and services tax compliance in the large business market segment, we implemented an improved planning and reporting function. This is designed to ensure reports provide clear and regular feedback to senior management on performance against planned measures.
Integrity of business systems
One of the biggest risks among large businesses relates to the integrity of business accounting systems. We have found that some large businesses are still lodging incorrect activity statements because they have inadequate business systems and processes, including a lack of internal controls to deal with transactions outside the normal accounting system. In particular, errors are due to businesses:
- including transactions in journals outside the normal processing system, which leads to transactions being misclassified
- misclassifying transactions by recording incorrect codes or manually overriding the code, which usually leads to taxable supplies being misclassified as GST-free
- failing to undertake a reconciliation process, which leads to failure to identify errors in the consolidated activity statement (where multiple divisions prepare their own activity statement)
- incorrectly attributing GST transactions, which leads to GST payments being recorded on a later activity statement than is required by the GST Act
- not reconciling or reviewing one-off or unusual transactions, which leads to the transaction being misclassified
- not accounting for GST on recipient created tax invoices, and
- failing to monitor financial acquisitions thresholds, which leads to entities not applying the special rules relating to financial acquisitions.
The Petroleum Resource Rent Tax Assessment Act 1987 imposes a secondary tax on the profits above a compounded assumed rate of return from the recovery of petroleum in offshore areas under Commonwealth jurisdiction covered by the Petroleum (Submerged Lands) Act 1967.
A net 4 additional taxpayers registered for petroleum resource rent tax during the year, bringing the total number of registered taxpayers to 41.
This year we collected net petroleum resource rent tax of $1,917 million (cash basis). This was an increase of 31.4% on last year, predominantly due to increased oil prices and newly commissioned projects beginning production.
We continued to build our compliance assurance processes. We conducted six risk reviews, which identified several material risks for further review, such as claims for indirect expenditures, transfer pricing and taxing point issues.
As part of our risk management, we moved some technical issues to litigation where court decisions will clarify the law.
Requests for advice on petroleum resource rent tax law have been growing, with a notable increase in interactions with taxpayers related to projects moving to production or those proposing to do so. We participated in industry forums and provided our views on significant issues around petroleum resource rent tax law, and also attended other forums to improve awareness of the tax.
We continued to assist other government departments by providing advice on petroleum resource rent tax issues and administrative impacts of new legislative measures, such as the petroleum resource rent tax measures announced in the 2005 Federal Budget.
The overall level of compliance in the petroleum industry remained high. This year we continued to monitor revenue trends, analyse industry risks and maintain key client manager roles. We also completed an audit on a major petroleum company as part of the continuing assurance program around our major excise payers. Other compliance activities included reviewing 169 drawback and refund claims, which resulted in adjustments of $147,000, as well as a voluntary disclosure case which resulted in an adjustment of $4.9 million.
This year we completed one major audit in the large tobacco industry and two in the wine and alcohol industry. We continued to refine our compliance strategies and processes based on our monitoring of revenue trends and analysis of risk.
Table 3.44 shows our active compliance results for non-profit organisations.
Non-profit organisations include charitable, religious and community service bodies, some sporting and recreational clubs, business and professional associations and trade unions, private schools, some hospitals, and some large financial and insurance companies.
A number of income tax concessions are available to non-profit organisations. Charities and certain funds must be endorsed by the Tax Office to access certain concessions, for example, exemption from paying income tax. Other non-profit organisations can generally self-assess their entitlement to the income tax concessions available to them.
As part of our ongoing responsibility for managing the entitlement of non-profit organisations to certain income tax concessions this year we reviewed:
- 76 clubs that had self-assessed as being income tax exempt. The majority of these clubs were entitled to retain their exempt status
- 79 non-profit organisations that had been endorsed as tax concession charities and deductible gift recipients. These organisations were specifically selected because they appeared to be involved in activities, including political activities, that were inconsistent with their charitable status. Overall, tax concession charities and deductible gift recipients are largely compliant, and
- 44 prescribed private funds and 9 non-profit organisations closely controlled by 1 or more individuals. These reviews were conducted to ensure that these entities were not obtaining tax benefits inappropriately. Only three of the organisations selected for a review were found to be claiming concessions they were not entitled to.
Table 3.45 shows our active compliance results for government organisations.
The various levels of government in Australia include some 17,000 organisations, the vast majority of which are state and territory agencies. Most government organisations comply with their tax obligations, with those at the federal, state and territory levels receiving strong support from their treasuries and finance departments.
Much of our compliance effort goes into ensuring that government organisations have the information and support they need to help them register correctly, lodge their returns and meet their payment obligations. Each year we revise our compliance focus to treat new, emerging and existing risks. Results from our compliance activities this year indicate very high levels of compliance within government organisations.
Any non-compliance most often occurs in situations involving unusual or more complex types of transactions, and among smaller government organisations that have limited resources for managing their tax obligations and/or experience frequent staff changes.
As part of our ongoing responsibility for managing compliance within government organisations this year we:
- completed 2,500 GST compliance interventions, including 930 GST audits, and
- contacted various government organisations to verify compliance with their PAYG withholding and fringe benefits tax obligations. We raised $11.1 million in revenue from our fringe benefits tax reviews.
As a result of the audits of several government agencies in 2005, the ANAO made a series of recommendations about improving government agency compliance with fringe benefits tax legislation. As a consequence, the Administration of fringe benefits tax - better practice guide was jointly developed and published by the ANAO and the Tax Office in February 2006.
Aggressive tax planning
Our approach to containing aggressive tax planning in the community includes:
- early detection of emerging schemes
- warnings to taxpayers
- fair treatment of participants, and
- firm action against promoters.
This year our active compliance activity involved:
- issuing demand notices to 88 high-risk promoters and their associates to lodge 395 outstanding returns, resulting in the lodgment of 367 returns and subsequent prosecution of 10 taxpayers for not complying with these notices
- requiring 168 entities controlled by promoters to lodge early and expanded returns, and
- undertaking 34 access or information visits.
As a result of the information obtained from the above activities and other information sources, we published seven alerts on our website at www.ato.gov.au/atp
Our response to promoters is now complemented by the recent promoter penalty laws. The Taxation Laws Amendments (2006 Measures No. 1) Act 2006 introduces a civil penalty regime to deter the promotion of tax exploitation schemes. It applies to conduct on or after 6 April 2006.
The provisions are intended to apply in two circumstances:
- where a promoter engages in conduct that results in them or another entity being a promoter of a tax exploitation scheme (that is, an arrangement that is not reasonably arguable in law), or
- where an individual or entity implements a scheme promoted on the basis of conformity with a product ruling in a way that is materially different to that described in the product ruling.
In both circumstances, the Commissioner can apply to the Federal Court for a civil monetary penalty to be imposed. There are two further aspects of the legislation that will also help the Commissioner stop the promotion of schemes before taxpayers are put at undue risk. These aspects are the ability to seek a voluntary undertaking from the promoter and the ability to seek an injunction from the court.
In our Annual report 2004-05 we advised that we would be devoting considerably more resources to finalising the work associated with schemes marketed before 30 June 2003. As a result, we now have only 338 undetermined objections relating to these cases, and anticipate that these will be finalised within the next year.
Our Serious Non-Compliance area focuses on the more extreme aspects of evasion and fraud:
- evasion occurs where taxpayers deliberately conceal or understate income
- fraud is dishonestly obtaining (including attempting to obtain) a benefit by deception or other means.
We use intelligence analysis, forensic audit, investigation skills and computer forensics to address serious non-compliance involving evasion and fraud. Our work in this area is also strengthened by our close working relationships with law enforcement agencies such as the Australian Federal Police and the Australian Crime Commission.
Where appropriate, in terms of the Commonwealth Prosecution Policy, we refer briefs of evidence to the Commonwealth Director of Public Prosecutions to consider for criminal prosecution. Where the Commonwealth Director of Public Prosecutions declines criminal prosecution for excise matters, the matters can be referred to the Australian Government Solicitor for civil prosecution action.
This year we:
- completed 363 audits, which resulted in adjustments of $121.4 million to tax liabilities. This was made up of $67.2 million in assessments, $33.1 million in penalties and $21.1 million in interest, and
- finalised 367 investigations (compared to 336 in 2004-05), including
- 3 matters referred to the Australian Federal Police
- 3 matters investigated with other agencies, and
- 178 briefs of evidence referred to the Director of Public Prosecutions and 3 to the Australian Government Solicitor for prosecution.
Of the 107 matters dealt with by the courts during the year, 102 resulted in successful prosecution. In 56% of these cases (compared with 59% in 2003-04 and 67% in 2004-05) the courts imposed prison sentences ranging from three months to eight years on the defendants. They also imposed reparation orders to the value of $3.6 million and fines of $1.2 million.
Investigations into illicit tobacco were also successful, resulting in the seizure of 12 tonnes of tobacco leaf, 6 tonnes of cut tobacco, 60 tobacco plants or seedlings, 9 motor vehicles, 18 tobacco cutting machines and 4 tobacco presses. The seized tobacco had an excise duty value of approximately $5.2 million. We also issued 61 penalty infringement notices amounting to $134,200 as an alternative to prosecution action.
During the year we initiated multi-agency approaches, involving state and federal agencies, focusing strategically on the whole of the illegal production and distribution chains. We are also applying a whole-of-organisation approach to the tax affairs of people and entities identified through these approaches.
Proceeds of crime action with the Tax Office as the source agency, in conjunction with the Australian Federal Police, Australian Crime Commission and Commonwealth Director of Public Prosecutions, saw $15 million restrained, $27 million confiscated, and $9.8 million recovered in tax-related matters this year.
AUSTRAC information continues to be a primary source of information for examining tax haven arrangements and other activities used to reduce, avoid or evade tax. It is also a valuable source for many of our risk assessment and case selection activities. During 2005-06 our searches of the AUSTRAC database increased by 15% from 2004-05.
This year we continued our collaboration with AUSTRAC using data mining and data matching tools on activities, including:
- Project Wickenby (and the abusive use of tax havens)
- monitoring and detecting cash economy and GST transactions, and
- identifying people promoting the inappropriate use of offshore superannuation funds for tax purposes.
AUSTRAC information has helped us raise income tax assessments, collect debt and, in some cases, contributed to prosecution activity. Over the past four financial years we raised assessments of $326 million as a direct result of information obtained from AUSTRAC.
Table 3.46 shows how we used AUSTRAC data this year.
In 2005-06 we increased our efforts to combat international tax mischief or avoidance and evasion by brokering the largest ever joint effort between Australian Government agencies directed at achieving sustained results in:
- reducing international tax avoidance and evasion in the Australian tax system
- enhancing the strategies and capabilities of Australian and international agencies to collectively deter, detect and deal with international tax avoidance and evasion
- improving community confidence in Australian regulatory systems, particularly confidence that the Australian Government addresses serious non-compliance with tax laws, and
- reforming administrative practice, policy and legislation.
The Tax Office is the lead agency, with several other Australian Government agencies completing the partnership: the Australian Crime Commission, the Australian Securities and Investments Commission, the Australian Federal Police and the Commonwealth Director of Public Prosecutions, supported by AUSTRAC, the Attorney-General's Department and the Australian Government Solicitor.
In February 2006 the Australian Government boosted funding for the project by about $305 million over six years. In broad terms, the Tax Office received $160 million; the Australian Federal Police $60 million; the Commonwealth Director of Public Prosecutions $60 million; the Australian Crime Commission $18 million; and the Australian Securities and Investments Commission $7 million.
So far, it is estimated that at least $300 million in revenue will be collected as a result of Project Wickenby actions. The strategic focus is to treat the serious identified threat to the integrity of the community's financial and revenue systems and protect the future revenue base.
More than 500 Australian taxpayers may have participated in arrangements promoted by the international promoters and their associates under investigation. There are also approximately 130 other international promoters potentially selling these arrangements in Australia.
The Project Wickenby Cross Agency Advisory Committee was established in February 2006 to oversee the project and advise the Commissioner of Taxation.
Figure 3.15 shows the governance arrangements in place for Project Wickenby.
There have been many ultimately unsuccessful challenges to the powers of the Australian Crime Commission (ACC) in relation to Project Wickenby. For example, five 'persons of interest' challenged the constitutional validity of the powers of the ACC in the High Court. In May 2006 the High Court refused to grant special leave to review decisions of the Federal Court which had confirmed the validity of the ACC's powers.
Ten groups of criminal cases (9 with the ACC and 1 with the Australian Federal Police) and over 30 groups of high-risk tax cases (over 200 taxpayers) are now under investigation.
Under the Proceeds of Crime Act 2002, the courts can restrain assets, issue penalties and confiscate proceeds of criminal behaviour. In one Project Wickenby case, action has also been taken by the Commonwealth Director of Public Prosecutions, with the support of the ACC and the Tax Office, resulting in the restraint of assets with an estimated net value of more than $10 million. Applications have been filed for pecuniary penalties in relation to benefits alleged to have been derived from a conspiracy to defraud the Tax Office.
Table 3.47 show more results of Project Wickenby activities.
Case study - An integrated government response to a serious tax threat
Offshore tax arrangements result in reduced revenue that can be used to benefit Australians. Project Wickenby represents an integrated Australian Government response to this significant threat to the integrity of the Australian tax system.
The project had its origins in 2002, when the Tax Office asked the Australian Crime Commission to investigate a potential criminal matter arising from information seized in a tax investigation. The investigation led to the examination of a Swiss-based promoter of tax schemes when he was visiting Australia in early 2004. AUSTRAC data proved to be of significant value during this initial phase, as well as on an ongoing basis.
In June 2005, in the largest ever joint exercise between the Australian Crime Commission, the Australian Federal Police and the Tax Office, search warrants were executed at 48 sites across 4 states, and a further 37 sites were visited using Tax Office access powers. Some 285 personnel from the three organisations were involved in this joint exercise.
Over time, the project grew to include the Commonwealth Director of Public Prosecutions and Australian Securities and Investments Commission as joint partners, with significant support from AUSTRAC and the Australian Government Solicitor.
This is the first time that these five agencies, supported by AUSTRAC, the Attorney-General's Department and the Australian Government Solicitor, have brought their expertise and considerable powers together in such a way to deal with international tax avoidance and evasion.
Our High Wealth Individuals Taskforce continues to manage the compliance f 943 wealthy individuals and their 21,656 associated entities. The taskforce completed 275 risk assessments during the year, with higher risk taxpayers being required to either lodge expanded tax returns or provide financial statements. During the year 75 audits were conducted, 38 of which were completed. At 30 June 2006, 37 audits were in progress.
High-wealth individuals - revenue
The taskforce raised $166.2 million in tax, penalties and interest this year, $60.2 million of which is subject to dispute. The taskforce collected revenue of $136.0 million. An additional $50.8 million was collected outside the taskforce from audits of entities controlled by high-wealth individuals.
Tables 3.48 and 3.49 summarise the total revenue collections since the taskforce's inception in 1997.
High-wealth individuals - arrangements under review
This year the taskforce closely scrutinised:
- transactions between entities or associates connected with a high-wealth individual
- arrangements that seek to limit the amount of capital gains tax payable, including schemes to inflate the cost base of assets, non-arm's length transactions to minimise the consideration received on disposal of an asset, and issues involving corporate restructures, including floats
- non-disclosure of transactions and property held offshore in jurisdictions that may offer favourable tax treatment or bank secrecy, and
- the use of non-profit entities.
Case study - Additional funds to monitor wealthy individuals
Some high-wealth individuals go to considerable lengths to try to avoid their tax responsibilities, for example, by not declaring profits from trading in assets or avoiding paying capital gains tax.
The number of high-wealth individuals has tripled since we set up the High Wealth Individuals Taskforce in 1997. In recognition of this and the growth in this market, we received additional funding in the 2006 Federal Budget to ensure these individuals and their closely held private groups comply with their tax obligations.
We are using the additional funding to develop more sophisticated economic modelling tools to risk profile the top 1,000 wealthiest Australian individuals and their associated closely held private groups.
Over the next three years we will also triple our audit coverage and field-based risk assessments. New compliance approaches being developed for closely held private groups will complement our strategies for publicly owned groups.
One example of the steps some wealthy individuals will take to avoid their tax responsibilities involved a group of individuals who anonymously traded in Australian and offshore assets and failed to declare the profits in their tax returns.
Evidence gathered by our High Wealth Individuals Taskforce indicated that the group was using bank accounts in tax havens to conceal assets and income. We have issued amended assessments to the individuals involved, amounting to $40 million in tax and penalties. We are working with the Commonwealth Director of Public Prosecutions to enable him to consider prosecution action.
More rigorous approaches, together with the issue of a revised Risk and Issues Management Practice Statement, have improved both our risk management and strategic intelligence across all taxes.
- the formation and launch of our Corporate Intelligence Unit and our vision of an intelligence-led Tax Office
- our intelligence capability being nominated for an award at a peak industry conference, and
- the results of benchmarking activities.
Figure 3.16 describes how intelligence feeds into the risk management cycle through the provision of 'intelligence products', and identifies products and policies to facilitate and govern the process.
We undertake advanced data linking and matching to detect compliance risks. By enriching our data with data from external sources, including AUSTRAC, the Australian Bureau of Statistics and various state and territory authorities, we can analyse specific issues more deeply. This, in turn, allows us to better identify and target higher risks. For example, we use data linking and matching to undertake more complex analysis in relation to Project Wickenby, serious evasion and fraud, high-risk refunds, and taxpayers who engage in conspicuous consumption.
We use information and intelligence from a range of sources to better identify those taxpayers who may not be compliant. Where possible, we also attempt to ascertain potential reasons for the non-compliant behaviour to better target our treatment to a taxpayer's individual circumstances. For example, we consider demographic issues such as familiarity with the law or extent of business experience that might indicate a lack of awareness of obligations. We remain vigilant for emerging areas of non-compliance using discovery processes, while improving our methods of detecting known non-compliant behaviours through the use of data matching and analytics. In this way we seek to minimise our intrusion into the affairs of compliant taxpayers, and reduce their compliance costs.
Case selection is all about minimising the compliance costs for taxpayers. It also ensures an impartial and objective allocation of our resources.
We select taxpayers for various compliance treatments because we recognise that there may be different reasons why they are not complying and that our interventions need to be appropriate to a taxpayer's particular facts and circumstances.
For example, a taxpayer may not be complying because they:
- have made an honest mistake (for example, a taxpayer with an otherwise good compliance history)
- are ignorant of the law (for example, a taxpayer new to the workforce, business or industry), or
- have received poor or aggressive advice (for example, a client of a tax agent with a relatively high error rate, or high-risk advice from advisers and other intermediaries).
Importantly, our approach to selecting cases recognises that one size does not fit all - we tailor our information sources and approaches to the different taxpayer groups and the tax types that apply to them.
The Code of Settlement Practice provides guidelines for settling disputed tax liabilities or entitlements. It provides guidance on situations where settlement could be considered and outlines the processes to be followed.
A settlement involves an agreement or arrangement between parties to finalise their matters in dispute where it is in the best interests of the Commonwealth to do so. Special considerations arise in tax disputes because, while the Commissioner's basic duty is to administer tax law through assessing and collecting taxes and determining entitlements, he also has an obligation to administer the tax system efficiently and effectively. Settlements usually require balancing competing considerations, and call for the use of discretion and good sense.
The processes contained in the Code of Settlement Practice are intended to promote transparency and accountability. They include appropriate checks and balances to ensure that settlements are sensible and objectively justifiable in terms of good management and administration.
Table 3.50 shows the settlements registered this year.
Reasons for settlement
The Code of Settlement Practice provides guidance on the circumstances in which it may be appropriate to settle.
In relation to settlements for scheme cases, the reasons for settlements were specific to the particular scheme and a taxpayer's individual circumstances.
In relation to non-scheme settlements, the top three reasons for settlement in 2005-06 were:
- there were complex factual or quantum issues in contention, or evidentiary difficulties sufficient to make the case problematic or unsuitable for resolution through the Administrative Appeals Tribunal or courts
- the settlement achieved compliance by the taxpayer, group of taxpayers, or section of the public, for current and future years, in a cost-effective way, and
- the cost of litigating (including internal Tax Office costs) was out of proportion to the possible benefits, having regard to prospects of success, including collection of the tax and likely award of costs.
More information about settlements, including a copy of the Code of Settlement Practice, is available on our website.
3.7 Output 1.1.4 - Compliance assurance and support for transfers and regulation of superannuation funds' compliance with retirement income standards.
Under this output we provide assurance that transfers and superannuation funds are administered correctly.
The output has two main components:
- administering payments or expenses paid out of the tax system (known as transfers), and
- regulating superannuation funds, in accordance with the law.
To ensure we met our commitment to deliver on the output we undertook the following broad strategies:
- provided taxpayers with information about their obligations and entitlements
- helped taxpayers and superannuation funds meet their obligations
- identified and addressed non-compliance, and
- provided assurance on the integrity of the tax system to taxpayers and government.
In relation to excise transfers this year we:
- handled 118,308 telephone calls related to excise grants
- issued more than 190,000 letters to inform new and existing grant taxpayers of new fuel tax credit entitlements
- implemented fuel tax credits and migrated 151,844 taxpayers from the energy grants credits scheme
- extended the cleaner fuels grants scheme to cover ultra low sulphur petrol, and
- processed more than 89,000 taxpayer claims.
In relation to superannuation we:
- issued 1.25 million letters to individuals on the Lost Members Register
- reviewed and revised choice of superannuation fund publications for employers and conducted a mailout in late April 2006, and
- provided trustees of all new self managed superannuation funds with a copy of the publications Roles and responsibilities of trustees and DIY super - it's your money…but not yet! when they registered.
Table 3.51 shows how we performed against this output in 2005-06.
We report our active compliance results under both Output 1.1.3 and Output 1.1.4. This section contains the results for Output 1.1.4. See part 3.3 for consolidated results for both outputs.
As part of our overall active compliance program, we undertake a range of activities to provide assurance on transfers under the excise and superannuation laws administered by the Commissioner. Tables 3.52 to 3.55 show our active compliance results for Output 1.1.4 by revenue product, market segment and channel for 2005-06. Figure 3.17 shows the results according to the type of activity we used.
We administer a number of Excise Acts, including the:
- Energy Grants (Credits) Scheme Act 2003, which creates an entitlement to a grant for diesel and certain alternative fuels used in eligible activities
- Fuels Sales Grants Act 2000, which creates an entitlement to a grant for certain eligible sales of fuel (this Act will be repealed on 30 June 2006), and
- Energy Grants (Cleaner Fuels) Scheme Act 2004, which provides for the payment of a grant in relation to the manufacture and importation of eligible cleaner fuels.
The Product Grants and Benefits Administration Act 2000 provides the scheme for the administration of a number of grants and benefits administered by the Commissioner.
These schemes provide grant payments to taxpayers for fuel used for certain business activities. More than $3.7 billion was distributed back to the community this year to help reduce business costs of selected industries.
From 1 July 2006 a new system of fuel tax credits has substantially replaced the energy grants credits scheme. The new system significantly expands eligibility for fuel tax relief and allows taxpayers to claim fuel tax credits through their activity statement.
Our compliance focus was primarily on helping and educating taxpayers who would be affected by the introduction of fuel tax credits and the winding down of the energy grants credits scheme for diesel fuel, and changes to excise legislation, including the Excise Act 1901 and the Excise Tariff Act 1921.
We conducted various activities to ensure that taxpayers who would be affected by the changes understood their obligations under the new arrangements. These activities included market research, the co-design of forms and publications with industry associations and volunteer groups of tax agents and taxpayers, taxpayer visits and outbound telephone calls. This work will extend into 2006-07.
In focusing on transfers and the introduction of the fuel tax credits scheme, we produced a number of intelligence products and conducted reviews to better understand taxpayers, the impacts of the new measure, and any new risks that may emerge.
This scheme pays grants to taxpayers for diesel or 'like' fuels used in certain off-road activities and for the on-road use of fuel (including certain alternative fuels) in eligible activities by businesses. In 2005-06 we had approximately 217,000 claimants and received around 465,000 claims.
Our compliance work around the energy grants credits scheme highlighted that there are specific high-risk groups, despite an overall high level of compliance with scheme claims. To identify and amend incorrect payments for the energy grants credits scheme and fuel sales grants scheme, we undertook 34,524 pre-payment and 538 post-payment activities. This raised $258.2 million in pre-payment adjustments and $44.0 million in post-payment liabilities, including penalties and interest, and seven taxpayers were referred to the Commonwealth Director of Public Prosecutions for prosecution action.
Fuel sales grants scheme
This scheme was introduced in July 2000 so that fuel retailers in non-metropolitan areas could pass on a reduction of one, two or three cents per litre at the fuel pump. This scheme closed on 30 June 2006. In 2005-06 we had approximately 4,550 claimants and received around 22,300 claims. During the period leading up to the scheme closure and the introduction of fuel tax credits, we monitored all new claimants to ensure there was no attempt to take advantage of the closing down of the scheme.
Cleaner fuels grants scheme
This scheme pays grants to licensed excise manufacturers, holders of storage licences and importers of eligible cleaner fuels. The Department of the Environment and Heritage maintains and develops policy, while we administer the scheme. In 2005-06 we had 35 claimants registered for the scheme, and 228 claims were lodged.
Under provisions of the Superannuation Guarantee (Administration) Act 1992, employers are required to contribute 9% of their employees' ordinary time earnings to a complying superannuation fund. Ordinary time earnings comprise remuneration earned in an employee's normal working hours, without payments for overtime.
Legislation introducing the adoption of ordinary time earnings as the earnings base for superannuation guarantee purposes was passed in 2004, but the change is not mandatory until 1 July 2008. The notional earnings base has been simplified to ensure all employees are treated consistently for superannuation guarantee purposes.
If an employer does not meet their superannuation obligations, they are required to lodge a statement with the Tax Office to establish the superannuation guarantee charge payable, and pay that amount to the Tax Office. We then transfer amounts to employees' superannuation accounts.
As a result of difficulties in 2004-05 with our information technology system that manages superannuation guarantee payments, a number of payments to employees' accounts were delayed. We have now rectified the system problems and assessments are being issued correctly and monies moved to employees' accounts in superannuation funds. Most of these cases have been finalised.
We are compensating employees where transfers of some superannuation entitlements were delayed. The compensation is being paid to employees' superannuation fund accounts in most cases. The Commissioner is also remitting penalties for affected employers.
The government has changed the superannuation guarantee law to provide some relief from the superannuation guarantee charge where superannuation contributions are paid to a superannuation fund shortly after the quarterly cut-off dates. If an employer makes a late contribution to a superannuation fund for an employee before the due date for lodging their superannuation guarantee quarterly charge statement, they can elect to have the contribution used to reduce the amount of superannuation guarantee charge they have to pay for that employee. The new law applies to late payments made on or after 1 January 2006.
We continued to investigate all complaints from individuals about their superannuation guarantee entitlements. This year we finalised approximately 27,800 employee complaints, insolvencies, superannuation guarantee checks of employer compliance and referral cases from other areas in the Tax Office related to employers' superannuation guarantee obligations. This resulted in a debt being raised against approximately 9,500 employers.
During the year we refined strategies to identify employers who fail to meet their superannuation guarantee obligations. The strategies included:
- a pilot program of 314 audits to understand the compliance behaviour of employers across certain industries that are considered to be at risk of not meeting their superannuation guarantee obligations, for example, the real estate industry, labour hire industry and sporting associations
- superannuation guarantee compliance checks in field audits conducted by our income tax, pay as you go (PAYG) and goods and services tax (GST) field audit officers, and
- telephone calls to 200 employers before the end of each quarter to remind them of their forthcoming obligations.
Table 3.56 shows superannuation guarantee compliance results from 2000 - 01 to 2005 - 06.
Choice of superannuation fund
Choice of superannuation fund is provided for under the Superannuation Guarantee (Administration) Act 1992. It commenced on 1 July 2005 and affects an estimated 650,000 employers and 4.8 million employees.
The extensive compliance program that accompanied the introduction of choice had a strong emphasis on educating and alerting employers and employees to the new obligations. It involved telephone calls and field visits to employers, mainly in micro businesses, to raise awareness of choice and confirm their obligations. In 2005-06 we made more than 30,000 telephone calls to employers and undertook 14,378 field visits.
A whole-of-government public education campaign ran from April to August 2005 to support the initiative and focused on helping employers understand and fulfil their obligations.
Amendments were made to the Superannuation Guarantee (Administration) Act 1992 as a result of the Workplace Relations Amendment (Work Choices) Regulations 2006. The amendments allow employees working for a corporation who were previously employed under a state industrial award to choose their superannuation fund from 1 July 2006.
Information about choice of superannuation fund is publicly available through a choice information line, a choice website and a range of publications. The website was accessed approximately 411,000 times this year. One direct mailout to employers across Australia provided information on the scheme. Surveys reported high levels of awareness of choice among employers (at 99%) and the general population (90%).
For the first two years we will help employers understand and adapt to fulfil their obligations. During this period an employer who demonstrates that they have made a genuine attempt to comply will, as a general rule, not be subject to penalties. It was originally proposed that this period would extend only to 1 July 2006, but it has been further extended because of the amendments.
We expect that by July 2007 the choice of superannuation fund arrangements will be well understood and that employers will be able to comply with their obligations. Choice compliance is being built into our overall compliance activities for the superannuation guarantee.
Self managed superannuation funds
As the regulator of self managed superannuation funds, our role is to ensure that funds comply with the Superannuation Industry (Supervision) Act 1993 and associated regulations. In establishing whether trustees are complying with the regulatory provisions, we focus on whether funds have an investment strategy and whether trustees are complying with regulatory procedures. However, the commercial risks of investments allowed by the regulatory provisions are a matter for the trustee of the fund.
There are approximately 320,000 self managed superannuation funds, and the number is growing at the rate of 1,900 a month. Approximately 616,000 Australians are now members of a self managed fund.
To help trustees understand and meet their obligations, we updated Roles and responsibilities of trustees, our major publication about self managed funds, and we are currently updating DIY super - it's your money…but not yet! Both publications are issued to trustees of new self managed funds shortly after they register their fund. We are reviewing Roles and responsibilities of approved auditors. We sought widespread industry feedback when reviewing these publications.
This year we tightened the registration process for self managed funds to help detect individuals who are ineligible to become trustees.
A number of industry bodies that represent self managed funds have been included on our Superannuation Consultative Committee, which held its inaugural meeting in September 2005.
During the year we issued lodgment letters to more than 38,000 funds in relation to outstanding member contribution statements and income tax and regulatory returns. The majority of letters were issued to self managed funds.
Our compliance officers conducted more than 4,500 reviews or audits of funds with a high-risk profile. We identify these funds using a risk assessment profiling tool that assigns a risk to each fund based on the following criteria:
- income and regulatory return data
- member contribution statements
- registration data, annual investment and income reports
- information on auditor contravention reports, and
- debt and lodgment data we hold.
We are reviewing the risk profiling process for self managed funds and redeveloping our profiling tool to improve targeting for case selection purposes. The review follows our analysis of auditor contravention reports that provided valuable information about fund and approved auditor compliance.
In 2005-06 our audit program focused on:
- breaches of the in-house asset rule
- acquisition of assets from related parties
- personal use of fund assets
- correct ownership of assets, and
- funds meeting the definition of a self managed superannuation fund.
We work with trustees to rectify problems identified through our audit program and, as a result, we entered into 136 enforceable undertakings this year. In addition, we made 12 funds non-complying and disqualified 12 trustees as a result of serious non-compliance with the regulatory provisions.
Early access to superannuation benefits
We continued to focus on the promotion of schemes that allow early access to superannuation entitlements because these schemes generally do not comply with legal requirements, and release money that is intended for use in retirement. Some 24 promoters and 9 associates of promoters of these schemes came under close scrutiny during the year, with 16 being disqualified as trustees. This work is continuing.
Lost Members Register
The Superannuation (Unclaimed Money and Lost Members) Act 1999 requires superannuation funds to report to the Tax Office twice a year on the details of member accounts that they consider to be lost. The information is retained in a register of accounts called the Lost Members Register. We use three tools to help reunite individuals with their lost superannuation:
- SuperSeeker, which allows individuals to access the Lost Members Register online or through a self-help telephone service 24 hours a day, 7 days a week
- SuperMatch, which is a bulk matching facility that provides tax and superannuation professionals with electronic access to the Lost Members Register, and
- an information line.
The Australian National Audit Office's audit report on the administration of the Lost Members Register was released on 29 November 2005 (see appendix 5). The report made eight recommendations. We generally agreed with the recommendations, but qualified our agreement on one recommendation.
A member of a superannuation fund is not obliged to quote their tax file number to the fund, so data we receive from funds does not always include this information. Where a tax file number is not provided, we undertake a range of data matching activities to link individuals to their superannuation. These activities include an extensive mailout campaign. We began writing to individuals on the Lost Members Register in February 2005, sending out 1.25 million letters during 2005-06. Accounts worth approximately $1.09 billion have so far been removed from the register as a result of this project. However, we have found that some taxpayers have used false identities, or do not want to be linked with the funds in the register.
The Superannuation (Government Co-contribution for Low Income Earners) Act 2003 provides for the government to match an eligible person's personal superannuation contributions with a co-contribution payment up to set limits. Changes to the co-contribution meant that more people were eligible for a co-contribution, with the maximum income threshold for a co-contribution increasing from $40,000 to $58,000 from 1 July 2004.
Under subsection 54(2) of the Act, the Commissioner is required to report on the level of co-contribution entitlements. This year $988 million of superannuation co-contributions were assessed for around 1,239,000 beneficiaries.
Problems with our information technology systems meant that we were late in paying some co-contribution payments in January 2006. Interest was added to the co-contributions paid to affected individuals' superannuation accounts to compensate for the delay. We are making improvements to data capture and loading processes to avoid a reoccurrence of the problem.
The Commonwealth Ombudsman released a report into our administration of the co-contribution scheme in March 2006. The Ombudsman's review of complaints relating to the co-contribution did not disclose any major concerns or systemic problems with our administration of the scheme. The report observed that only 22 complaints had been received up until 1 November 2005.
Superannuation holding accounts special account
The superannuation holding accounts special account, established under the Small Superannuation Accounts Act 1995, was closed to employer superannuation deposits on 30 June 2006. Up to this date, the special account received small superannuation amounts from employers.
Although the special account is now closed to new external deposits, existing account holders can still operate their accounts. Also, as a last resort, we will continue to deposit unclaimed superannuation guarantee charge amounts and unclaimed superannuation co-contribution amounts to the special account where we cannot identify a superannuation account for an individual.
The special account does not operate as a superannuation fund and payment of interest is subject to certain conditions. These conditions are that interest is payable on the first $1,200 of each account balance after a fair approximation of costs incurred by the Commissioner have been recovered, including carried forward losses. As in previous years, costs and carried forward losses exceeded interest payable, therefore interest was not payable on special accounts during 2005-06.
We conducted an extensive communication campaign this year to advise employers that the special account was closing to employer deposits at 30 June 2006. As a result, there was a steady decline in the number of employers depositing to the special account each quarter.
We continue to encourage individual special account holders to transfer their account to a complying superannuation fund or retirement savings account. To maximise transfers from the special account, we promote our SuperMatch and SuperSeeker products that allow funds, retirement savings account providers and individuals to locate superannuation monies held in the special account.
This year we saw a decrease in the value (down 32%) of deposits to the special account.
Table 3.57 shows changes in the special account from 2000 - 01 to 2005 - 06.
Bilateral social security agreements
The Australian Government entered into a bilateral social security agreement with the Republic of Ireland that commenced on 1 January 2006. The superannuation provisions of this agreement exempt Australian employers from having to provide superannuation or similar support in both countries while their employees are temporarily seconded to work in Ireland. Similar agreements are already in place with the United States, Portugal, The Netherlands, Chile, Croatia and Belgium and operate under the provisions of the Social Security (International Agreements) Act 1999.
We provide an online system that allows eligible applicants to obtain a certificate of coverage. Employees use the certificate to provide evidence to overseas authorities that they are covered by Australia's compulsory superannuation system and therefore do not have to be provided with superannuation or similar support in the country of secondment.
This year we issued 573 certificates of coverage to Australian employees seconded to work temporarily overseas.
3.8 Output 1.1.5 - Services to governments and agencies
This output covers the range of services we provide to the Treasurer and Minister for Revenue and Assistant Treasurer, Treasury, Parliament, Australian Government agencies, external scrutineers and state and territory governments.
We work collaboratively with other agencies through a range of cross-agency support services and information to deliver whole-of-government initiatives and contribute to the business outcomes of these agencies. The Commissioner also provides general administration of goods and services tax (GST) law as specified by the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations.
This output also covers services provided by the Australian Valuation Office, which operates on a full cost-recovery basis. These services ensure that policy and strategic advice on valuations and related issues are provided to government.
To ensure we delivered on the output we undertook the following broad strategies:
- maintained effective and productive relationships with stakeholders through open and timely communication
- continued to support improved services to the community through our memorandums of understanding
- actively participated in cross-agency forums and meetings
- continued to work collaboratively with the states and territories in administering GST, and
- continued to engage our external scrutineers by managing our relationships with the Australian National Audit Office, the Inspector-General of Taxation and the Commonwealth Ombudsman. For more information on external scrutineers see part 4.2.
- We delivered cross-agency support in accordance with memorandums of understanding.
- We improved our standards regarding timeliness and quality of data we supply to the Australian Bureau of Statistics (ABS) and continued to improve the effectiveness of selected Tax Office data for the National Statistical Service.
- We also worked with the ABS to successfully implement the new Australian and New Zealand Standard Industrial Classification standard.
- We met our commitments by providing an end-of-year and mid-year performance report to the states and territories through GST Administration Sub-Committee meetings.
- Ministerial and parliamentary services were delivered to agreed standard and timeliness.
- The Australian Valuation Office's achievements included increasing its customer base and developing products to help customers implement government policy; being highly commended for its strategies for transformational change, in the Prime Minister's Awards for Excellence in Public Sector Management; and achieving the government's target rate of return.
Table 3.58 shows how we performed against this output in 2005 - 06.
The demand for services to ministers and the Parliament generally increased in 2005-06. During the year we provided:
- 360 formal minutes to ministers, compared to 314 last year
- 179 question time briefs, compared to 173 last year
- draft responses to 105 questions on notice, compared with 86 last year. Many of the questions were asked of all or a number of Australian Government agencies and several related to engaging consultants, and
- responses to 1,379 pieces of correspondence received by the Treasurer and Minister for Revenue and Assistant Treasurer, a slight decrease from 1,630 last year.
There were no major ministerial letter writing campaigns on tax administration issues during the year.
We continued to perform well in responding to ministerial correspondence, achieving a turnaround of 97% to ministers' offices within the due date.
The GST Administration Performance Agreement between the Tax Office and the states and territories requires us to assure the states and territories that the agreed performance outcomes are being achieved. We did this by reporting to the GST Administration Sub-Committee twice during the year.
We collaborated closely with other government service delivery agencies to improve services to the community. Where appropriate, we enter into a memorandum of understanding to clearly express the nature of the relationship and work to be undertaken, as well as the expectations of all parties.
The majority of the support we provide to other agencies aims to:
- provide better accessibility to services for taxpayers
- increase knowledge sharing between agencies, where we are allowed to provide information
- implement government initiatives and improve compliance with those programs, and
- ensure action is taken under the law, where appropriate.
We continued to contribute to and support other agencies in accordance with the memorandums of understanding we have with them. Some of the key relationships and the work undertaken through these agreements during the year are outlined below.
We enjoy a cooperative relationship with the ABS and assist in transferring information between our two organisations.
The transfer of information from the Tax Office to the ABS has reduced the reporting burden on business. It has also enabled the ABS to make significant efficiency gains in its statistical program, improving and extending the range of statistical information available for economic policy debate and decision making.
Joint initiatives delivered through collaboration with Centrelink include the tax file number registration project, which allows individuals to apply for a tax file number through Centrelink; pre-population of e-tax returns with Centrelink payment information; and sharing of Tax Office online security and authentication processes, which allow businesses that work with Centrelink to use an ATO digital certificate to access Centrelink's secure online services and transactions.
We continued to provide a range of services to the Child Support Agency through a memorandum of understanding. These services include lodgment enforcement, fraud prevention and control, ancillary business, software or systems interfaces, accommodation, and security and technology services.
The Tax Office and the Child Support Agency have been separate organisations for some years now. We are continuing our process of disengagement with the agency. This year we continued the process of disengaging the Child Support Agency from our remaining IT business systems and progressively moving them to their own independent property lease arrangements. We have been working closely with the Child Support Agency to ensure full disengagement will not impact upon the necessary core business relationship between the two organisations.
We continued to provide services to the Department of Families, Community Services and Indigenous Affairs for both the Family Assistance Office and the Child Support Agency.
The Family Assistance Office, which administers the family tax benefit, is a joint venture between the Tax Office, Centrelink and Medicare Australia, with the Department of Families, Community Services and Indigenous Affairs and the Department of Human Services having overall responsibility for policy and service delivery respectively.
Employees at each location answer enquiries about the family tax benefit and various payment options. They also help with completing and lodging claim forms.
This year we approved $444 million in family tax benefit entitlement claims through the tax system to 134,535 claimants. These claims related to the year ended 30 June 2005 and residual claims for 2004. We also approved additional credit for 728,163 fortnightly claimants (on reconciliation) totalling $1,289 million, and passed 2,742,980 records of income for family tax benefit recipients and their spouses, where applicable, to Centrelink. This was an increase on last year's results.
We provided services to the Department of Health and Ageing under a service-level agreement that was renewed in March 2005. The agreement supports the administration of the private health insurance rebate.
The rebate continues to be claimed in one of three ways:
- through reduced health insurance premiums
- as a direct cash payment from Medicare Australia offices, or
- as a refundable tax offset through income tax returns.
We are responsible for claims made through income tax returns and also conduct data matching to detect inappropriate claims.
During the year we processed 291,992 claims, with a total value of $172.3 million. The claims related to the year ended 30 June 2005 and residual claims for the year ended 30 June 2004.
By comparison, in 2004-05 we processed 318,294 claims with a total value of $167.4 million. These claims related to the year ended 30 June 2004 and residual claims for the year ended 30 June 2003.
The decline in the number of private health insurance rebate claims processed is in line with the ongoing trend to claim the rebate as reduced premiums, rather than through the tax system.
The Commissioner's discretionary powers under section 3E of the Taxation Administration Act 1953 authorise him to release tax information to specified law enforcement agencies. However, the information must be relevant to determining whether a serious offence has been or is being committed, or to proceeds of crime order proceedings.
Information provided under the legislation can be used for investigative purposes but not as evidence in a court for non-tax prosecutions (except in relation to proceeds of crime order proceedings).
During 2005-06 we received 717 requests, compared to 681 last year. Forty-six requests were carried over from last year. We finalised 726 requests, including making disclosures in 711 requests. These cases involved the affairs of individuals and corporate entities. During the year 5 requests were withdrawn and 10 were either rejected or assessed as not being a request under section 3E. We initiated four disclosures to agencies.
A total of 41 requests were on hand at 30 June 2006.
No requests were received from, nor any disclosures made to, any Royal Commission in the period.
Table 3.59 shows the general categories of offence, while table 3.60 shows the requesting agencies for 2005-06.
The Commissioner's discretionary powers under section 3EA of the Taxation Administration Act 1953 authorise him to release information to the Australian Security Intelligence Organisation (ASIO). These powers are available only where the Commissioner is satisfied that the information provided is directly relevant to ASIO's functions under subsection 17(1) of the Australian Security Intelligence Organisation Act 1979.
During 2005-06 ASIO did not request any tax information under section 3EA of the Taxation Administration Act 1953.
Research and development tax concession program
We jointly administer the Research and Development Tax Concession Program with AusIndustry, which is part of the Department of Industry, Tourism and Resources.
The government uses the concession to achieve its broader objective of developing internationally competitive, export-oriented and innovative Australian industries. Key elements of the concession include:
- a 125% deduction for certain types of expenditure
- a refundable research and development (R&D) tax offset, available to smaller companies, and
- the 175% premium incremental concession, which is available to all companies that increase their level of R&D expenditure over a base level. The level is determined by their average R&D expenditure over the previous three years.
This year 5,862 companies, with reported annual expenditure of $7.831 billion, registered to receive tax deductions. Around 2,770 of these were small companies that claimed the tax offset, with a total of $675 million in reported expenditure on R&D. In addition, 1,157 companies accessed the 175% premium concession.
We also support AusIndustry in administering the Pooled Development Funds Program. This program is designed to develop, and demonstrate the potential of, the market for patient equity capital to small or medium-sized Australian enterprises that carry on eligible businesses. The program provides tax benefits to qualifying investing entities and their shareholders.
There are currently 101 registered pooled development funds.
The venture capital measures, which are designed to facilitate non-resident investment in the Australian venture capital industry, are also jointly administered with AusIndustry. The measures provide incentives to invest in relatively high-risk start-up and expanding businesses that may find it difficult to attract finance through existing commercial sources.
There are currently 14 registered venture capital limited partnerships.
We administer the product stewardship for oil program on behalf of the Department of the Environment and Heritage. The program is designed to encourage oil recyclers to collect and recycle more oil by paying a benefit for certain activities. This year we received 375 claims from 74 taxpayers in the program, which compares with last year's levels.
Australian Valuation Office
The Australian Valuation Office is the Tax Office's only commercial business service line.
It is one of Australia's largest valuation practices, with 141 employees in 15 offices around Australia. The line competes on a fee-for-service basis with a very competitive private sector to provide government agencies with policy and strategic advice on valuation and related issues. This advice covers a wide range of sensitive and confidential areas and helps government agencies contain outlays and optimise revenue.
Following extensive consultation, we developed a new strategic plan for 2006-2008 and redefined the vision for the Australian Valuation Office, 'to be the preferred provider of valuation services for government purposes', by using its broad expertise to solve problems and help its customers make informed decisions.
The Australian Valuation Office continued its close working relationship with Centrelink and the Northern Territory and Australian Capital Territory governments, and successfully renewed its contract with the Department of Veterans' Affairs.
During the year it also won work from the Department of Defence, the Australian Customs Service, the Department of Finance and Administration, and Victoria Museums.
Working with key stakeholders, the Australian Valuation Office created proprietorial products to help Centrelink and the Tax Office implement government policy, and provided input into the Land Valuation Inquiry conducted by the Legislative Assembly for the Australian Capital Territory Standing Committee on Public Accounts.
For the first time in the Australian Valuation Office's 96-year history, it provided pro bono valuation services to charitable groups, including Scope and Youth Off The Streets.
As ever, its abilities to apply valuation principles to unusual items were in high demand, including the valuation of the Bradman Cricket Memorabilia Collection in Adelaide and Bowral, a historic tank collection, iconic ephemera of Kylie Minogue, Dame Edna and Dame Nellie Melba, and the famous wing of Kookaburra, upon which Kingsford Smith's rescuers wrote their diary before they perished.
We continued to invest significantly in our people working in the Australian Valuation Office.
We have 22 employees from that line currently undertaking further tertiary education, and 14 valuers completed an intensive two-day course on advanced valuation techniques provided specially for us by Queensland University of Technology.
To address the impact of generational change on the line's specialised workforce, we developed innovative programs targeted at baby boomers and Generation Y. Opportunities for part-time work and home-based work have proved particularly popular with baby boomer employees as they approach retirement. Similarly, our intern program, junior valuer development program and international exchange program are very popular with Generation Y, offering them the opportunity to combine a variety of work types in different locations.
We continued to re-engineer business processes within our high-volume/low-margin valuation business. The introduction of proprietorial software, hand-held personal computers for field work and electronic document storage has contributed to optimising productivity and profitability.
Our focus on cost reduction continued as we relocated our Adelaide and Brisbane offices from the CBD to the suburbs, and significantly reduced the total area our Hobart and Darwin offices occupy.
We apply competitive neutrality in accordance with government policy. In response to a complaint by a competitor, the Australian Government Competitive Neutrality Complaints Office undertook an investigation and in May 2004 made a recommendation in relation to professional indemnity insurance. We have complied fully with this recommendation, with 2005-06 being the first full year of operation of the new professional indemnity arrangements. Additional information about the application of competitive neutrality is provided in notes 2.19 and 26 of the Australian Valuation Office financial statements.
Our focus on cost reduction and revenue improvement has moved the business towards a more sustainable position. However, we still have a relatively high cost structure and difficulties in implementing the transformational change program mean that there is an ongoing challenge to ensure that the Australian Valuation Office remains profitable and provides the Australian Government with a unique and valued capability.
Details of the Australian Valuation Office's financial performance are in appendix 15.
04 Management and accountability
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4.1 Corporate governance
Our corporate governance framework outlines the system of management whereby the organisation is directed, controlled and held to account. The framework is based on accepted principles of public sector governance articulated by the Australian National Audit Office (ANAO): leadership, accountability, efficiency, transparency, stewardship and integrity. Each of the principles is supported by components of our governance framework. For example, we ensure transparency through community consultation, published documents, public rulings and our website, as well as parliamentary scrutiny and external review bodies.
In April 2005 the Farrelly Review of Corporate Governance Processes in the Tax Office resulted in 11 recommendations. We have substantially implemented all the recommendations, with key improvements to our governance framework including:
- streamlined and clarified roles and responsibilities, in particular through further alignment between sub-plans and business and service lines
- appointment of a new external member with strong financial management and audit skills to the Audit Committee, and
- administered accounting now addressed in financial management training courses, while financial assurance processes continue to be improved.
Streamlining and improving corporate reporting and record keeping, as well as enhancing workforce strategies, remain a priority.
We continue to work closely with Treasury to implement recommendations of the Uhrig review of the corporate governance of statutory authorities and office holders. The work is due to be finalised by July 2007.
Corporate management practice statements
Under our governance framework, corporate management practice statements provide a single source of corporate policy and procedures to be followed by all our employees.
Certificates of assurance
Senior managers provide certificates of assurance to the Commissioner to provide assurance of the degree to which we are meeting our internal and external conformance obligations. These obligations include legislation, government policy and internal requirements.
Our integrity framework
Our integrity framework describes the instruments, mechanisms and arrangements that help us achieve our goal of being an organisation of high integrity. It sets out the behaviour, values and ethics that underpin the policy, processes and procedures for our work. The framework highlights integrity as a key consideration in our decision making and in our dealings with people both within and outside the organisation. The framework was revised in January 2006.
The framework promotes a strong culture of integrity by clearly explaining:
- the basis for our integrity standards
- strategies for communicating and promoting the standards and values
- approaches for dealing with non-conformance
- approaches for monitoring the framework and providing assurance that it is working as intended, and
- key roles in administering the framework.
The integrity framework is central to our corporate governance approach as it provides the context for how we achieve community confidence.
Case study - Together we are the Tax Office
Together we are the Tax Office and we are proud of the work we do as a world leader in tax administration.
This is the theme of our Employee handbook, which we developed this year. It is focused on building a collegiate relationship between the organisation and our people.
We see the handbook as an important tool in helping our employees understand Australian Public Service values and how they apply in their work, and in maintaining community confidence.
The handbook is an easy-to-read overview of the corporate policies and practices our employees need to know. It reflects the values
important to us and clearly articulates the behaviour and ethics that underpin our work.
All employees received a copy, while new starters will get one on their first day. It was promoted by senior executive officers, and team leaders were encouraged to share and discuss the information with their colleagues.
The handbook is available on our website.
The behaviour, values and ethics underpinning the work of our employees are described in the integrity framework. The values and behavioural expectations are set in accordance with the law, the Australian Public Service values and code of conduct, and the six principles of governance articulated by the ANAO.
We have developed systems and publications to help employees understand the ethical standards expected of them and embed the standards into everyday work practices and policies. The systems include:
- corporate management practice statements, through which all corporate policies are published and communicated to employees, and
- the performance and recognition framework, which focuses on both what we do and how we do it.
In March 2006 we published our Employee handbook, which is based on the policies contained in our corporate management practice statements and reflects the values that are important to us (see previous case study ).
Our values and integrity are supported and reinforced by an independent Integrity Adviser and an Integrity Advisory Committee.
The Integrity Adviser, Peter Kennedy, is an independent adviser to the Commissioner on matters of integrity, and is a member of our Integrity Advisory and Audit committees. Among other things, the Integrity Adviser has been instrumental in embedding the certificate of assurance process into everyday business.
Tax Office management arrangements describe how we are structured to enable us to deliver on our outcome and commitments to government and the community. They include the ATO Executive, sub-plan executives, business and service lines, corporate committees and forums, and secretariat arrangements.
As the breadth of our role is large and dynamic, our management structure tends to be complex. Following the Farrelly report, we have sought to simplify arrangements, but the subject matter often lends itself to a degree of matrix management. We are looking to our more integrated planning processes to further clarify roles and responsibilities in the coming year, under the banner that 'structure follows strategy'. For example, in September 2005 we established the law sub-plan to provide a greater focus on the interpretation of tax laws, our processes for implementing new legislation, and our litigation.
Other changes introduced during the year include the establishment of the position of Chief Operating Officer, who is responsible for our operations program. The role was created to support and maintain taxpayer information and provide a range of operational services to the community. The new Client Contact business line became operational on 1 May 2006 in order to improve services to taxpayers and deliver them more efficiently.
Our planning and governance arrangements are shown in Figure 4.1.
Download Figure 4.1 (PDF 46 KB)
Role of the ATO Executive
The ATO Executive, chaired by the Commissioner of Taxation, is responsible for the high-level management of the organisation. It is one of the ways we provide assurance to Parliament, government and the community that our governance arrangements are of the highest standard.
Membership of the ATO Executive comprises the Commissioner, three Second Commissioners, First Assistant Commissioner, ATO People and Place, and the Chief Operating Officer.
The roles and responsibilities of the ATO Executive are to:
- set strategic direction
- position the Tax Office to meet rising community expectations and improve efficiency and sustainability of operations n determine resourcing to deliver directions and plan n scrutinise delivery and initiate corrective action
- ensure compliance with legal and ethical frameworks, and
- act as the Change Program Steering Committee.
In performing these roles, the ATO Executive reviews high-level performance against sub-plans, revenue and budget performance, corporate risks, and the design and strategy for corporate policies. It also deliberates on reports against a range of integrity indicators and performance against service standards, as detailed in the taxpayers' charter.
Operational changes were made to the ATO Executive during 2005-06 to better align performance reporting to meeting dates. Consequently, only 11 ordinary meetings and one special purpose meeting were held during the year.
Table 4.1 shows members and meeting attendance for 2005-06.
Role of senior management committees
There are a range of corporate committees and forums that support the ATO Executive and sub-plan executives by providing a strategic focus on particular issues and/or fulfil governance requirements. These include the Resource Forum, Public Rulings Panels, Policy Implementation Forum, Priority Technical Issues Committee, and joint Treasury - Tax Office Tax Policy Coordination Committee.
The Audit Committee is established under the Financial Management and Accountability Act 1997. Its primary purpose is to oversee the internal governance and assurance policies that monitor and evaluate our internal controls. The committee also ensures that recommendations of external scrutineers are implemented (including those of the ANAO, Inspector-General of Taxation and Commonwealth Ombudsman).
Activities undertaken by the Audit Committee include:
- assessing the effectiveness of our control framework
- promoting increased efficiency, effectiveness and ethical conduct
- improving the objectivity and reliability of our internal management information
- overseeing our published financial information and reviewing our financial statements
- approving the annual Internal Audit plan
- overseeing our relationship with our external auditor, the ANAO
- overseeing the development and implementation of fraud control plans, and
- liaising with the Integrity Advisory Committee on its recommendations to promote an ethical culture and enhance our integrity framework.
The Audit Committee is chaired by the Second Commissioner, Law, and includes two external representatives who bring specific experience and independent advice to the committee. The Chief Finance Officer, the Assistant Commissioner, Internal Assurance Branch, and ANAO representatives attend meetings to report on their activities and provide technical advice to the committee.
The Audit Committee meets regularly during the year.
Table 4.2 shows committee members and the number of meetings they attended in 2005-06.
Integrity Advisory Committee
The Integrity Advisory Committee advises the Commissioner on how to ensure we remain an integrity-based organisation and are recognised as such within the Australian Public Service and the community. The committee does this by advising on potential integrity issues arising from our risk framework and recommending ways to address them.
The committee is chaired by the Second Commissioner, Law, and comprises a diverse membership, including representatives from the Australian Public Service Commission, Commonwealth Ombudsman and Australian Federal Police. Table 4.3 shows committee members and the number of meetings they attended in 2005-06.
The committee meets quarterly and has a forward work program to plan its work within the context of our integrity framework. It advises on matters such as:
- fostering Australian Public Service values, promoting compliance with the code of conduct, preventing fraud and managing ethical challenges
- enhancing community confidence in our integrity
- exploring innovations and emerging trends in public sector administration and accountability, and
- sustaining an integrity-based organisation in a realistic and achievable manner, while meeting best practice standards.
Corporate Design Forum
The focus of the Corporate Design Forum is to contribute to the development of our strategic direction and corresponding capabilities. It is chaired by the Commissioner and generally meets on a monthly basis.
Membership of the forum includes Second Commissioners, National Program Managers and Deputy Chief Tax Counsel. Table 4.4 shows the members of the forum and the meeting attendance rate for 2005-06.
A key focus of the forum during 2005-06 was to consider the Tax Office's future direction and the activities and issues we need to address as we move toward the year 2010, our centenary year.
Plenary Governance Forum
The Plenary Governance Forum reviews our overall performance against our commitments. It is held three times a year and is chaired by the Commissioner. Table 4.5 shows the members of the forum and the meeting attendance rate for 2005-06.
The forum reviews the individual performance of the six sub-plans and the Australian Valuation Office, as well as conformance with statutory and other obligations. It also considers other reports relevant to our governance framework, such as financial reports from the Chief Finance Officer and certificates of assurance from the Integrity Adviser and corporate assurers. Each line contributes information to the relevant sub-plan as an integral part of this process.
During the first half of the financial year the Plenary Governance Forum focuses on matters relevant to developing plans for the six sub-plans and the Australian Valuation Office, including key risks, priorities and budget implications. It then looks at how the various plans perform against their commitments and budget, while considering other significant management matters such as agency agreements.
The second half of the year involves a mid-year review, including consideration of our funding and delivery against outcomes. The forum also considers areas of significant additional activity we need to undertake within our existing funding allocation.
Our corporate planning approach
Our approach to corporate planning aligns with the ANAO's better practice principles, government guidelines and our statutory obligations under the Financial Management and Accountability Act 1997. This enables us to account to government in accordance with our outcome outputs framework and the Uhrig governance obligations for statutory agencies.
In response to the recommendations of the Uhrig review we have been working with Treasury in the development of the Statement of Expectations, which will precede the Tax Office Statement of Intent.
Tax Office strategic statement
Our Strategic statement 2003-05 provides a clear sense of direction and a framework for our activities. It includes:
- a statement of our business intent, which places the Tax Office outcome in a business context
- the challenges we face in seeking to achieve our business intent
- the Tax Office business model, to demonstrate how we deliver our business intent, and
- our planning and governance arrangements, which show how we are organised to deliver on our business intent.
In 2005-06 we began building our Strategic statement 2006-10. It sets out, for our employees and for the community, the style and direction for delivering our business model and aspiration, and for administering our revenue and non-revenue systems as we move towards our centenary.
Tax Office plan
The Tax Office plan takes into account the six sub-plans and the Australian Valuation Office plan, which reflect the strategic lenses that direct our business operations.
Our six sub-plans are:
- compliance sub-plan, which aims to optimise levels of voluntary compliance with the tax laws and regulatory systems we administer n easier, cheaper and more personalised sub-plan, which was established to implement a new information technology platform and re-engineered processes that make tax compliance easier, cheaper and more personalised for taxpayers and their representatives
- information technology sub-plan, which provides secure, reliable internal information technology systems that are responsive to the changing tax environment and are appropriately positioned to adopt emerging technologies
- law sub-plan, which focuses on excellence in technical decision making and policy implementation
- operations sub-plan, which supports individuals and businesses in establishing their tax obligations under the self-assessment system, and aims to improve the integrity of taxpayer data holdings and accounts, and
- people and place sub-plan, which provides the right mix of internal people and place resources to enable the effective administration of the tax system, and to position the Tax Office as a leader in public sector employment.
Each sub-plan is accountable for delivering our outputs while providing direction to our business and service lines to enable them to:
- deliver in accordance with the Tax Office plan, and
- identify and mitigate key risks.
Our new corporate plan
Over the last six months we have developed a new corporate plan for the coming year, which replaces the Tax Office plan. It shows the priorities each sub-plan will focus on and will guide the use of resources across the organisation in 2006-07.
The Tax Office Strategic statement 2006-10 and the Corporate plan 2006-07, together with other significant planning documentation, are available on our website.
Tax Office policy is to actively identify, analyse, prioritise, treat and monitor risks and issues that could prevent us achieving our corporate outcomes.
Our risk policy was revised in 2005 and culminated in the release of the Risk and Issues Management Practice Statement.
The risk policy was revised in order to update the risk management framework and processes in accordance with the Risk Management Standard (AS/NZS 4360:2004) and corporate planning in the Tax Office. The updated risk management policy, together with a Corporate Planning Practice Statement, has improved our approach to risk management, corporate planning and corporate reporting by implementing a staged process that integrates these governance activities at the appropriate phase in the annual planning cycle.
We continue to manage our risks, and to see risk management as an important way to use our scarce resources more efficiently and effectively. The revised risk management policy makes it clear that risk and issues management is the responsibility of all employees in their respective roles within the organisation.
Our approach to identifying areas of significant risk and the arrangements put in place to manage the risks are shown in figure 4.2. A range of ongoing inputs are reviewed to update and validate key risks to the Tax Office, including health of the system assessments (HOTSA), which examine key aspects of the tax system and our internal operations to determine how effectively we are managing our business. Our risk assessment process informs the corporate planning process of changes to sub-plan risks, thus enabling any necessary changes to the allocation of resources to meet corporate priorities.
The risk management policy requires the establishment of the Tax Office strategic risk register. The register is being piloted across the compliance sub-plan, under the direction of the Chief Knowledge Officer, with a view to eventually covering the whole organisation.
We remain committed to providing an ethical workplace. Our fraud prevention and control activities include education, planning, detection and investigation.
This year we delivered fraud prevention and ethics training using the fraud awareness interactive DVD, Make the right choice. This presentation, which won the Corruption Prevention Network award for 'Encouraging Excellence in Corruption Prevention' in 2004-05, comprises a series of professionally acted scenarios covering a range of ethical dilemmas. These include conflict of interest, procurement, protection of assets and misuse of power.
Scenarios are selected for presentation according to an employee's position and previous exposure to fraud awareness presentations. Key elements of the previous awareness programs, Judge for yourself and Play it again, Sam, are incorporated into the program.
Rollout of Make the right choice began in October 2004 and approximately 86% of our employees had attended the program by 30 June 2006. All employees and contractors are expected to have attended the program by December 2006.
Make the right choice is supplemented by:
- An online e-learning package that covers information technology security, information security, fraud awareness, ethics and privacy. It is specifically aimed at giving new employees the information they need in their role as tax officers. This package has now been completed by most of our employees, and
- Overview to fraud control and related corporate management practice statements for all employees.
We have adopted a rolling plan approach to producing our fraud control plans under the Commonwealth fraud control guidelines. This enables us to combine a number of plans (or chapters) that together address our fraud risks. The 2004-05 fraud control planning cycle was completed by 31 December 2005. The 2006-07 planning cycle is under way and commenced with a number of control tests and analysis reviews.
During the year we implemented all the recommendations from our internal fraud review, having initially concentrated on internal controls aimed at mitigating the risk of our employees committing tax fraud.
We investigate or action all allegations of fraud and serious misconduct by our employees, working with other law enforcement agencies where appropriate. We finalised 167 allegations during the year, 29 of which were found to be substantiated. Substantiated matters are dealt with by a range of actions, which may include misconduct action and/or criminal prosecutions. Given the size of our workforce and the comprehensive nature of our fraud control plan and processes, substantiated matters are a miniscule exception to the general rule.
Figure 4.3 shows how we prevent, detect, investigate and prosecute fraud.
This year six Tax Office employees and former employees were prosecuted for various offences, including unauthorised access to taxpayer records, and fraud. These matters include:
- two cases of unauthorised access, with one offender receiving community service and the other a fine
- two cases of fraud against tax revenue, with the severest penalty being four years and seven months imprisonment, and
- two cases involving lodgment of incorrect tax returns, with one former employee receiving a three-year suspended sentence and the other being fined a total of $6,000.
A further 11 matters are either with the Commonwealth Director of Public Prosecutions or before the courts.
During 2005-06 we continued to monitor our compliance with the Australian Government protective security manual, and implemented appropriate policies and procedures to protect our employees, information and assets.
We completed a periodic review of our security risk management plan to ensure that we continue to identify and treat high-level corporate security risks. Our security awareness strategy, which is designed to maintain awareness and improve understanding of our security risks and procedures, is also progressing well. Almost every employee has now completed a compulsory security, fraud and privacy e-learning program.
A national program of site security audits monitors our adherence to physical security standards. The audits have shown that while the physical security risk at our sites is generally low, some upgrades are needed, for example, to perimeter doors and computer rooms. This work is progressing satisfactorily.
Security risks to our information, including taxpayer records, are monitored by national programs that check adherence to our information security policies, including the clear desk policy. We are implementing recommendations to fix problem areas revealed by these review programs. In particular, we continue to show a big improvement in implementing the clear desk policy across the organisation.
A continuing priority is processing security clearances for employees who work with sensitive information or have access to valuable resources. Some unacceptable delays led us to seek new approaches to this work, including recruiting and training employees and developing procedures to process clearances more quickly. At 30 June 2006 we had approximately 7,000 employees and contractors with security clearances.
Our Security Committee monitors the results of the national security audits mentioned above, which measure our compliance with government and Tax Office security standards. The committee, which comprises senior officers responsible for various aspects of security, met six times during the year and reported quarterly through the Audit Committee.
4.2 External scrutiny
Our operations are under scrutiny from many sources. The Commonwealth Ombudsman, the Inspector-General of Taxation and the Australian National Audit Office (ANAO) regularly review aspects of our operations to ensure we are operating effectively and efficiently, and provide recommendations on how we can improve. This is in addition to scrutiny from Parliament, the Privacy Commissioner and the media. Our interpretation of the tax laws is reviewed by the courts and tribunals where a taxpayer disputes our view of the law. Litigation is an essential part of law clarification for the community. We welcome constructive feedback.
During 2005-06 external scrutineers completed eight major audits and reviews of Tax Office operations. This was in addition to two cross-agency reviews. As a result, we are implementing a wide range of their recommendations. We also used the opportunity presented by scrutineers' reviews to do some self-examination, and are implementing further improvements as a result.
The Ombudsman Act 1976 allows the Commonwealth Ombudsman to investigate taxpayer complaints, conduct 'own motion' investigations and produce reports on any complaints they have received. The Ombudsman can also record instances of agency error or deficiency in cases he has investigated.
Investigations for taxpayers
In 2005-06 the Commonwealth Ombudsman received 1,529 complaints about the Tax Office, compared to 1,632 in 2004-05. While the Ombudsman dealt with the majority of these complaints without referring them to us, he did forward 209 investigations to the Tax Office requesting specific information and actions. From these investigations, the Ombudsman made a finding of administrative deficiency in 15 cases.
Figure 4.4 shows the major issues raised in the investigations.
The main reasons taxpayers approached the Ombudsman were:
- the time we took to deal with issues such as the non-payment of the superannuation guarantee entitlement, and
- issues concerning outstanding debt, including release from debt, payment arrangements, explanations provided to taxpayers, and decisions about requests for remission of the general interest charge.
Own motion investigations and other reviews
The Commonwealth Ombudsman did not initiate any new own motion investigations relating to the Tax Office during the year. However, two investigations were completed which related to the Tax Office, one directly.
The reports of both investigations were published in March 2006. The first report was a cross-agency investigation entitled Scrutinising government - Administration of the Freedom of Information Act 1982 in Australian Government agencies. The second report was entitled Administration of the superannuation co-contribution scheme.
In relation to the administration of superannuation co-contributions, the Ombudsman concluded, in brief, that the review of complaints relating to co-contributions did not disclose any major concerns about our administration of the scheme.
The reports are summarised in appendix 5.
The role of the Inspector-General of Taxation is to conduct reviews of administrative systems relating to tax laws, and report to the government on the findings of the reviews and any recommendations arising from them.
Two Inspector-General reports were publicly released by the Minister for Revenue and Assistant Treasurer in September 2005 concerning:
- the administration of penalties and interest arising from active compliance activities, and
- the length of time to complete active compliance activities.
We agreed with the recommendations of both reports and have made substantial progress in implementing them.
At 30 June 2006 the following Inspector-General of Taxation reviews relating to the Tax Office were in progress:
- Follow up review into the Tax Office's implementation of recommendations included in reports prepared by the Inspector-General of Taxation
- Reviews into the Tax Office's ability to identify and deal with major, complex issues within reasonable timeframes - 3 case studies:
- research and development (R&D) syndication arrangements claiming deductions under section 73B of the Income Tax Assessment Act 1936;
- living away from home allowances (LAFHAs); and
- service entity arrangements, and
- Review of the potential revenue bias in private binding rulings involving large complex matters.
The Review into aspects of the Australian Taxation Office's management of litigation had been completed by 30 June and was awaiting release.
The reports are summarised in appendix 5.
Australian National Audit Office
The ANAO conducts financial, performance and business support process audits on the Tax Office.
During 2005-06 the ANAO tabled five audits conducted on the Tax Office and one cross-agency audit involving the Tax Office. The audits, which are summarised in appendix 5, were:
- Audit Report No. 13: Administration of goods and services tax compliance in the large business market segment
- Audit Report No. 17: Administration of the superannuation Lost Members Register
- Audit Report No. 30: Performance audit - The ATO's strategies to address the cash economy
- Audit Report No. 33: Performance audit - Administration of petroleum and tobacco excise collections
- Audit Report No. 35: Performance audit - The Australian Taxation Office's administration of activity statement high risk refunds
- Audit Report No. 42: Performance audit - Administration of the 30 per cent private health insurance rebate - Follow-up cross agency audit.
Through these audits, the ANAO recognised our well-established governance frameworks, with many of the recommendations either complementing current Tax Office initiatives or enhancing our current work. Other recommendations provided guidance on improving strategies and their transparency, strengthening our documentation, improving our risk management and planning practices, or improving our systems.
The follow-up audit showed that we have made good progress in implementing previous recommendations.
At 30 June 2006 the following ANAO audits relating to the Tax Office were in progress:
- The 2005-06 financial statement audit
- The ATO's management of the relationship with tax practitioners - Follow-up audit
- The ATO's administration of capital gains tax compliance in the individuals market segment
- The ATO's Tax Agent and Business portals
- The ATO's management of self-managed super funds
- The ATO's management of debt collection
- The administration of family tax benefit (FTB) (cross-agency)
- Business support process audit - Outcomes and outputs (cross-agency).
The Tax Office works with the ANAO to develop better practice guides to assist government agencies with their tax obligations. This year we co-produced the Administration of fringe benefits tax - better practice guide.
During 2005-06 we participated in a number of inquiries by parliamentary committees. We attended hearings of the Joint Committee on the Australian Crime Commission and the Joint Standing Committee on Public Works. We attended three Senate Estimates committee hearings, where we took 85 questions on notice. We also provided material to, and attended hearings of, the Victorian Parliament's Economic Development Committee, as part of its inquiry into the horse breeding industry.
In December 2005 the Joint Committee of Public Accounts and Audit announced an inquiry into a range of tax issues within Australia. In June 2006 the Commissioner attended the Joint Committee of Public Accounts and Audit and outlined what we do, how we do it and why we do it in support of the comprehensive submission we had previously provided. This inquiry is ongoing.
We attended a separate hearing of the Joint Committee of Public Accounts and Audit as it reviewed a number of Auditor-General reports.
Only one parliamentary committee report that directly related to tax administration was tabled in the Federal Parliament in 2005-06. The Joint Committee on Public Works recommended in May 2006 that the proposed fitout of new leased premises for the Tax Office, at the site known as Section 84 Canberra, proceed.
We apply the Privacy Act, interpretative materials and guidelines published y the Privacy Commissioner and the secrecy provisions found in tax law to assess the privacy implications of our activities.
When complex or significant issues arise, we consult with the Office of the Privacy Commissioner. This usually involves projects that match data from external sources with taxpayer records.
We have developed and publicised protocols for our data matching activities, in compliance with the Privacy Commissioner's Use of data matching in Commonwealth administration guidelines (February 1998). During 2005-06 we consulted with the Office of the Privacy Commissioner in preparing many specific protocols to ensure that our practices meet the requirements of the guidelines.
The Privacy Commissioner confirmed that it was in the public interest to depart from one of the requirements of the guidelines in relation to five data matching projects we undertook this year.
This year we voluntarily reported six incidents to the Privacy Commissioner that potentially compromised some of the personal information we hold. The majority of these incidents did not involve us directly, but involved the theft or loss of personal information from or by third parties, such as tax agents.
We were notified of two formal investigations by the Privacy Commissioner into actions of the Tax Office during the year. One of these cases remained open at 30 June 2006. One investigation from 2004-05 also remained open.
Taxpayers do not always agree with our views on the application of the law to their circumstances. They have the opportunity to challenge those views through a range of administrative and legal options.
Even though tax litigation is instigated by taxpayers, sometimes a taxpayer's challenge to our view of the law has the benefit of providing law clarification.
In recognition of the benefits that litigation provides in clarifying the law, this year we moved the litigation function and related accountability for decision making during litigation to the newly created law sub-plan.
In substantive non-debt tax law litigation court decisions, the Commissioner was successful in 64% of cases this year, while 22% of cases were decided wholly in favour of the taxpayer. The remaining 14% were decided partly in favour of each party.
In the Administrative Appeals Tribunal and the Small Taxation Claims Tribunal, the Commissioner's decision was affirmed in 73% of cases, while 12% of cases were decided wholly in favour of the taxpayer, and 15% decided partly in favour of each party.
The Commissioner of Taxation is involved not only in tax law litigation, but also in debt recovery litigation. As with any government department or agency, the Commissioner may respond to or initiate litigation in a range of commercial or other civil litigation matters.
Test case litigation program
The test case litigation program has been formally operating since 1995 to provide financial assistance to taxpayers involved in litigation against the Tax Office that will help clarify the law. Since the program was established on the recommendations of the Joint Committee of Public Accounts in 1993, we have developed and supported it to help provide certainty about the application of the tax laws.
During the year the Test Case Litigation Panel was chaired by the First Assistant Commissioner, Office of the Chief Tax Counsel, and included the Assistant Commissioner responsible for strategic litigation, a tax barrister, a tax lawyer, a tax accountant and a former taxation director of the Institute of Chartered Accountants. We also welcomed the addition of a former New South Wales Court of Appeal judge to the panel. The external panel members bring a range of skills and backgrounds to assist in deliberations.
This year the panel considered 35 applications, of which:
- 19 were approved for funding
- 15 were declined funding, and
- 1 was deferred.
The panel's majority recommendations were accepted by the Chair in all cases during the year. The cases that were approved for funding or were agreed to be funded in principle are summarised in appendix 5.
There were 32 matters being funded by the test case litigation program at 30 June 2006 and total expenditure for the program in 2005-06 was $519,606.
There were varying reasons why particular applications were declined. The majority fell into the category of not being cases that would resolve contention in the law because they would likely be determined on their facts having regard to existing legal principles. Cases involving alleged tax avoidance were declined where it could not be said that the public interest would have been better served from funding the case.
Test case decisions
During the year six matters funded by the test case litigation program received court or tribunal decisions. These cases are summarised in appendix 5. They have generally been helpful in clarifying the law or as part of that process.
In addition to the cases funded by the test case litigation program, there were a number of other significant cases decided by the courts. These cases are also summarised in appendix 5.
Case study - A wealth of legal expertise.
The Tax Office has in-house legal expertise and complements this with the services of external providers.
In the litigation arena, the Australian Government Solicitor provides most of the external solicitor services we require. However, following a public tender process in accordance with the Commonwealth procurement guidelines, in September 2005 we established a panel comprising the Australian Government Solicitor and nine private law firms to provide legal services for debt recovery matters. Some of these firms represent us in only one state or territory, while others do so in multiple jurisdictions.
This outsourcing arrangement ensures that legal services in this important area of our business remain competitive, contestable and efficient.
Having a choice of external suppliers means we can draw on a variety of legal experts across the country. We are better placed than ever before to cope with peaks in workflow associated with different operational initiatives, while maintaining our commitment to continuously improve our debt recovery activities.
4.3 Managing our people
We have a large and diverse workforce that is located in 67 sites throughout he country. At 30 June 2006 we employed 21,511 ongoing and non-ongoing employees under the Public Service Act 1999. This number excludes employees on leave without pay and those who started working with the Tax Office in the last week of June 2006.
While having employees located across Australia provides operational challenges for employees and managers, it gives a presence across the nation for taxpayers and gives us access to the national labour market.
Appendix 6 contains a series of tables showing the size, location and make-up of our workforce. This includes a breakdown of employees by gender and classification, which area of the organisation they work in and where in Australia they work, and details of employee separations. An analysis of our workforce demographics for 2005-06 shows the following changes in distributions from last year:
- the gender profile remained very similar to last year, with women representing approximately 52% of our workforce at the end of the year (a fall of less than 1%)
- the age profile showed a 2% increase, with approximately 64% of employees being 40 or older (compared to 62% at the end of 2004-05), and
- Operations and Goods and Services Tax (GST) remained the two largest lines, representing 16% and 13% of all employees respectively. Operations reduced in size from 30% at the end of 2004-05 due to a restructuring that resulted in the formation of a new Debt line that is only fractionally smaller than GST.
Employee turnover during 2005-06, while still low, continued to trend upwards, with a 5.8% separation rate for ongoing employees (1,236 people), compared with 5.2% last year. This included:
- 681 resignations
- 187 age retirements
- 78 redundancies, and
- 13 dismissals.
To manage our workforce to deliver our current business, and to ensure a sustainable workforce and environment for the future, our priorities this year were to:
- provide a safe and healthy workplace through a range of strategies aimed at preventing injuries and better managing them when they do occur
- review and improve our workforce availability strategies
- transition our people to our easier, cheaper and more personalised (change) program
- enhance our professional and leadership capabilities to meet our ongoing needs, and
- settle our new agency agreements.
- We piloted several innovative programs to improve safety and health. These contributed to a decrease in the number of injuries reported, and to stabilising the incapacity period of injured employees, with a flow-on reduction in the upward trend of our Comcare premium.
- We engaged extensively with our people and unions to identify issues and explore solutions outside of the agency agreements. In our call centres, for example, employees can now use 'wild cards' to access flexible leave arrangements within the roster periods.
- The rollout of new systems this year was supported by extensive skilling and other people support strategies.
- Three-year agency agreements for general employees and executive level 2 (EL2) employees were finalised on time and based on extensive consultation involving 33,000 items of feedback.
Case study - Listening to our people
Just as we listen to the community when developing tax products, a major focus when developing our 2006 agency agreement was listening to our people. We received more than 33,000 items of feedback, with a significant proportion coming from people working in our call centres.
The people working in our call centres play a crucial role in ensuring that we meet our commitment to client service between 8.00am and 6.00pm. They work to rosters, which are developed with an emphasis on voluntary arrangements.
Call centre employees raised a variety of issues and this led to a two-pronged approach when developing our agency agreement - to explore changes that needed to be made to the agreement and to address issues not covered by the agreement.
After consultation and negotiation we realised that minimal changes needed to be made to the agreement itself, and we are also implementing a suite of initiatives in our call centres. These include improving access to planned leave, ensuring that team meetings continue to be held in peak periods, exploring reward and recognition processes and accreditation arrangements for call centre employees, and improving the physical environment.
A 4.5% pay rise took effect from 1 July 2005 as a result of a decision by the Commissioner in June 2005. This decision reflected our results against corporate outcomes for 2004-05, made under clause 8.2 of both the general employees and executive level 2 agency agreements for 2004. The outcomes related to maintaining budgeted revenue, technical quality, professionalism and other matters.
We have developed an approach to workforce planning that provides the context for our recruitment and deployment, succession management, skilling and career development strategies. It is supported by a broad range of workforce analysis covering workforce profiles, recruitment and internal mobility, and likely attrition.
We are revising our capability framework by introducing the Australian Public Service Commission Integrated Leadership System as the generic capability requirement for all our employees. Technical and specialist skills will continue to be developed under the auspices of a corporate skilling plan.
We are tackling the business risk of an ageing workforce by developing processes and tools to identify and prioritise succession risks. The aim is to retain organisational knowledge, provide career development opportunities and minimise the risks associated with losing key employees.
Recruitment and deployment
We completed a comprehensive review of the large-scale recruitment exercises we undertook in 2004-05, which involved extensive consultation with internal and external stakeholders. The review revealed that, while we were placing reasonably high numbers of candidates, our processes were resource-intensive, time consuming and costly when compared to Australian Public Service benchmarks. As a result of the review, we endorsed a set of initiatives aimed at significantly improving how we attract, assess, promote and move employees. The initiatives should also bring us closer to accepted industry benchmarks.
The endorsed initiatives involve:
- acquiring a corporate e-recruitment system
- adopting a corporate approach to all selection activity
- establishing a corporate recruitment capability
- using independent selection advisory committees and third-party recruitment industry providers, and
- differentiating assessment processes to recognise the experience and accreditation of internal candidates.
This year we:
- engaged 795 ongoing and 1,121 non-ongoing employees
- let 331 short-term contracts
- extended 1,338 non-ongoing contracts, and
- promoted 1,647 employees, with 34 decisions to promote being overturned through promotion review.
We are also introducing workforce shifts that allow lines to manage and rebalance resources to meet business demands, while at the same time providing opportunities for employees to broaden their experience and manage their careers.
Case study - Planning our IT workforce
With the endorsement of our IT 2005-08 workforce strategy in February 2006, IT managers now have a framework for making staffing decisions based on our business requirements, strategic direction, budgetary resources and desired workforce capability.
The strategy included developing a capability framework, which was the first of its kind in the Tax Office and across the Australian Public Service in that it describes the capabilities for all IT roles and is built on the Integrated Leadership System. The framework has been rolled out and is now integrated into recruitment, learning and development plans, career path planning and workforce planning.
The framework also enabled us to do a capability training needs analysis that helped identify and prioritise training and development needs. A similar process will be conducted in July-September 2006.
The next stage of workforce planning deliverables includes developing the workforce demand picture and transition plans to support workforce change resulting from our change program.
The certified agreements covering our employees - the Executive level 2 agreement 2006 (employee collective agreement) and the General employees' agreement 2006 (union collective agreement) - were lodged with the Office of the Employment Advocate on 29 June 2006, the nominal expiry date of the previous agreements. This was a pleasing result, both in terms of time and the fact that these are the first collective agreements we have negotiated with our employees using the Workplace Relations Act 1996 as amended by the Workplace Relations Amendment (Work Choices) Act 2005.
Negotiation of the agreements involved extensive communication and consultation with employees that allowed us to listen to and engage with them, and work collaboratively to address some of the issues they raised. The communication included receiving and responding to more than 33,000 items of feedback and delivering 220 employee and manager presentations. On 30 June 2006 there were 21,372 employees covered by these agreements, as shown in table 4.7.
A separate agreement covering the Australian Valuation Office was still being negotiated at 30 June 2006.
These agreements provide a remuneration package for our employees, which allows us to attract and retain the high-quality employees we need to meet our business outcomes. The package has contributed to a productive and stable workplace environment that helps us meet the corporate outcomes contained in the agreements.
Australian workplace agreements
All senior executives are employed under workplace agreements.
In February 2006 the ATO Executive endorsed the Tax Office remuneration policy. A major element of the policy is the recognition of the role of Australian workplace agreements for non-senior executives as the preferred mechanism where there is a business need to differentiate.
An example of the increased use of Australian workplace agreements can be seen in the operations sub-plan, in particular the client contact and debt areas. Employing a number of non-ongoing employees under Australian workplace agreements in these areas has improved our ability to meet peak access times throughout a work day and during the year.
As table 4.8 shows, there were 457 non-senior executives covered by individual workplace agreements at 30 June 2006.
To improve the value of the performance system for managers this year we:
- supported initiatives under our change program by building key messages into our performance agreements
- implemented a new base pay model for EL2 employees that has reduced complexity, and
- integrated the performance and base pay processes for EL2 employees.
An online survey of participation in the performance system conducted in April 2006 indicated that 93.6% of employees have a performance and development agreement and/or a team plan in place. The percentage of employees indicating they had a team plan increased by 7.4% between April 2005 and April 2006. In April 2006 some 87.6% of employees reported that they had had a mid-year performance review discussion, which is a slight increase from 2005.
A second online survey of employees in May 2006 indicated that our current performance environment has matured from a performance continuum rating of 3.82 in 2005 to 3.91 in 2006. The survey was based on the performance continuum developed by the Institute of Public Administration Australia, with a continuum rating range of 1.00 (indicating low maturity) to 5.00 (indicating high maturity).
This rating increase is consistent across a variety of performance components, as indicated in table 4.9.
Multi-source feedback is used to provide feedback to managers and leaders on their leadership behaviour. We made participation in the 2005-06 multi-source feedback process voluntary in order to provide time to plan and prepare for our change program. Despite being voluntary, one in four senior executives and more than one in three EL2 employees participated.
Senior executive remuneration
The Remuneration Tribunal sets the Commissioner's remuneration, while the Commissioner determines the remuneration for the Second Commissioners, within a framework set down by the tribunal. The Commissioner also sets actual remuneration and conditions for our senior executives through sub-plan remuneration committees.
Sub-plan remuneration committees allocate senior executives to a pay zone based on the work value of the position or role, and the internal and external 'marketability' of the position and the executive.
In assessing market factor ratings, the committees address:
- the challenge of the executive's task
- the executive's level of competence
- external market pressure relating to both the executive and their job, and
- the impact of the executive on the Tax Office and their value to the organisation.
In 2005-06 standard salaries for senior executives were $111,850 to $132,600 for band 1 and $143,550 to $165,100 for band 2. Final terms and conditions of employment, including salary, are negotiated through individual Australian workplace agreements.
Note 13 to our financial statements gives the number of executives whose total remuneration falls within each $15,000 band (starting at $130,000) and the aggregate remuneration paid to all executives.
Other employee remuneration
Table 4.10 shows the salary ranges for non-senior executive employee classifications in the Tax Office at 30 June 2006.
Performance pay is available to senior executives and EL2 employees. The first 5% of performance pay forms part of the total salary an EL2 employee or senior executive is entitled to receive if they perform their job effectively.
In 2005-06 we streamlined the assessment and payment of performance pay for EL2 employees.
- 235 senior executives out of a possible 251 received performance pay for 2004-05, and
- 1,588 EL2 employees out of a possible 1,687 received performance pay for 2004-05.
The total amount of performance pay was $11,629,711 ($337,996 for senior executive service band 2 employees, $1,940,486 for senior executive service band 1 employees and $9,351,229 for EL2 employees). The range of performance pay was $1,876 to $25,221 for senior executives and $983 to $13,864 for EL2 employees.
Table 4.11 shows the number of senior executives and EL2 employees who received performance pay this year.
We provide the following non-salary benefits to our employees:
- senior executives - a private-plated motor vehicle for private and business use, parking at work, reimbursement for a semi-official phone, airline lounge membership if the requisite number of trips is planned in a year (eight or more return trips), and spouse-accompanied domestic travel once a year
- EL2 employees - reimbursement (of up to $750 a year) for the purchase of items or services that maintain or increase their professionalism, and airline lounge membership (eight or more return trips)
- general employees - airline lounge membership for employees who undertake 12 or more return trips in a year, and
- all employees - access to salary packaging of cars and utility vehicles, motor cycles, car parking, superannuation (self only), portable computers, exempt child care, airline lounge membership and professional association membership fees.
In 2005-06 we continued to enhance our employee reward and recognition scheme. We introduced a new award, The Tax Office Environment Award.
The award rewards and recognises people who work on active solutions to environmental issues and contribute to the Tax Office being seen as an environmentally responsible organisation (see appendix 7).
This year the winners were:
- Newcastle Site Leadership Forum, for achievement and leadership in education and communication through raising awareness and understanding of environmental issues and innovation, and
- Damien Gillespie, for making an outstanding contribution to the sustainable management of Tax Office resources through research, investigation and implementation of the ECOWASH process for cleaning fleet vehicles.
The Commissioner's Awards, presented in July 2005, are the pinnacle of our scheme. They are awarded for superior performance and achievement in four categories: innovation, excellence in leadership, excellence in client service, and technical excellence.
This year the winners were:
- Gary Smith, for excellence in innovation
- John Hayward, Tom Jeffries and Lieu Wan, for excellence in leadership
- Tom Lo, for excellence in client service, and
- Regina Clarke, for technical excellence.
The Commissioner's Postgraduate Scholarship provides full-time paid leave and reimbursement of associated costs to employees undertaking postgraduate studies. It is designed to develop skills and knowledge to meet our current and future requirements. This year it was awarded to Dora Stergiou, a project manager in the compliance area. Dora is completing a Masters of Business Administration at the University of South Australia. Her aim is to acquire the expertise to manage organisational change and associated resource issues. This is particularly important with the introduction of new technologies to improve and support business processes.
Skilling and learning
We are committed to the professional development and ongoing accreditation of our employees to ensure they deliver high-quality services to taxpayers and their representatives. For graduates through to senior technical employees, we provide a range of internal and external educational opportunities to enhance organisational performance and allow employees to achieve their potential.
In a tightening and increasingly competitive labour market, our ability to attract and retain high-calibre graduates is crucial. We conducted an extensive review and evaluation of our graduate program to ensure it develops the skills our graduates require now and into the future, and attracts high-quality applicants. With an increasingly computer-savvy entry labour market, we have expanded our use of alternative delivery methodologies, including computer-based assessments and reporting, to assure the capabilities of our employees.
We continued to develop the technical excellence of our experienced employees to deal with existing and emerging challenges. From our internal programs through to our externally accredited certificates, our aim is to provide high-quality continuing learning options for our employees. We have trained more than 2,800 employees in our internal compliance audit and accounting programs.
From March to November 2006 more than 12,000 employees will be trained to use our new case management system as part of the second release of our change program to deliver continuing efficiency gains and an improved experience for taxpayers.
We have partnered with multiple education providers to deliver:
- accredited undergraduate and postgraduate courses
- tailored learning and professional development programs and products, and
- continuing professional development and industry-based accredited programs.
We have also launched a tuition assistance program designed to provide financial assistance to any of our employees who want to undertake further studies in one of a multitude of disciplines, beyond those provided through our formal partnerships.
Combined, these initiatives give our employees access to programs across specific capabilities, including law, accounting, economics, finance, auditing, business design, management, analytics, and a variety of other non-tax technical programs, along with the corporate and financial support to ensure success.
In addition to our partnerships with universities and education providers, we have worked in partnership with other agencies to promote a whole-of-government approach. We have established a cross-agency community of practice with the Australian Customs Service, Centrelink, the Australian Quarantine Inspection Service, the Queensland Police Service and CRS Australia to explore and solve issues related to capability assessment.
Like many other Australian organisations, we are experiencing an increasing rate of retirement as a result of an ageing workforce. This is exacerbated by a tightening labour market for skilled employees. As our work or priorities change, we also need to more flexibly use the skills of our employees at all levels, across different types of work. We have developed career development and succession management systems to address these challenges.
Our succession management framework is putting us in a position to:
- assess the risk to the business if key employees were to leave
- implement knowledge transfer interventions, and
- build long-term capability.
We also launched a succession management website to help managers identify the risks, undertake succession management discussions, and choose an appropriate strategy when key people leave.
We continued to develop our high-potential senior executives and EL2 employees through our talent pool initiatives, and we are now looking to develop talent from more junior levels more quickly.
We take employee communication very seriously, at a corporate, sub-plan, capability, site and line level. We use multiple communication channels to keep people up to date, and encourage feedback.
Corporately, News Extra, our weekly internal electronic magazine, is a major channel for sharing information and receiving feedback. The Commissioner has a weekly column in News Extra, where he shares his thoughts with employees. And the magazine has an open letters policy, giving employees the opportunity to raise issues, and relevant areas the opportunity to respond.
A survey conducted in August 2005 showed that 80% of employees read News Extra every week, while 94% read it at least once a month. The Commissioner's column, the letters column and the news section are the most widely read sections.
We also use bulk emails, short messaging service and priority messages to communicate with employees, particularly when there is an urgent need to provide them with information. Video downloads are increasingly used to personalise messages from senior executives to employees.
Senior executive service/EL2 dialogue days are another important channel for communicating corporate messages, engaging our leaders in discussions about key issues and obtaining feedback on matters that affect the organisation.
The dialogue days are a unique opportunity for the ATO Executive and National Program Managers to engage in conversations with senior executives and EL2 employees, who can then engage in discussions with their employees about significant or relevant issues raised.
Our change program was the major corporate topic in 2005-06. We use a tiered layer of change communication strategies, activities and products to communicate to our employees about the program.
The program focuses on using senior executives and team leaders to inform employees about most of the changes that will affect them. A special change agent network has been established in all tax offices to encourage two-way feedback and quick issues resolution. This focus on 'listening to employees' is supported by senior executives regularly visiting tax offices to talk with employees about their issues.
Sub-plans, lines, sites and capabilities also manage internal communication specific to their areas, in consultation with our corporate Employee Communication team when appropriate.
Our review of performance against our disability action plan (see appendix 8) indicated that our products and services generally recognise and meet the needs of people with a disability. However, we identified recruitment and employee development processes as specific areas for improvement. A lack of understanding of the issue of reasonable adjustment by selection committees, managers and employees has been highlighted as a renewed focus in 2006-07.
We recognise and value workplace diversity and have implemented a workplace diversity program to ensure employees and managers adhere to the principles of workplace diversity and social justice.
In 2005-06 we provided ongoing support to our 165 harassment contact officers through newsletters, regular telephone conferences and strategic advice on technical issues. We undertook a national survey to better understand the issues they face and obtain information about why people approach them.
The survey indicated that refresher training is a key area of need. This year there were 282 approaches to harassment contact officers, up from 169 last year. The increased number of approaches is partly due to more accurate reporting. With continued education and a greater awareness of rights and responsibilities, we expect more employees to come forward.
We introduced a mandatory e-learning program covering legal compliance relating to workplace discrimination and harassment. By June 2006, 90% of employees had completed the harassment and discrimination - legal compliance program, with another 3% in progress.
A new program encompassing broader diversity issues has also been developed. All our new employees are expected to complete the program within six weeks of starting work.
We developed fact sheets on bullying, harassment, discrimination, reasonable adjustment and cultural diversity. They provide our managers and employees with a quick guide to information and where to get help.
In November 2005 we held a national workshop for our diversity contact officers, with a key outcome being the development of line action plans. Lines report on their achievements against these plans, including the continued promotion of diversity and the awareness of harassment and discrimination, through regular communication and education programs. We regularly promote equity and diversity through News Extra articles, line communication channels, and monthly meetings with the diversity and harassment contact officer networks.
During the year a number of events highlighted the important role diversity plays in helping to achieve our business outcomes. The 'Diversity hypothetical', held in February 2006, attracted approximately 170 employees, and on Harmony Day in March 2006 we unveiled a 'Diversity' feature in the foyer of our National Office.
Indigenous recruitment development
In September 2005 we developed an action plan to implement our Indigenous employment and development strategy. The strategy is coordinated by the Indigenous Liaison Officer. The officer provides an advisory service, including advice on our dealings with Indigenous people, and reports to the ATO Executive through our Social Justice Unit.
A key focus of the strategy is to retain Aboriginal and Torres Strait Islander employees. While the percentage of our employees who identify as Indigenous is low, at 0.4%, it has remained steady. This is in contrast to the rate of Indigenous employment throughout the Australian Public Service, which is reported as being 2.2%.
A national fortnightly newsletter informs Indigenous employees and internal stakeholders of events and development opportunities, including initiatives run by the Australian Public Service Commission.
This year we implemented the following initiatives to tap into alternative employment markets and pilot new employment pathways for Indigenous Australians:
- in Western Australia, placement of a year 11 student under the Indigenous school-based traineeship program, with the placement continuing to the end of year 12
- in Queensland, a three-year sponsorship of five year 10 Aboriginal and Torres Strait Islander high school students. The sponsorship ends upon completion of year 12. Each student has a mentor within the Tax Office and is given work experience in years 11 and 12. We are the first Australian Government agency to do this and have made a commitment to sponsor another five students each year in 2007 and 2008, and
- through the Australian Valuation Office in Darwin, appointment of four Indigenous valuers-in-training cadets. Cadets study towards a Bachelor of Business (Property) through the University of South Australia. During semester breaks they gain work experience in the Darwin and Alice Springs offices of the Australian Valuation Office.
Accessible products and services
Our disability action plan outlines strategies to improve our performance in complying with our obligations under the Disability Discrimination Act 1992. It provides performance indicators against all five roles performed by Australian Government organisations: policy adviser, regulator, purchaser, provider and employer.
In 2005-06 our work as an employer of people with a disability included:
- undertaking surveys to review performance against the disability action plan indicators
- developing and implementing specific line action plans
- continuing to provide and upgrade adaptive technologies
- continuing to support and engage with hearing and vision impaired networks, and
- increasing our capacity to attract and retain employees with a disability.
Survey results indicate that we:
- perform well in the area of information accessibility for employees and taxpayers with a disability
- report high levels of compliance and satisfaction with dissemination of information to employees, including agency agreements, access to grievances and complaints, and other people management policies, and
- have a high level of employee satisfaction with the provision of adaptive technologies in the workplace.
Specific areas for improvement identified included recruitment and employee development processes, particularly where selection committees, managers and employees do not understand reasonable adjustment. We will develop more sophisticated and reliable assurance processes in 2006-07.
The Management Advisory Committee report on disability in the Australian Public Service is to be published in 2006-07. Our employees have shared their experiences and views about possible barriers and issues in employment. In anticipation of the report's findings, we sought to establish communication with Disability Works Australia Ltd, an umbrella organisation assisting in the recruitment of people with a disability, to develop better strategies for attracting people with a disability.
ATOconcern is an area within the Tax Office that provides an independent, confidential and impartial service that our employees can use to raise employment-related issues or concerns. It is also an important channel for whistle blowing.
Our primary interests are to enable employees and managers to be heard, to arrive at an informal resolution and ensure outcomes are fair and in accordance with laws, rules and policies. By resolving issues in a timely way, we can prevent them escalating to formal processes.
We recognise that listening to employee concerns and providing safe avenues to raise and address issues help ensure organisational health and increase overall engagement and productivity.
In 2005-06 around 80% of approaches to ATOconcern were made by email. Employees can also contact ATOconcern using a hotline number or a fax facility, or in person. At 30 June 2006 there were 788 approaches to ATOconcern, compared to 871 approaches last year.
As in 2004-05, the main reasons why employees contacted ATOconcern this year were conditions and environment, recruitment and selection, workplace conflicts, and discrimination and harassment. Other reasons included allegations of fraud or misconduct, occupational health and safety, and information technology.
While approximately half the approaches require only information or low-level advice, or can be escalated elsewhere, the main role of ATOconcern is to work skilfully and patiently with all parties to resolve issues. A growing area of work is to provide workplace mediation and conferences to resolve more complex issues. These services are particularly valued by senior managers.
The four main areas of strategic activity this year were:
- implementing the recommendations of the Urbis review of ATOconcern in June 2005, particularly by building awareness and clarifying roles
- continuing to provide a confidential review of issues and trends through reports to senior management
- developing a quality assurance framework, which comprises regular fortnightly telephone conferences to discuss current cases, an annual survey of people who have used the service to assess their satisfaction with the service, and a bi-annual review of cases for each team member, with input from a professional external mediator, and
- developing a corporate management practice statement on employees reporting wrongdoing in the Tax Office, which is nearing finalisation.
In 2005-06 we met our obligations under the Occupational Health and Safety (Commonwealth Employment) Act 1991 by having:
- an occupational health and safety (OH&S) policy
- an OH&S agreement, which allows for consultation and communication with all employees, their health and safety representatives and relevant unions
- a national committee and line committees that meet quarterly to plan, develop and implement OH&S initiatives, particularly relating to injury prevention, and
- designated trained work groups and health and safety representatives.
Appendix 9 contains our OH&S report.
Preventing work-related injury
During 2005-06 we experienced a slight decrease in the number of injuries reported and a decrease in periods of incapacity (see table 4.12). This is an improvement in the trend over previous years.
The decreased number of claims has resulted in a lower than expected growth in our workers' compensation premium for 2006-07. The growth in incapacity rates appears to have stabilised this year (see table 4.13).
The Tax Office premium paid to Comcare for 2005-06 was $36 million (GST-inclusive). For 2006-07, Comcare has advised a premium of $38.5 million (GST-inclusive), an increase of approximately 5.5%. The 2006-07 premium will represent 2.7% of our salary payments and is higher than the Australian Government average of 1.8%.
While the results for this year continue to present challenges, there are signs we are moving in the right direction. Some structural improvements and initiatives will help us improve our performance in the coming years. These improvements include:
- a continued reduction in the time taken to start rehabilitation action in injury cases, and
- improved support from our business areas in developing prevention plans and undertaking and implementing risk assessments.
These improvements are the result of:
- a heightened focus on safety and health, particularly by managers
- having all safety-related activities under one national management structure
- a significantly increased emphasis on early intervention, with 30% more early intervention cases actioned this year compared to last year. Internal research shows that 94% of incidents where there was early intervention were resolved without being escalated, which is a significant improvement on the 85% reported last year, and
- continuing to have a dedicated team working on high-cost and high complexity claims, which also progresses cases at Comcare and the Administrative Appeals Tribunal.
Case study - A healthy workforce
Our Complex Health Advisory Team (CHAT) has been operating for 12 months. Its main role is to provide a framework for managing the health of our people.
The team provides:
- a more coordinated approach to health matters, particularly for high-risk cases
- a central area of health management advice and knowledge, which is shared through CHAT team tips, injury management advice, area reviews and hands-on involvement with high-risk cases
- a central contact point for more complex matters, which helps reduce the risks arising from these cases and ensure that our leaders understand individual cases and corporate strategies, and
- a central liaison point for external organisations such as Comcare on injury management issues. CHAT works closely with Comcare to facilitate holistic case management of compensation cases.
The achievements of CHAT are already evident.
By working closely with our case managers and legal people and Comcare, CHAT has dealt with a few non-compliant cases, leading to the successful suspension of benefits in seven cases, with significant savings.
Further, injury management advice and CHAT tips have contributed to more consistency and efficiency in our national approach. This is reflected in the high pass rates in our internal quality assurance processes.
Finally, the consultancy approach employed by CHAT has supported our case managers and given them the opportunity to increase their knowledge and skills.
4.4 Managing information technology
We rely on technology to achieve our corporate objectives and provide a robust platform for future improvements.
The key to providing taxpayers and their representatives with effective electronic access to the Tax Office is secure channels that protect information through appropriate infrastructure, portal and platform stability. This provides them with flexibility and confidence when dealing with us electronically.
Our information technology (IT) leads the way in building closer and stronger relationships with other government agencies that deal with taxpayers. We work in partnership with the Australian Government Information Management Office on whole-of-government enterprise architecture, and have conducted significant and successful tax return pre-population pilot programs with other government agencies that will make it easier for taxpayers to comply. This collaboration is designed to achieve consistency across government services, and is being used to model the preferred direction for future government practice.
We rely on technology to achieve our corporate objectives and provide a robust platform for future improvements. This requires our IT business model and decision making processes to be aligned with corporate priorities so as to deliver better organisational outcomes and reduce IT risks.
We have one of the largest and most complex IT operations in Australia. Due to the size and complexity of our IT operations, considerable effort goes into ensuring that systems remain stable, secure and capable of delivering the necessary outcomes.
In 2005-06 we managed 28,155 workstations, 4,463 laptops, 1,747 office printers, 23,346 telephone handsets and 6,626 mobile phones.
In order to do our work, we maintain the hardware and software necessary for our operations, including the IT systems needed to deliver facilities and services to help taxpayers comply with their tax obligations.
Case study - Managing complex system changes
We offer a range of free, secure and convenient electronic products and services that businesses and individuals can use to meet their tax obligations. This means that effective IT systems and processes are critical to the quality of service we provide to the community.
Changes to tax legislation often require a detailed IT response plan to ensure that desired outcomes can be effectively delivered through appropriate and stable systems. This was clearly shown in our implementation of the fuel excise reform project during the year.
In 2004 the government announced that the current system of grants and rebates would be replaced with a single fuel credit system, with fuel credits to be claimed through activity statements.
Implementing the required system changes involved designing and implementing the necessary enhancements to our activity statement and related systems. In all, we had to change 15 systems.
To achieve optimum effectiveness, we implemented the system changes in two stages. In May 2006 eligible
taxpayers were able to register for fuel tax credits. The second stage in July 2006 will focus on processing claims, including generating and processing activity statements.
We largely designed and developed the system changes while the legislation was in draft form. This meant taking a flexible approach in order to incorporate ongoing changes to legislation and user-based feedback.
The changes also had to work with our portals to ensure a seamless interaction for taxpayers.
Our success with this project demonstrates our capacity to manage complex system changes and balance current operations with future requirements to provide effective and convenient electronic products for taxpayers..
Our work in ensuring that we have systems and strategies to meet future needs is balanced by the considerable effort that goes into supporting and maintaining current systems to ensure that the work of the Tax Office continues to function productively. Indeed, approximately 80% of our IT expenditure goes to maintain current operating systems.
One way we achieve this is by maintaining a secure environment. During 2005-06 we worked to develop a strong security infrastructure that is now one of the most advanced in the public sector. By working to ensure our environment is protected and providing awareness programs to our people and external partners, we aim to ensure successful outcomes for taxpayers.
An important indicator of effective implementation of our systems is how well we function in cyclical peak periods such as Tax Time and peak lodgment times for activity statements. Tax Time in June and July 2005 was very successful, as was the peak activity statement lodgment period in February 2006. Through both of these periods we sustained larger peaks of activity than ever before, largely due to improved governance and project management designed to minimise difficulties and guarantee outcomes.
Our investment in improved project management has resulted in significant savings through rationalising support activities and improving administrative arrangements. As a result, this year we reinvested resources into our change program and areas of specialised need. We also worked to establish clear procedures and benchmarks to enable us to deliver even greater efficiency and effectiveness. We expect further benefits from this work to be evident in 2006-07.
While there has been much emphasis on our change program this year, our systems had to continue to support a range of new policy implementations and refinements. Our governance processes ensured that minimal investment was made in systems that would be replaced in 2007-08.
To ensure that we deliver user experience and project outcomes, we used our Simulation Centre extensively, mainly to test new software. During the year we started to use this facility to also test the usability of our other systems. Feedback from the testing led to some changes to systems and has aided implementation processes.
One way we have maximised effective use of resources has been to engage outside vendors to improve service delivery. These relationships allow us to use specialist expertise and be more flexible in deploying internal resources.
Managing our investments in external resources requires careful monitoring and effective governance. This was the main focus in renegotiating our major outsourcing contract with EDS. The new contract is more closely linked to our business outcomes. New governance arrangements have also been introduced to keep the contract aligned with our regulatory framework and with best practice.
In addition to improved contractual arrangements, the ongoing evolution of our workforce values and culture has resulted in a closer working relationship with our partners. This improved approach to operational matters has cut red tape and ensured problems are resolved quickly.
We are also building closer and stronger relationships with other government agencies. We work in partnership with the Australian Government Information Management Office on whole-of-government enterprise architecture, and in 2005-06 conducted significant tax return pre-population pilot programs with other government agencies, including Medicare Australia and Centrelink.
Earlier in the year our digital certificate processes were risk-assessed by an independent auditor (sponsored by the Australian Government Information Management Office) and found to be suitable for general business-to-government transactions. This allows our authentication processes to be used by other government agencies.
We also piloted the use of digital certificates to allow businesses that deal with Centrelink to gain online access to secure services. This project enabled these businesses to provide online information, such as details of new and departing employees, which they would otherwise have to send on paper forms. The businesses used the Tax Office certificates they already had for online transactions to access Centrelink's secure services. The pilot was successful and proved that our infrastructure can deal with this kind of cross-agency program. Plans to take this to a production operation are well advanced.
Since 2000 we have issued more than 1 million digital certificates and opened up access for taxpayers to a range of services. We managed an active population of more than 274,000 digital certificates this year. This level of collaboration is the result of work over a number of years and is designed to achieve consistency across government services, and simplify procedures for users of those services. The next stage will be to extend these capabilities to other federal and state government agencies.
Case study - A single government portal for business
The ideal of business having one credential to deal with government came a little closer to reality this year.
In October 2005 we started a pilot to allow businesses that work with Centrelink to use our digital certificates to gain access to Centrelink's secure online personal data and transactions. The pilot ran to the end of March 2006 and was then rolled into production. Other agencies, including state revenue offices, have approached us about using the digital certificates.
Apart from giving businesses one credential to deal with government, digital certificates enable government agencies to save time and money by taking advantage of our experience, systems and infrastructure.
These initiatives foreshadow a single government portal or online access for business.
4.5 Financial performance
Our financial management
Tax Office finances are managed in accordance with the Financial Management and Accountability Act 1997, relevant policy statements from the Department of Finance and Administration, and the relevant tax legislation. Achieving a high degree of integrity in our financial affairs is a major organisational focus. We do this through an effective financial policy framework, risk-based control structures, and a strong culture of accountability.
Effective financial management in a large organisation depends on finance professionals engaging with the rest of our business. Corporately, our Chief Finance Officer attends most senior committees to provide financial input into strategic decisions. At an operational level, managers are supported through a network of finance managers located in each major business area.
We are implementing a new financial control framework, which includes re-documenting the key controls that support major business processes. Reporting and assurance arrangements are being reviewed and redesigned to ensure that the major business processes are protected from serious breakdowns. We also have rigorous delegation structures supporting the operation of both the Financial Management and Accountability Act and tax legislation.
The Tax Office financial statements received a qualified audit opinion in 2003-04. In response to the qualifications and other significant audit findings, we initiated a program of work to resolve these and other financial operations problems that had been identified.
The program of work is overseen by the Financial Management Steering Committee, which includes two Second Commissioners and other responsible senior executives. It is chaired by the Second Commissioner, Law (who also chairs the Tax Office Audit Committee).
During 2004-05 we made significant changes to our superannuation systems and the systems used to calculate the general interest charge. In addition, we deployed a taskforce to address backlogs of work in our superannuation area. The changes were supported by revised structural arrangements and the engagement of additional finance employees. These activities resulted in unqualified 2004-05 financial statements, although a number of significant audit findings remained. Work continued in 2005-06 to ensure that these issues were fully resolved.
In our 2004-05 financial statements we specifically reported on a range of matters that had been subject to audit findings or were of concern. The status of these matters, as at June 2006, is outlined below.
In previous financial years we had a backlog of unprocessed data matching exceptions within the superannuation surcharge business system. During 2005-06 we were able to address the majority of the backlog of exceptions. At June 2006 the number of exceptions on hand had decreased to 13,500, compared to 1,213,000 exceptions managed during the course of the year ending 30 June 2005. This processing is now part of business as usual activities.
Previous financial statements also reported differences between the records held by the Tax Office and those held by unfunded defined benefit schemes with respect to accumulated surcharge debt. During 2005-06 we completed audits of a further 6 of the 32 funds. This brings the total number of audits undertaken in the last 2 years to 14. Although there have been some findings of non-compliance, none of these occurrences have had any direct impact on surcharge revenue. There continue to be non-material differences between the recorded debt balances held by the Tax Office and this particular category of funds due to different accounting practices used, amendment of assessments, timing of processing and interest calculations.
Superannuation guarantee charge
Due to problems in replacing the business system for superannuation guarantee during 2003-04, we were unable to process assessments on time. The issues identified in the business system were resolved in 2004-05, enabling assessments to be properly processed. At the end of June 2005 there was $153 million in backlog payments still outstanding. At the end of June 2006 this balance had decreased to $10 million.
To ensure that employees were not disadvantaged through lost interest as a result of this delay, it was determined that compensation would be payable. We started paying superannuation guarantee compensation during 2005-06, with further payments to be made in the first half of 2006-07.
General interest charge on Tax Office audit amendments affecting pre-2000 assessments
Towards the end of 2004-05 we became aware of an error in the calculation of general interest charge (GIC) for amended assessments relating to periods before 2000. Tax Office business systems were designed to apply GIC to the total debt outstanding at the date GIC took effect, which included interest amounts incurred under the previous interest regime. In resolving a taxpayer complaint, we reviewed the basis of the underlying design and concluded that GIC should not apply to the previous interest amounts. As a result, some taxpayers were overcharged GIC. An unquantifiable contingent liability was included in the 2004-05 financial statements for this.
Throughout 2005-06 we made considerable progress on this issue, which was estimated to affect about 227,000 taxpayers. At 30 June 2006, $123 million of the primary interest amount had been corrected on taxpayer accounts, with a further accrual of $33 million being posted to the financial statements. In addition, interest on overpayment of just over $1 million had been processed on the corrected amounts, with an estimate of $11 million accrued in the financial statements for the remaining amounts.
General interest charge
In 2004-05 we reported on an issue first recognised in 2003-04 relating to identification of functional gaps in one of the business systems. The gaps resulted in accrued GIC not being applied to all taxpayer accounts for companies and superannuation funds in respect of outstanding annual income tax payments. For the 2004-05 accounts, the GIC and related remission expense not posted to taxpayer accounts were calculated using a simulation program.
During 2005-06 we made significant progress in posting the accrued GIC and remission expense to taxpayer accounts and ensuring there were regular, automated reviews of accounts for GIC. There will, however, be a number of taxpayer accounts that continue to be managed manually due to the complexity of those accounts. To 30 June 2006 the following percentages of taxpayer accounts had been reviewed and GIC and remission expense posted to their accounts:
- 98.8% of companies and superannuation funds
- 99.9% of individual and trust accounts, and
- 99.4% of fringe benefits tax accounts.
In posting remission expenses during 2005-06, it was recognised that there had been some overstatement of remission expenses in 2004-05. This is reported in the 2005-06 financial statements.
The Tax Office began 2005-06 with an operating expenditure budget of $2,502.4 million, which included allowance for a $15 million operating loss. Approval was received from the Minister for Finance and Administration for this operating loss as part of the 2005-06 Federal Budget process.
During 2005-06 we received additional government funding of $15.4 million at Additional Estimates. Of this additional funding, $14.3 million was to support the expansion of Project Wickenby and $1.1 million was for promoting the 30% child care tax rebate.
In addition, we also received additional revenue of $15.4 million from other sources.
As a result, our final full-year operating expenditure budget was $2,533.2 million, allowing for the $15 million operating loss. Our total operating expenditure for 2005-06 was $2,525.9 million, a variance of 0.3% from the final full-year budget.
A strong focus on financial management during the year enabled us to reduce the budget loss position by $6.6 million, recording a final operating loss of $8.4 million, after allowing for minor revenue adjustments.
Given the size of the overall budget and the many priorities, risks and activities we manage, this is a strong result.
How we spend our operating budget
We operate through six sub-plans:
- easier, cheaper and more personalised
- information technology
- operations, and
- people and place.
Figure 4.5 shows how we allocated expenses between these programs in 2005-06 compared to 2004-05.
In 2005-06 our employee and related costs represented around 63% of our total expenditure. We had a full-year average of 21,371 full-time equivalent employees this year, compared to a budgeted average of 20,792. Our employee costs reflect our position as a large people-based organisation.
Figure 4.6 shows a breakdown of the broad activities undertaken by our average actual full-time equivalent employees in 2005-06.
Other major categories of expenditure in 2005-06 were technology costs, accounting for 9% of total expenditure, and property costs, which represented 8%. A further 4% of total expenditure was largely driven by taxpayer demand, and included items such as printing and postage ($37 million), bank fees and collection charges ($14 million) and legal expenses ($59 million). Depreciation expenses ($125 million) accounted for 3% of total expenditure, and payments for services provided by the Australian Customs Service relating to goods and services tax (GST) administration ($51 million) represented another 2%.
Figure 4.7 shows our operating expenses for 2005-06 compared to 2004-05.
Our capital budget in 2005-06 was $157.7 million, against which we spent $143.3 million. The underspend was largely associated with a deferral of systems development work associated with the project to rebuild our superannuation systems.
Of the total capital budget spent in 2005-06, $19.7 million was related to building improvements and other assets, $7.7 million to information technology infrastructure, and the balance to internally developed software.
Our major software assets purchased or built in 2005-06 primarily related to assets that form part of our easier, cheaper and more personalised (change) program, including our new client relationship management system. As part of the change program, work is also continuing on our new case management system and integrated processing system.
As part of the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations, we are required to maintain systems that show the cost of administering GST. While we are funded directly by the Australian Government for GST-related activities, the government is reimbursed by the states and territories for this expenditure. Each year, a budget for this activity is developed and agreed with the states and territories.
Our system of allocating costs for GST administration and the statement of attributed costs are separately audited by the Australian National Audit Office. This year our expenditure for administering GST was $603.8 million. This result meant that we came within 0.47% of the GST budget of $602.0 million. The actual result for 2005-06 is still subject to final audit review.
Figure 4.8 shows GST costs as a proportion of our total costs for 2005-06, compared to 2004-05.
The cost to collect $100 calculation measures Tax Office costs incurred against the cash revenue collections, net of refunds paid (figure 4.9). The calculation excludes all costs and receipts that do not relate to the collection of Commonwealth tax revenue. Also, superannuation and excise costs that relate to transfers of monies are excluded.
All complex procurement is managed by qualified procurement officers with at least a Certificate IV in Government and Procurement to ensure that the principles and policies of the Commonwealth procurement guidelines are followed.
During 2005-06 we revised our documentation, including requests for tender and contract templates. Standard contract templates now contain a clause requiring contractors to give an assurance around their tax obligations.
We use electronic tendering through the government's AusTender system.
We have established major national contracts for debt litigation, commercial and general law, learning and professional development, print, stationery and security guarding. Quality assurance processes ensure that payments to our suppliers (especially small to medium enterprises) are processed promptly in accordance with the agreed terms of trade. This year we consistently met the government's target to pay at least 90% of businesses within the terms of trade.
We met our reporting obligations, including listing contracts of $100,000 or more on our website, in accordance with the Senate Order on Departmental and Agency Contracts. Our annual procurement plan was published on AusTender by 1 July 2005, and updated in August 2005 and January 2006.
No contracts or deeds of standing offer were exempted from being published on AusTender.
All contracts we entered into contained provisions allowing the Auditor-General access to information held by contractors relevant to contract performance.
Appendixes 10, 11 and 12 contain details of our consultancy services (with a value of $10,000 or more); advertising, direct mail, market research and media placement; and competitive tendering and contracting.
Our asset management strategy is to ensure that our people have the right accommodation, equipment and systems to enable them to efficiently and effectively carry out their duties.
The asset accounting function is centrally controlled, while the day-to-day management of assets is decentralised to regional locations. Assets with an acquisition cost over the amounts specified in the Chief Executive Instruction are recognised in our financial statements.
Asset recognition thresholds, frequency of revaluations, depreciation and amortisation, estimation of useful lives, and impairment of assets are discussed in detail in note 2 to our financial statements.
During 2005-06 a refurbishment of the Moonee Ponds office was completed. The fitout and move into new office space in Latrobe Street, Melbourne, was also completed, allowing for a corresponding decrease in space in the World Trade Centre. We continued to implement our replacement program for office equipment during the year.
We continued a major program to build and deliver new capabilities, which started in 2003-04. This involved creating new internally developed software, which has become one of our major asset classes.
The bulk of our information technology equipment is leased and managed by the service provider, EDS.
Download Part 5 in PDF format (1,511 KB)
Appendix 1 - Legislative reporting requirements
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Appendix 2 - Legal services expenditure
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Appendix 3 - Taxation laws conferring powers
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Appendix 4 - Freedom of information
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Appendix 5 - External security
Download Appendix 5 in PDF format (116 KB)
Appendix 6 - Workforce demographics
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Appendix 7 - Ecological and environmental performance
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Appendix 8 - Access for people with a disability
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Appendix 9 - Occupational health and safety report
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Appendix 10 - Consultancy services
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Appendix 11 - Advertising, direct mail, market research and media placement
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Appendix 12 - Competitive tendering and contractive
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Appendix 13 - Other matters
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Appendix 14 - Australian Taxation Office financial statements
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Appendix 15 - Australian Valuation Office financial statements
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Deliver to government
Comparison of actual 2004-05 receipts, 2005-06 Budget estimates and actual receipts (cash basis)
Comparison of 2005-06 Budget administered expenditure estimates and actual results (cash basis)
Maintain community confidence
Our relationship with the community
Key performance measures against the taxpayers' charter
Community perceptions survey results, significant changes, 2004-05 to 2005-06
Community perceptions survey results, 2000-01 to 2005-06
Satisfaction with the characteristics of professionalism, 2001-02 to 2005-06
Our performance against service standards, 2004-05 to 2005-06
Technical quality reviews, February 2005 to January 2006
Minimise compliance costs within Tax Office control
Efficient and adaptive organisation
Resources for Outcome 1, 2005-06
Total active compliance results, by output, 2005-06
Total active compliance results, by revenue product, 2005-06
Total active compliance results, by market segment, 2005-06
Total active compliance results, by channel, 2005-06
Output 1.1.1 - Shape, design and build administrative systems
Output 1.1.2 - Management of revenue collection and transfers
Total Tax Office collections, 1996-97 to 2005-06
Amount refunded, by type of tax, 1996-97 to 2005-06
Estimated capital gains tax, 2002-03 to 2004-05 income years
Growth in Tax Office administered expenditures, 2000-01 to 2005-06
GST collections, by broad industry type, 2005-06
Channels for receiving registration applications, 2004-05 to 2005-06
Higher Education Loan Programme debt and repayment statistics, 2005-06
Financial Supplement debt and repayment statistics, 2005-06
Funds transferred to other agencies, 2005-06
Debt collection results, 2002-03 to 2005-06
Collectable debt compared with total collections, 2002-03 to 2005-06
Details of Commissioner's decisions in release from debt cases, 2005-06
Details of Administrative Appeals Tribunal decisions on appeals against not being granted release from debt, 2005-06
Number of cases where assistance was provided to the Department of Finance and Administration, 2004-05 to 2005-06
Output 1.1.3- Compliance assurance and support for revenue collection
Active compliance results, by revenue product, 2005-06
Active compliance results, by market segment, 2005-06
Active compliance results, by channel, 2005-06
Active compliance results, by individuals market segment, 2005-06
Number of benefits reported, 2000-01 to 2005-06
Active compliance results, by micro business market segment, 2005-06
Active compliance results, by small to medium enterprise market segment, 2005-06
Active compliance results, by large business market segment, 2005-06
Active compliance results, by non-profit market segment, 2005-06
Active compliance results, by government market segment, 2005-06
Our use of AUSTRAC data, 2005-06
Results of Project Wickenby activities
Revenue collected from high-wealth individuals and associated entities, 1996-97 to 2005-06
Adjustments to losses claimed by high-wealth individuals and associated entities, 1997-98 to 2005-06
Number of settlement cases registered, 2005-06
Output 1.1.4 - Compliance assurance and support for transfers and regulation of superannuation funds' compliance with retirement income standards
Active compliance results, by revenue product, 2005-06
Excise active compliance results, by market segment, 2005-06
Superannuation guarantee active compliance results, by market segment, 2005-06
Active compliance results, by channel, 2005-06
Superannuation guarantee compliance results, 2000-01 to 2005-06
Changes in the special account, 2000-01 to 2005-06
Output 1.1.5 - Services to governments and agencies
General categories of offence, 2005-06
Requesting agencies and Tax Office initiated disclosures, 2005-06
ATO Executive members and meeting attendance, 2005-06
Audit Committee members and meeting attendance, 2005-06
Integrity Advisory Committee members and meeting attendance, 2005-06
Corporate Design Forum members and meeting attendance, 2005-06
Plenary Governance Forum members and meeting attendance, 2005-06
Outcomes of court and tribunal cases that did not proceed to hearing, 2005-06
Certified agreements, at 30 June 2006
Australian workplace agreements, at 30 June 2006
Performance environment survey, 2005 and 2006
Salary ranges for different employee classifications, at 30 June 2006
Performance payments for 2004-05 paid in 2005-06, by classification
Injury rate per 1,000 full-time equivalent employees, by premium year, 2002-03 to 2005-06
Rate of days lost per 1,000 full-time equivalent employees, by premium year, 2002-03 to 2005-06
Legislative reporting requirements - Appendix 1 Page 265
Legal services expenditure, 2005-06 - Appendix 2 Page 267
Taxation laws conferring powers - Appendix 3 Page 268
Test cases funded or approved in principle to be funded, 2005-06 - Appendix 5 Page 279
Test case decisions, 2005-06 - Appendix 5 Page 280
Significant cases, 2005-06 - Appendix 5 Page 281
Employees, at 30 June 2006 - Appendix 6 Page 288
Employees, at 30 June 2005 - Appendix 6 Page 289
Employees, by line, at 30 June 2005 and 2006 - Appendix 6 Page 290
Employees, by location, at 30 June 2005 and 2006 - Appendix 6 Page 291
Employee separations, by line, 2005-06 - Appendix 6 Page 292
Disability action plan - our role as policy adviser - Appendix 8 Page 296
Disability action plan - our role as regulator - Appendix 8 Page 296
Disability action plan - our role as purchaser - Appendix 8 Page 297
Disability action plan - our role as provider of services - Appendix 8 Page 298
Disability action plan - our role as employer - Appendix 8 Page 299
Notifiable incidents, 2004-05 to 2005-06 - Appendix 9 Page 302
Safety, Rehabilitation and Compensation Commission performance indicators, 2002-03 to 2005-06 - Appendix 9 Page 303
Consultancy contracts valued at $10,000 or more, 2005-06 - Appendix 10 Page 306
Advertising, 2005-06 - Appendix 11 Page 315
Direct mail, 2005-06 - Appendix 11 Page 315
Market research, 2005-06 - Appendix 1 Page 316
Media placement, 2005-06 - Appendix 1 Page 317
Grants paid, 2005-06 - Appendix 13 Page 321
Our organisational structure, at 30 June 2006
Our outcome outputs framework, 2005-06
Community perceptions survey results, significant changes, 2000-01 to 2005-06
Percentage of taxpayers satisfied or very satisfied with the professionalism of our employees, 2000-01 to 2005-06
Tax agent satisfaction with our services, December 2003 to March 2006
Total Tax Office collections, 1996-97 to 2005-06
Revenue types as a percentage of total collections, 2004-05 to 2005-06
Tax collections, by head of revenue, 1996-97 to 2005-06
Refunds of tax collected, 1996-97 to 2005-06
Capital gains tax collected, 1995-96 to 2004-05 income years
Tax Office administered expenditures, 2000-01 to 2005-06
GST collections, by broad industry type, 2005-06
Percentage value of debt collections, by market segment, 2005-06
Number of private rulings issued, by business line, 2005-06
Value of credit amendments against total liabilities for large business market segment, 2002-03 to 2005-06
Liabilities raised from active compliance, by activity type, 2005-06
Project Wickenby governance arrangements
How intelligence informs our risk identification and risk management process
Liabilities raised from active compliance, by activity type, 2005-06
Our planning and governance arrangements
Tax Office integrated cycle of risk, planning, budgeting and reporting
Internal fraud prevention and detection in the Tax Office
Main issues investigated by the Ombudsman, 2005-06
Our expenses, by program, 2004-05 to 2005-06
Breakdown of work done by our average actual full-time equivalent employees, 2004-05 to 2005-06
Our operating expenses, 2004-05 to 2005-06
GST as a proportion of our total expenses, 2004-05 to 2005-06
Cost to collect $100, 1995-96 to 2005-06
An audit involves action to determine the correct tax position of a person or entity.
Capabilities are the skills, knowledge and attributes required for the range of jobs throughout the organisation. Defining capabilities helps us understand how efficient and effective we are, identify where we can improve, and systematically implement improvements.
Our change program is made up of a number of projects that deliver new products and services for the community, and new business processes and systems for the organisation.
Consultation, collaboration and co-design
Our approach to making our systems more user-friendly and minimising compliance costs for taxpayers.
Exceptions alert our employees to manually investigate why automatic processing did not occur.
Field work risk reviews
Field risk reviews involve collecting information and analysing, validating or otherwise explaining it. They involve face-to-face contact between tax officers and taxpayers and aim to maintain the integrity of the tax system by helping taxpayers stay on track with their tax obligations.
Health of the system assessment (HOTSA)
An assessment of tax administration efforts, stakeholder engagement and enabling capabilities measured against the benchmark of the current tax system.
An investigation involves action to examine whether a person may have committed an offence, and to gather supporting evidence.
We separate compliance risks into six market segments because we differentiate our responses according to the level of risk presented by their characteristics and circumstances. The market segments are:
- individual taxpayers
- micro enterprises - enterprises with an annual turnover below $2 million
- small to medium enterprises - enterprises with an annual turnover of between $2 million and $100 million
- large businesses - business groups with an annual turnover above $100 million
- non-profit organisations, and
- government organisations.
A portal is an online means for taxpayers to access information and services and deal with us. So far we have developed two portals - the Tax Agent Portal and the Business Portal.
The ability to provide individual taxpayers or their agent with access to information from government agencies, financial institutions, employers and others that will automatically (if chosen by the taxpayer) populate the appropriate labels in their income tax return, if they prepare it electronically - saving time and reducing the chance of errors.
This is a joint taskforce of Australian Government agencies investigating revenue fraud.
Revenue products are the different elements of the tax system, with the main ones being income tax, GST, superannuation and excise.
Transfers are payments or expenses paid out of the tax system, such as grants, subsidies, personal benefits and superannuation guarantee payments.
Australian business number
Administrative Appeals Tribunal
Australian Bureau of Statistics
Australian Crime Commission
Australian National Audit Office
Australian and New Zealand Standard Industrial Classification
Australian Security Intelligence Organisation
Australian Taxation Office
Australian Transaction Reports and Analysis Centre
Competitive tendering and contracting
Executive level 1
Executive level 2
Eligible termination payment
Freedom of information
General interest charge
Goods and services tax
Health of the system assessment
Interactive voice response
Occupational health and safety
Pay as you earn
Pay as you go
Research and development
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