• Explanatory notes

    International benchmarks

    Average and range are based on a mix of 2005 and 2007 reviews with benchmarking partners and represents the latest figures available. These figures will be updated as new information becomes available.

    Key features under the framework

    The indicators have been structured to distinguish between those which are considered to be 'core' (or key) and those which are 'supplementary' (or complementary). The distinction has been made to enable the ATO's effort to be driven towards achieving those performance indicators and targets of greatest importance to the Parties to the Agreement. The two indicators are:

    Core performance indicators

    Defined as those indicators which are key accountability measures. Collectively, core performance indicators enable the ATO to demonstrate it has achieved the desired outcomes for the Council. These indicators are base measures and in general would not require change from year to year.

    Supplementary indicators

    Defined as those indicators which provide additional context or information about an area of performance. They are complementary to the core performance indicators by providing additional information on ATO workloads and or output performance. They can also include qualitative or narrative information about an aspect of GST administration. Supplementary indicators may include information on matters such as identified risks, strategies, and treatment outcomes.

    Maintain compliance

    1(a) GST revenue (Cash)

    Both the total amount and the ACBPS amount are used. The total includes the ACBPS amount. All projections are based on the most recently available MYEFO estimates.

    2(a) GST debt outstanding

    The ATO's client accounting system for activity statement tax obligations features a running account balance. Liabilities for various revenue products including GST are posted to the accounts while credits (payments) are applied to the balance of the account, rather than being matched to individual liabilities. This necessitates the estimation of GST debt. To enable this estimation, a measurement process is undertaken. The process requires the disaggregation of liabilities by head of revenue for each taxpayer, after exclusion of certain categories and subsequent apportioning of total debits having regard to the sum of each head of revenue. These debit balances by head of revenue are then summed to allow an attribution percentage to be delivered.

    This percentage is then applied to activity statement collectable debt, as adjusted to reflect the exclusion of any amounts subject to dispute or insolvency, to derive an estimated collectable GST debt amount.

    The ratio of estimated collectable GST debt to net GST revenue, expressed as a percentage, is a measure used by a number of revenue agencies to gauge their relative effectiveness in managing their debt holdings. The net GST revenue amount is provided by Revenue Analysis Branch, Integrated Tax Design. Note: from the financial year 2003 onwards this measure is reported based on collectable debt. Prior to that date, the measure was based on total debt, which included amounts subject to dispute.

    2(b) GST debt collection rate

    This measure was reported for the first time in 2003–14. The outcome reported was that of estimated collectable GST debt as a percentage of GST revenue (as agreed). The measure is computed using the estimated GST collectable debt amount as a percentage of 12 months GST revenue collections. In calculating 12 months estimated GST revenue collections the latest month figures are included and the corresponding month from the prior year period is removed. This is necessary to smooth out substantial variations that occur around particular due dates, significantly distorting the result.

    2(c) Interest paid on delayed refunds

    Where a refund would normally be issued to a client but is delayed because the ATO has not processed the activity statement within the required time frame, the client is paid interest on the refund amount. This measure does not solely capture the interest paid on delayed refunds associated with GST BAS credits; it also includes interest paid in relation to other revenue products.

    2(d) GST debt non-pursuit

    The process employed by the ATO in estimating the amount of GST debt non-pursuit includes several steps:

    1. All tax file numbers for taxpayers with write off postings on their account in the current financial year are identified.
    2. For each taxpayer, liabilities by head of revenue are identified.
    3. Each taxpayer's total liabilities are then divided by the total liabilities for each head of revenue to determine a percentage.

    The percentage relating to GST is then applied to total amounts with a write off posting to provide an estimate of GST debt non-pursuit for that taxpayer. All estimated amounts are then totalled and applied against the sum of all write off postings to determine an overall percentage for GST debt non-pursuit. This percentage is used to allocate the write off posting amount from the business system.

    2(e) Ageing of GST debt - number of cases

    The age of analysis by number of cases is derived based on cases in the debt case management system with a GST registration. The age of the case is determined by the earliest period in which any component of the debt can be attributed. Caution must be exercised as the debt outstanding (while activity statement related) may no longer be GST related if that has been paid earlier.

    2(f) Ageing of GST debt - value

    The age of debt profile is based on the date of referral of the debt to the ATO’s debt and lodgment case management system. The process does not identify GST debt and the attribution percentage is utilised against each of the age categories to provide an estimation of the age of GST debt.

    For the purposes of this measure, the debt base is slightly higher than the overall collectable debt figure as it has not been adjusted. Adjustments account for components of debt that report as collectable but due to timing or other issues have not had the appropriate actions undertaken (e.g. ‘dispute’ indicator not input). Given the manual nature of the adjustment process it is only undertaken at the overall level.

    3(a) Estimated GST gap - value

    This measure estimates the dollar value of theoretical GST losses through non-reporting of GST by businesses and individuals through a failure to register or failure to lodge returns, net under-reporting of GST obligations or over-claiming of GST refunds.

    The measure is calculated as the difference between the actual tax liability reported to the ATO or raised by the ATO, and the tax liability that should be reported (assuming businesses and individuals fully complied with their GST reporting obligations) for a given period. The calculation is:

    GST gap = Theoretical accrual GST revenue - Actual accrual GST revenue

    The measure is intended to be viewed as a trend over time and in conjunction with other indicators utilised by the ATO to measure compliance effectiveness. The absolute dollar gap represents more of a guide to the level of actual tax gap. Random and systematic errors arising from the assumptions used to derive the estimate may be present.

    Theoretical accrual GST revenue is derived from adjusted national accounts data. Actual accrual GST revenue is based on the economic transaction method (ETM) of revenue recognition, being actual liabilities remitted during the year and an estimate of amounts outstanding that relate to transactions that have occurred in the period but are yet to be reported.

    Full details of the ATO methodology for GST gap is described in the document “Measuring tax gaps in Australia for the GST and the LCT”, available on the ato.gov.au website.

    3(b) Estimated GST gap - excluding debt as a percentage of accrual revenue

    This measure shows the GST gap relative to estimated theoretical accrual revenue. It is calculated as:

    GST gap times one hundred divided by theroetical accrual GST revenue

    The calculation does not consider the impact of debt on the size of the GST gap.

    3(c) Estimated GST gap - including debt as a percentage of accrual revenue

    The estimated GST gap including debt is calculated to allow for international comparisons. It represents the GST gap taking into account GST revenue that has not been collected (debt), relative to theoretical accrual GST revenue. Including debt in the calculation reduces the value of actual GST revenue and thereby increases the size of the estimated GST gap.

    The calculation is the same as for 3(b) above however the GST gap figure is adjusted for the debt component.

    GST gap (including debt) = Theoretical accrual GST revenue - (actual accrual GST revenue - debt conponent)

    The debt component of the GST gap is the difference between accrual GST revenue and GST cash collected in the period. The ATO adopts a running-account-balance method in relation to taxpayer liabilities and apply an allocation methodology for deriving GST debt. The precise contribution of GST debt to the GST gap is therefore difficult to determine and indicative only.

    Compliance outcomes

    1(a) Strike rate

    The strike rate (percentage of cases leading to re-assessment) is an OECD measure which can indicate the effectiveness of case selection in detecting “correct reporting”. It should be noted that the measure does not differentiate between upward nor downward liability adjustments.

    This measure is currently used within the ATO under a broader definition (to encompass not only audit adjustments but where some other outcome has been achieved e.g. de-registration of a taxpayer).

    The indicator gives recognition to the ATO's risk based audit selection strategy (focused on high risk clients) and is a more appropriate measure of effectiveness than audit coverage.

    It should be noted that the strike rate is likely to have an inverse relationship with audit coverage (e.g. risk based audit selection focuses on high risk and often more resource intensive clients. This results in smaller coverage. As coverage is increased, there is more chance that a higher proportion of less risky clients will be included in the audit selection). It also has a relationship with objections increasing in proportion to the number of audits resulting in adjustments.

    (Number of finalised audit and enforcement cases in year resulting in an outcome times one hundred) divided by Total number of finalised audit and enforcement cases in year

    1(b) Compliance liabilities raised

    This measure replaces the audit yield measure that tied the investment on compliance activities to a return on investment (ROI) ratio. This limited the decisions on types of compliance activities that focussed more on raising revenue than improving compliance. Replacing the ROI with a liabilities target allows the ATO to define the compliance activities it will undertake and then estimate the liabilities that will be raised from those activities.

    From 2009–10, the ATO will submit proposals to GSTAS (through GPAS) on the compliance activities and the likely liabilities that will be raised from those activities.

    In March 2010 the Council approved additional expenditure on ATO GST related compliance activities. The additional expenditure of $331.0 million over the four years from 2010–11 is estimated to raise an additional $1.5 billion over this period and have ongoing compliance benefits. In October 2012, the States and Territories approved a further $195.3 million in expenditure to extend the GST Compliance Program - Working together to improve voluntary compliance for two more years to 2015–16. The additional two years of expenditure is estimated to raise a further $554.1 million.

    1(c) Voluntary disclosure for large market

    This measure has evolved from a recommendation from the Inspector-General of Taxation to overtly describe the liabilities raised from the voluntary disclosures by large market clients. This is relevant for the large market because of the proactive work conducted by the ATO with large market clients to promote voluntary review and correction. At this point the measure is restricted to the large market because of this proactive compliance.

    Number and dollar amount of large market client initiated BAS revisions minus (-) trend over time

    1(d) Compulsory GST registrations compared to potential GST registrations based on income tax return data

    The indicator is similar to overseas indicators that try to assess whether we have the right number of registrants in the system compared to another source of information. In this case we are comparing the number of entities that declare business income (in excess of $75,000) in their income tax returns with the number of compulsory registrants.

    1(e) BAS lodgment

    This measure has two components, one which measures the percentage of business activity statements lodged on time, and the second measures the percentage lodged at a given time. The given time will be at 31 December for the mid-year report and 30 June for the full year report.

    1(f) Audit coverage

    Audit coverage is an outcome of a balanced, risk-based audit program rather than a pre-agreed ‘target’, the pursuit of which can at times be counter-productive to the effectiveness of the overall compliance program.

    Cases are selected based on risk profile. Not all audit cases are the same; therefore a mix of audit case types is used. Cases selected on potentially the highest liability adjustments (the greatest risk to revenue) are generally more complex and time consuming. Essentially, the greater the complexity of a risk the more resource intensive its treatment. Those that focus on other risks to the system such as registration compliance and more procedural cases are simpler and less time consuming and often produce little revenue at the time of contact. In these cases, we often undertake activities that demonstrate a client is fully compliant.

    Given the ATO conducts significant compliance activities (non-active compliance) the need for higher coverage rates has been mitigated. Coverage levels of 10% were determined at the time of implementation of the GST. Built on the premise that high visibility was a cornerstone to effective compliance, this was also consistent with the need to maximise our presence in the business community to enable them to understand and meet their obligations under the new system. In a more mature system the ATO can best manage compliance risks by concentrating in areas with the most significant and emerging risks. This may mean more resources being directed at more resource intensive activities rather than at activities which generate high rates of coverage.

    Definition

    Audit coverage is defined as the total number of client contact cases conducted in any one year shown as a percentage of the population of GST clients.

    Population for coverage purposes is based on the number of BAS issued each quarter. This picks up all entities that have a GST obligation and are required to lodge a BAS. The population at 1 July will be used in determining our audit coverage outcome for the year. Population movements up or down during the year makes it difficult to adjust our case projections. This is notwithstanding the fact that our cases are derived based on risk and not simply derived to reach a coverage projection. Where the population is determined on the number of BAS issued each quarter, this is different to the GST registered population figure as shown in the administration reports. An entity may have other related entities with a GST role under the branching rules and therefore have multiple BAS sent to them at different addresses. Also the reverse can be said to be true where a GST group is concerned. This population figure based on BAS issued, for audit coverage purposes is therefore more logical because this is what generates the risk for which we undertake active compliance.

    The ATO also undertakes a range of internal reviews, such as pre-issue refund checks, where issues are resolved without the need to contact the client. As these do not involve client contact they do not contribute to the coverage result. This measure is calculated by:

    (Total number of finalised client contact cases times one hundred) divided by Client population based on BAS issued at 1 July

    1(g) Objection rate

    The objection rate can provide an indicator of objection levels and trends over time. It should be noted that there are a range of factors than can impact on the number of objections received, including improvements in the strike rate (or improved risk identification).

    (Number of objections received in a year times one hundred) divided by Number of audits with a financial adjustment finalised in year

      Last modified: 26 Jun 2014QC 40911