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  • Feature: Understanding the effectiveness of our engagement in improving compliance and willing participation

     

    The ATO continues to develop and refine indicators to monitor and understand the impacts of our activities on the performance and operation of the tax and superannuation systems.

    This year marks the first time we have reported on total revenue effects as a measure of performance. Total revenue effects is an estimate of the additional tax revenues that result from ATO client engagement activities. It is the combination of audit yield and wider revenue effects.

    Audit yield refers to tax paid as a direct result of corrections we make to lodged tax returns, in the form of amended assessments. Wider revenue effects refers to estimates of additional tax paid following an amended assessment, or as a result of an ATO intervention that prevents incorrect reporting in the first place.

    It is universally recognised that getting the right amount of tax paid in the first place is the most efficient operation of a tax system from all perspectives, including the cost to the taxpayer, administrator and the community. For this reason, we focus on influencing current and future behaviour through our engagement, support and services. We aim to prevent practices that result in incorrect tax outcomes, by providing timely and easy-to-access information, education and services. Our Taxpayer Alerts warn clients of our concerns about new or emerging tax risks. With our largest taxpayers, we have regular and ongoing engagement activities that support them in getting their tax right in the first instance.

    Our prevention approach is achieving positive outcomes. For example, when a taxpayer has an annual compliance arrangement with us, they will advise us of their intentions regarding inclusions in their upcoming tax return. If they were to advise us of say, a $2 million deduction for which we knew they were not entitled to deduct the full amount (instead say $1.6 million), we would explain to them why a lesser amount should be included for the deduction. When the taxpayer subsequently agrees to report according to our advice, the revenue effect for the year for this example would be estimated at $120,000 (that is, the $400,000 difference between the intended and actual claim multiplied by the 30% corporate tax rate).

    When we make corrections to past assessments we provide advice and support to improve future compliance. For example, as part of a broader strategy in 2015–16, we audited a group of 56 small companies where the lifestyle of owners seemed inconsistent with the profits reported by their businesses. This work resulted in $3.8 million in audit yield (additional tax plus penalties and interest). We matched each company to a group of peers in the same industry, level of business maturity and lodgment history to establish a control group. The tax paid following the conclusion of the audits outperformed the control group by a further $640,000 estimated as a wider revenue effect.

    Measuring the revenue impact of all our activities is challenging. We implicitly know that providing help and education, smart support tools and the right services results in more people getting tax right – but it can be difficult to quantify the impact of such activities. For this reason, we know that our wider revenue effects estimate will always be understated.

    However, there are many activities where we can make robust and defensible estimates of the tax effect of our efforts to improve compliance and willing participation, as outlined in the above examples. We believe the $4.8 billion estimated wider revenue effect is conservative and defensible. International academics and independent experts have reviewed our statistics and estimation methods and found them to be sound and fit for purpose.

    As we continue our work to make it easier for people to comply with tax laws and harder not to, we will continue to develop wider revenue effect measurement techniques that monitor levels of willing participation and evaluate the effectiveness of our activities.

    End of Understanding the effectiveness of our engagement in improving compliance and willing participation feature
      Last modified: 30 Oct 2017QC 53759