As submitted by the Professional Bodies
Issue:
|
The professional bodies request a discussion of the ATO's 'refund integrity check' program. We would like to discuss:
- the scope of the checks
- the common errors identified and adjustments that have been made to date
- the impact on taxpayers and their advisers, and
- any other relevant developments.
We understand that the precise details of the ATO's refund integrity checking program are confidential. However, we do not think this should preclude a high level discussion of the impact of the program on taxpayers and their advisers.
In the course of the discussion, it would be useful to have some information/statistics on the program to date. In particular:
- How many returns were subject to an adjustment following a refund integrity check?
- What are the main sources of adjustments? (eg work related expenses, spouse rebate, education tax refund etc?)
- How many refunds were released without an adjustment following the ATO's own investigations (and without provision of additional information/substantiation by the taxpayer and/or agent)?
- How many refunds were released without an adjustment following the provision of additional information/substantiation by a taxpayer (and/or their agent)?
- Of the refunds that were issued without adjustment - what were the main sources of concern/problems?
- How many agents have been impacted by the refund integrity check program?
- Of the refunds stopped for review, what proportion was agent-prepared (as opposed to self-prepared)?
- Of the refunds stopped for review and requiring adjustment, what proportion was agent-prepared (as opposed to self-prepared)?
- What was the average delay to a refund following a refund integrity check where an adjustment was made?
- What was the average delay to a refund following a refund integrity check where an adjustment was not made?
- Are there particular industries or occupations that have an unusually high rate of delayed refunds where no adjustment is made? What work is the ATO doing to refine the checking system to ensure these taxpayers/agents are not unduly impacted in the future?
We would welcome any other statistics/information that the ATO thinks is relevant to the discussion.
|
Background:
|
The ATO has embarked on a 'refund integrity check' program that has resulted in over 64,000 pre-assessment reviews. The affected taxpayers/agents were sent a letter stating that their refunds would be delayed by a minimum of 12 weeks. This has generated significant concerns amongst agents, both in terms of the time it is taking to undertake the reviews/investigations, as well as refunds being investigated when there may be simple explanations for apparent discrepancies.
|
Industry view/suggested treatment:
|
The professional bodies appreciate that refund integrity checks have been a valuable tool for the ATO in stopping fraudulent or overstated claims. From our discussions to date, it appears that the majority of refunds held for review result in an adjustment. However, the high strike rate should not be used to unfairly or unduly delay refunds where no issues are found. Also, consideration needs to be given to taxpayers that are in special industries that appear to be affected by the PAYG credit checks (eg seasonal farm workers who have a number of employers and/or unusual PAYG withholding amounts).
|
Technical references:
|
Not applicable.
|
Impact on clients:
|
This issue affects taxpayers that are individuals.
We are unsure whether the ATO intends to expand the refund integrity checking to other types of taxpayers.
|
Priority:
|
High - This should be a high priority as over 64,000 refunds have been stopped for review since 1 July 2011. Also, any system improvements need to be addressed early so they can be adequately catered for in Tax Time 2012.
|
Has previous advice been sought from the ATO?
|
Not in relation to the 2011 program.
|
Has this issue been discussed at any other consultative forum?
|
This issue has been discussed on an ad hoc basis during the ATPF tax time working group teleconferences. The professional bodies think a wide ranging discussion at the face-to-face ATPF meeting would be valuable to advance our understanding of this important topic.
|
Initial ATO response
Information was provided at the 4 November 2011 ATPF meeting.
Meeting discussion
Erin Holland opened the discussion with assistance provided by Megan Yong and Daren Glanville regarding the following points:
- Update on volume of held returns and main triggers for stoppages and the need for full substantiation in some cases even when claims are below $300.
- Compliance managers are visiting tax agents with 50 or more clients affected by integrity checks.
Post meeting update
The following updated response was provided by Megan Yong for inclusion in the minutes.
Purpose
To provide the ATPF with information regarding the refund integrity program as at 4 November 2011 1.
Update on performance
- Since 1 July 2011, we have stopped over 94,000 returns with total refunds of around $390 million believed to include overstated claims or to be potentially fraudulent. Of these returns over 34,000 returns have been prepared and lodged by registered tax agents (total refunds of $146 million).
- We use various risk models in our systems to identify these returns. Each return stopped has been identified as containing some information that requires verification prior to issuing a notice of assessment. As data supplied by other parties continues to become available (such as payment summary information from employers) we regularly re-examine these returns.
- To date we have released over 17,600 returns where we have been able to verify the information contained in the return that was unavailable at the time of lodgment (that is, without provision of additional information/substantiation).
- For those returns where this type of verification is not possible we are issuing review letters to taxpayers or their tax agents asking them to provide supporting documentation for their claims and where appropriate a satisfactory explanation as to how their claims relate to their income-earning activities.
Tip 1
|
When responding to our review request, include your client's name, tax file number and our reference on the cover sheet.
This will help minimise the delay in attaching your response to the taxpayer's account.
|
Action being taken
- ATO compliance staff have visited 80 registered tax agents where more than 50 returns are held for review.
- We have published a guide2 to assist taxpayers to provide relevant supporting documentation if they receive notification of an income tax review.
- To date, over 29,500 reviews have commenced or are currently with compliance officers with the review letters about to issue. Nearly 19,000 reviews relate to tax agent lodged returns.
- 6,100 calls have been received in response to the audit letter issued. Over 90% of calls are being answered within five minutes. We have listened to feedback from tax agents to our client service representatives and we have responded by removing some work-related expense labels (when the total claim is less than $300) from the income tax review.
- At this stage, results show that over 80% of stopped returns have been adjusted prior to notices of assessment issuing3. This has resulted in a reduced refund or an increase in the amount of tax payable. In many instances a penalty has also been imposed.
- Registered tax agents who do not comply with the legislated code of professional conduct (as outlined in the Tax Agent Services Act 2009) will be referred to the Tax Practitioners Board (TPB) for investigation.
Tip 2
|
Return your information to the address shown in the review letter
Return your information to us by:
- faxing it to 1300 136 452, or
- mailing it to:
Australian Taxation Office
PO Box 3575
ALBURY NSW 2640
|
Common issues that we have identified
Some of the common issues identified include:
- understated income or taxpayers claiming fictitious PAYG withholding credits without working for an employer
- overstated or fraudulent deductions
- non-entitlement to claimed rebates and/or offsets, for example spouse offset, education tax refund and refund of franking credits
- non-entitlement to a Medicare levy exemption
- non-residents claiming to be residents for tax purposes
- instances of identity takeover.
We have also been effective in engaging intermediaries. Our alerts have resulted in some 'dob-ins' from registered tax agents, some of which have been confirmed as identity takeover. These have included agents with large client bases.
When can you expect your refund?
To date, we have received nearly 10,000 responses to our review letters. Once all relevant information and supporting evidence has been received we will endeavour to complete all reviews within four to six weeks of the reply due date on the audit letter. If you have not received your notice of assessment, or you have had no contact within six weeks from the reply due date, please call 13 28 61 requesting the progress of your return.
Sections within Agenda items
Last Modified: Thursday, 29 March 2012