Notes to the statement of GST administration costs
Note 1 - Summary of significant accounting policies
Basis of accounting
The GST Administration Cost Statement is a special purpose financial report. The Statement has been prepared for the sole purpose of complying with the requirement in the Performance Agreement for the ATO’s Administration of the GST for the ATO to prepare and distribute an accrual—based financial statement to the Council. As such, it must not be used for any other purpose.
The Statement has been prepared having regard to Statements of Accounting Concepts and on an accrual basis.
Proportion of total ATO costs
The financial information and accounting policies used in preparing the GST Administration Cost Statement are the same as used to prepare the ATO’s annual audited Financial Statements.
The costs of GST administration activities have been calculated using a model consistent with the Commonwealth Government’s accrual based outcomes and programs framework. They represent the proportion of the ATO's total operating expenses that relate to GST administration activities determined by using the cost attribution approach outlined below.
The cost of GST administration activities include:
- direct staff and related costs
- other direct operating costs including payments to other agencies
- line management overhead costs which represent those costs within a Line that do not directly provide Line products, services or outputs but support the Line as a whole
- corporate support costs including accommodation, information technology, office services, human resource services and internal services; and
- a proportion of corporate and business management overheads for strategic corporate direction setting (including corporate improvement initiatives), financial management, assurance and governance, and other corporate—related activity based on the total cost of GST administration activities as a proportion of total ATO costs.
Note 2 - Definition of deliverables contributing to the GST administration
1.0 Design and build administrative systems to support government, the community and other agencies
This comprises three sub-components:
- Policy advice and revenue forecasting — Provision of advice on costings, modelling and revenue forecasting in relation to new government policy on GST, including advice on the administrative compliance and interpretative matters.
- Design and build administrative solutions — activities to support the identification development and enhancement of business practices and processes, products and systems to implement and administer new GST law.
- Input into law design — activities that impacts on the current or proposed GST law through the provision of technical and interpretative advice change including technical/interpretative advice on draft law.
1.4 Legal services
Activities in relation to the delivery of legal services, litigation, provision of internal legal advice, production services and assurance for legal services and management of complaints.
1.5 Law assurance
Law assurance processes support the interpretation and administration of GST laws.
All activities relating to the registration of new clients including processing and maintaining GST client Register.
2.2 Processing and accounts
Processing includes payment and processing for the GST including other products. Activities include managing accounts, through processing lodgments including correction of exceptions, processing claims and manual refunds, amendments, revisions and variations.
Accounts cover all activities that result in refunds and outward payments, adjustments or updates to accounts.
2.3 Customer contact
This includes telephone advice and support to clients through customer call centres and tax agent call centres.
Customer contact activities also include processing inbound correspondence received through a range of channels including mail, fax, portal and email.
2.4 Debt collection and lodgment management
All activities in relation to debt collection and lodgment management for GST including direct phone calls, correspondence and provision of legal services. Any subsequent action in relation to non lodgment is included under active compliance.
3.1 Marketing and communication
Marketing communication activities supporting tax payers with voluntary compliance, helping taxpayers and their advisers understand their rights and obligations and managing relationships.
3.2 Interpretative advice and assistance
Interpretative advice and assistance provided in relation to GST laws, generally provided in written form but may include oral advice in some limited circumstances.
Activities including the provision of private rulings, public rulings, law interpretation and decisions such as objections, disputes and reviews.
3.4 Active compliance
Incorporates strategies to promote voluntary compliance on GST including activities such as:
- investigation and prosecution
- audit and enforcement
- compliance agreement
- tailored advice.
3.5 Compliance intelligence and risk management
This includes activities such as:
- intelligence and risk identification (including associated research, revenue analysis and monitoring)
- risk assessment (including work associated with the prioritisation and ranking of identified risks but excluding active compliance review activities); and
- development and maintenance of risk parameters for data matching, and case selection.
5.3 Government relations and issues
Government relations and issue management activities focus on provision of advice and information and support processes for Ministers, Parliament, State and Territory Governments and external scrutineers as well as managing issues as they arise
Note 3 - Basis of attributing the cost of GST administration
The ATO's GST administration activities include activities that are 100% GST related and others where processes are shared between GST and other taxes. Where a process is shared, the costs are attributed to GST and other revenue products based on the relative consumption of the shared service.
The basis used for attributing costs to GST administration activities is summarised as follows:
GST administration activities
Basis of attributing costs to GST administration activities
Contribution to policy advice
Number of policy advice provided or people who involved in providing policy advice that are related to GST works
Design and build administrative solutions
GST proportion of the ATO's corporate systems that are designed and built for GST purposes.
Input into law design
Number of new policy implemented or number of people involving in design and implementing GST related law.
Number of legal services provided or resources involved in providing legal services that are related to GST activities.
GST proportion of changes to client register based on volume and tax role.
Processing and accounts
GST proportion of Activity Statement (AS) processing based on volume and profile of taxes and/or labels on the AS.
GST proportion of transactions based on volume and profile of client payments and refunds.
GST proportions of calls to and from customers based on call volume and call tax type.
GST proportion of debt and lodgment activity based on cases on hand and client tax role profile.
Marketing and communication
GST proportion of education and campaign material based on product and campaign tax type.
GST proportion of interpretative advice and assistance provided by the ATO for taxpayers about the laws administered by the Commissioner. Advice is delivered to external and internal clients.
- GST proportion of compliance activities based on case volumes, standard case times and role profile by case type.
- Import and Export to Australian Customs Office 100% GST.
Compliance intelligence and risk management
GST proportion of fraud analysis and investigation activity based on GST case costs.
Government relations and issues
Percentage of FTE in Government relations and issues management related to GST work.
Note 4 - Planning and budgetary arrangements
This note sets out the agreed processes for developing and modifying budgets and business plans for the ATO's administration of the GST.
Budget formulation process
The ATO will formulate proposals for levels of funding required to administer the GST for the immediate future year. The ATO will consult with GSTAS (through GPAS) in formulating its proposals. In formulating the proposals, the ATO will review the budget methodology, associated assumptions and accuracy of data underpinning the proposals.
The ATO will provide the strategic budget submission to GSTAS through GPAS). GSTAS will consider the budget submission and forward to the Council, together with any comments or recommendations from GSTAS members on the appropriate level of funding.
Whilst the time frames for these processes will change over time to align with Commonwealth budgetary processes, it is anticipated that GSTAS will consider the ATO's funding submission in February each year.
The strategic budget submission to GSTAS will contain an indicative view of the funding against the program deliverables of the strategic costing framework. If required, subject to ATO planning processes and impacts of the Commonwealth budget process, the ATO will provide to GSTAS (through GPAS), within the first quarter of the financial year, a revised view against the program deliverables.
The ATO can raise with GPAS, GSTAS and subsequently, if necessary, the Council at any time during a financial year issues that may impact on the agreed Schedule B information.
Review of actual costs of administration
The ATO will report to GSTAS (through GPAS) the actual costs incurred in administering the GST for each financial year. As per the audit arrangements in Schedule C, these costs and the basis of determining these costs are subject to independent review by the ANAO.
GSTAS (through GPAS) and the Commissioner of Taxation will consult on the amount of any ex-post adjustments for the prior financial year arising from the administration costs actually incurred. GSTAS will recommend to the Council any agreed adjustments from the ANAO review. It is anticipated that any agreed adjustments will be settled and given effect to by February each year.
Schedule C - Monitoring and review arrangements
To provide assurance to the Council that the ATO is achieving the agreed performance outcomes, the ATO will report to GSTAS (through GPAS) at least twice yearly. In addition the ATO will provide a brief quarterly overview for the September and March quarters.
The first reporting event will occur in the first half of the financial year and the ATO will provide a report on its performance in administering the GST in relation to the immediate prior year. The ATO will also report on the actual full year costs of administering the GST in the immediate prior year, together with any recommendations on ex-post adjustments that may be necessary.
The second reporting event will occur during the second half of the financial year and the ATO will provide a report on its performance in administering the GST during the first half of the current financial year. The ATO will also provide a strategic budget submission, in accordance with the budget formulation process set out in Note 4 to Schedule B.
In fulfilling these reporting requirements, the ATO will provide to GSTAS (through GPAS) information on the following matters as appropriate:
- financial information relating to the ATO's costs in administering the GST
- reports of audits of GST costs and the systems for control of costs
- reports showing GST workloads and other information necessary to demonstrate performance in relation to the measures outlined in Schedule A
- key emerging compliance issues
- performance on activities specifically related to additional expenditure; refer to Schedule D for the summary spreadsheet that outlines commitments by year for the 2010 Budget Measure, GST Compliance – working together to improve voluntary compliance
- As compliance effectiveness measures are developed they will be considered for inclusion during the annual review period
- significant issues impacting on the GST administrative base.
The ATO will also report on an ad hoc basis as agreed between the parties. Such ad hoc reports may include (but are not restricted to):
- matters relating to the material cost-effectiveness of GST administration; ANAO reports directly relating to GST administration
- information on GST related litigation
- updates on relevant compliance and cost of compliance research
- updates on ATO internal governance arrangements as they relate to GST administration; and
- information on ATO community surveys.
Special purpose audit of GST costs and the systems for control of GST costs
The objective of the special objective of the special purpose audit (the audit) is to provide an independent opinion to the Council as to whether:
- the special purpose reports prepared by the ATO relating to GST costs are free as a whole from material misstatement
- the ATO has maintained, in all material respects, effective controls relating to the monitoring and reviewing of GST activity costs
- the Cost Attribution model is appropriately allocating the correct level of GST administration costs.
The audit will provide reasonable assurance to the Council that:
- the GST Cost Statement prepared by the ATO presents fairly in accordance with the accounting policies described in Schedule B
- the ATO has maintained, in all material respects, effective controls relating to the monitoring and reviewing of GST activity costs as specified in Schedule B.
The terms of reference for the audit engagement will provide for:
- an audit report which identifies the scope of the special purpose audit, and an opinion on the matters specified in clause C7
- review of the terms of reference at specified intervals
- materiality levels to be determined in accordance with applicable Accounting Standards.
In accordance with accepted audit practice, all reports emanating from the special purpose audit will be provided by the ANAO directly to the ATO. The ATO will provide a copy of the audit report to the Council as soon as it becomes available.
Additional costs to the ATO associated with the audit of GST costs and the system for control of GST costs will be included in the cost of GST administration.
The Parties may agree to an independent review of an aspect of GST operations that has a material impact on the agreed outcome. GSTAS (through GPAS) will be consulted when developing the terms of reference for the review.