Review into the ATO's use of benchmarking to target the cash economy - Released 4 October 2012

Introduction to the review

The objective of this review was to examine the use of benchmarking as a risk identification tool in compliance activities. The terms of reference stated that the review would focus on:

  • risk identification
  • differentiation
  • basis for amended or default assessments
  • record keeping
  • ATO approach, processes and practices.

The cash economy refers to businesses deliberately using cash transactions to hide income to avoid paying tax. One method we use to identify businesses potentially not correctly or completely reporting their business income and expenses is performance benchmarking. Overall, the Inspector-General of Taxation (IGT) found that stakeholders were generally supportive of our use of small business benchmarks to support risk identification and improve the targeting of our compliance activities.

The recommendations relate to five broad areas:

  • improving community understanding of, and confidence in, the benchmarking methodology
  • working with the community to improve the integrity of the taxpayer data used in the creation of benchmarks
  • improvements in risk assessment processes, including for taxpayers in mixed businesses
  • process improvements for audits, including more guidance for taxpayers and for our staff and easier electronic dealing with us
  • record keeping in the community.
    Last modified: 29 Oct 2014QC 42955