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  • Ensuring correct reporting

    $3.295 billion in liabilities raised from compliance activities involving 1.05 million client contact cases

    Our strategies this year have continued to focus on achieving fair and reasonable outcomes for our clients. Where people are transparent about their tax affairs and participate willingly, we limit our intervention. For those who are not willing to do the right thing, we will take action and, where necessary, use all avenues available to us under the law.

    Direct activities to address non-compliance this year raised $3.30 billion in compliance GST liabilities, a 25% increase on last year’s outcome. In 2014–15, results included one refund integrity ‘outlier’ case worth $300 million. This year’s results included one complex case to the value of $122 million.

    Client coverage decreased by 25% in 2015–16. There were fewer contacts in most market segments, with increases in the large and government segments.

    Table 13.1: Compliance results by market segment (GST tax liabilities excluding penalties and interest)

    Market segment

    2014–15 ($ million)

    2015–16 ($ million)

    Micro 1,507 1,598
    Small and medium enterprises 794 1,040
    Large 266 461
    Government 17 41
    Not-for-profit 39 126
    Other 14 29
    Total 2,637 3,295
    Flow on results achieved from GST-related Budget measures (See note 2) 245* 144
    Grand total 2,882 3,439

    Note 1: Totals may differ from the sum of components due to rounding

    Note 2: Indirect revenue outcomes from GST-related Budget measures — GST Voluntary Compliance program, Taxable payments reporting system and ATO compliance program dealing with the cash economy.

    Table 13.2: Compliance results by market segment (Total cash collection including penalties, interest, and some amounts raised in previous years but collected during 2015–16)

    Market segment

    2014–15 ($ million)

    2015–16 ($ million)

    Micro 1,429 1,399
    Small and medium enterprises 668 882
    Large 300 340
    Government 36 41
    Not-for-profit 41 126
    Other 16 22
    Total 2,490 2,809
    Flow on results achieved from GST-related Budget measures (see note) 227* 134
    Grand total 2,717 2,943

    Note 1: Totals may differ from the sum of components due to rounding

    Note 2: Indirect revenue outcomes from GST-related Budget measures — GST Voluntary Compliance program, Taxable payments reporting system and ATO compliance program dealing with the cash economy.

    Table 13.3: Compliance results by market segment (Client contact case numbers)

    Market segment

    2014–15 ($ million)

    2015–16 ($ million)

    Micro 1,275,041 968,067
    Small and medium enterprises 74,391 45,498
    Large 2,741 3,055
    Government 2,571 4,563
    Not-for-profit 33,281 22,183
    Other 7,507 4,129
    Total 1,395,532 1,047,495
    Flow on results achieved from GST-related Budget measures (see note 3) N/A N/A
    Grand total N/A N/A

    Note 1: Totals may differ from the sum of components due to rounding

    Note 2: A client may be contacted more than once by the ATO in the financial year

    Note 3: Indirect revenue outcomes from GST-related Budget measures — GST Voluntary Compliance program, Taxable payments reporting system and ATO compliance program dealing with the cash economy.

    * The liabilities and cash estimate have been updated with adjusted outcomes only available since the publication of the 2013–14 report.
     

    Figure 11: GST liabilities raised by market segment

    Figure 11 – GST liabilities raised by market segment The data that built this graph, showing the GST liabilities raised by market segment, figures provided in Table 13 above.

    Figure 12: Number of client contacts by market segment


    Figure 12 –Number of client contacts by market segment graph The data that built this graph, showing the number of client contacts by market segment, figures provided in Table 13 above.

    Encouraging compliance

    We want the community to have confidence in our ability to address non-compliance and ensure the GST system is fair for all businesses. Our compliance activities continue to be tailored, targeting those who are not willing to do the right thing.

    We are focused on improving productivity and efficiency, and reducing reverse workflow. Over the last 24 months, a number of new risk treatment approaches have been introduced:

    • use of analytics for early identification, and exclusion from treatment, of non-lodgers who will lodge without ATO intervention (‘self-finalisers’)
    • increased use of behavioural insights to populate letters with a resulting increase in effectiveness
    • identification and exclusion of non-operating small businesses from lodgment compliance activity.

    On time and overall lodgment of business activity statements by monthly lodgers continues to improve each year. On-time and overall lodgment of quarterly business activity statements have declined slightly for 2015–16 in comparison to lodgments for 2014–15. We are currently investigating this decrease.

    We raised more than $1.49 billion in GST liabilities from our lodgment compliance activities this year, an increase from $1.00 billion last year.

    Table 14: Percentage of BAS lodgments on time and overall

    Year

    % lodged (monthly)

    % lodged on time (monthly)

    % lodged (quarterly)

    % lodged on time (quarterly)

    2015–16

    94.0

    83.2

    88.0

    75.3

    2014–15

    93.7

    82.9

    88.3

    76.0

    2013–14

    91.5

    80.5

    87.5

    76.1

    2012–13

    91.3

    80.0

    87.3

    75.8

    2011–12

    91.1

    79.7

    87.0

    75.7

    2010–11

    91.1

    79.3

    87.1

    76.0

    2009–10

    90.5

    78.8

    86.6

    75.7

    Figure 13: Comparison of BAS lodgment performance

    Figure 13 – Comparison of performance of activity statement lodgment graph The data that built this line graph provides a comparison of activity statement lodgment from 2009–10 to 2015–16 by monthly lodged overall, monthly lodged on time, quarterly lodged overall and quarterly lodged on time. The figures provided in Table 14 above.

    Providing certainty on emerging issues

    We recognise that it is important to resolve technical issues as quickly as possible to provide taxpayers with certainty on GST treatment. As issues arise, we work quickly to understand the GST consequences and potential impacts with a view to proactively issuing early advice to the community.

    We have continued to analyse the potential impact of the sharing economy due to its increasing size in the community and impacts on traditional business models. Over time there is potential for the sharing economy to erode the GST revenue base through a shift from larger GST-registered businesses to multiple micro unregistered businesses.

    There are tax implications and GST obligations for drivers who provide ride-sourcing services (also known as ride-sharing, ride-booking, taxi or ride-hailing services) and carry on an enterprise. We released advice on the Sharing economy and tax and Providing taxi travel services through ride-sourcing and your tax obligations to assist drivers to meet their GST obligations. We consulted extensively with a key industry participant prior to publishing the material.

    We have continued to consult with the community (particularly drivers) and have conducted webinar sessions, participated in online forums and continually updated our web guidance material to address questions asked by the community. Using data collected from a financial institution we wrote to over 20,000 ride-sourcing drivers about their ride-sourcing enterprise and what they need to do. We will continue to contact drivers, in particular those who are not participating in the system.

    We worked collaboratively with the Pharmacy Guild to develop products and strategies to minimise delays in GST refunds for pharmacies affected by cash flow issues due to supplying expensive drugs that had recently been listed on the Pharmaceutical Benefits Scheme. An information sheet has been published on our website and also provided to the Pharmacy Guild to distribute to its members.

    For the government sector, we continued our ongoing focus on resolving disputes around GST concessions for unimproved land. A managed alternative dispute resolution process has been implemented in collaboration with the states and territories. We have further engaged with GPAS and GSTAS to achieve an acceptable process for the management of unimproved land matters in light of a neutral evaluation being received last year. We are currently undertaking a second neutral evaluation matter to deal with some unresolved issues regarding unimproved land and expect an outcome in 2017.

    In response to home care and residential aged care providers seeking certainty around the GST treatment of their services, we drafted two fact sheets. Key industry stakeholders reviewed the fact sheets to ensure they provide clarity and certainty. In October 2015, we commenced discussions with key industry representatives to explore the feasibility of a safe harbour for retirement village operators for their calculation of recoverable GST. These discussions are continuing.

    We provide a streamlined cooperative assurance agreement for those large businesses that are appropriately meeting their obligations and have demonstrable and robust financial controls plus accurate GST reporting. Taxpayers with higher risk profiles will be subject to detailed reviews and, if necessary, we will strongly challenge positions that may erode GST revenue. We continue to use our published risk differentiation framework and tailor our engagement and strategies based on the assessed risk.

    At 30 June 2016, we had 18 annual compliance arrangements (ACAs) for GST in place with large corporates. Three new ACAs for GST were signed during the year, with one client renewing their ACA. These agreements allowed for assurance of around $29.3 billion in GST throughput in 2015–16.

    Willing participation by large business is further evidenced with $292.6 million in voluntary disclosures received during the year. We continue to focus on prevention rather than correction and early engagement with our clients, leading to reductions in liabilities raised and voluntary disclosures made. Errors are being detected earlier by taxpayers, and voluntary disclosures are generally made earlier and for lower amounts.

    Identifying and treating non-compliance

    Integrity of the GST system will be maintained by combining intelligence activities, audits, criminal investigations and prosecutions. We work with partner agencies to deliver services; share data, intelligence and expertise; and participate in multi-agency task forces.

    We need to remain flexible to respond to new and emerging risks. Our audit activities, including e-audit, are targeted using intelligence scans and revenue analysis to inform us in our case selection. We also address evasive behaviours identified by other agencies such as AUSTRAC and the Department of Education.

    Refinement of our risk detection models to better target high-risk refunds continues. This allows us to tailor our treatments between pre-issue and post issue. This approach has reduced the number of lower risk refunds stopped for review and improved the timely release of these refunds. In 2015–16 we reviewed approximately 22% fewer refunds compared to 2014–15 and returned a greater amount in GST liabilities (excluding large one-off adjustments).

    We raised $605.6 million in GST liabilities from over 25,000 refund audit cases and, on average, we adjusted one out of every four claims. We finalised 72% within 14 days in 2015–16.

    We are improving our use of third party invoice data collected during audits to detect unreported sales by third party suppliers. We undertook a pilot program in 2015–16 where 200 cases resulted in $15 million in GST liabilities being raised. We are planning to expand this program in 2016–17.

    We continue to expand our tailored compliance approaches requesting taxpayers who are willing to participate to self-assure their claims. We contacted 12,000 taxpayers whose refund claims attracted our attention and asked them to self-review. Control group comparisons since April 2014 show the proportion of letter recipients who corrected an overstated refund is 3 times higher than taxpayers who did not receive a letter. Approximately $4 million in GST was corrected during 2015–16. We developed these letters with the assistance of business intelligence experts from the Australian National University.

    We continue to deal with the high-risk behaviour of some tax agents who are defrauding the GST system. This continues to present a significant risk and is increasing in sophistication. We are using intelligence, improved risk modelling and sharing of information with external crime agencies to ensure these agents are identified and prevented from gaining refunds they are not entitled to. One of the complexities of this issue is that, in some instances, it is not tax fraud that is occurring. Rather, it is a civil matter between the client and their tax agent. We are looking at ways to assist and educate clients on civil matters and their options, including assisting with a rewrite of PSLA 2008/11 Fraudulently altered or created income tax returns or activity statements.

    CASE STUDY: Tax agent fraud

    A tax agent was alleged to be committing fraud against their clients. The agent would ask their client to make a payment to the ATO on the basis that the client has a net payable BAS lodgment. The agent would then lodge the BAS with either a smaller payable amount or claiming a refund. The client’s excess payment and/or BAS refund was then paid to the agent’s trust bank account.

    Bank records ascertained show that some of these amounts have then been transferred to the agents own personal bank account. The clients are unaware of the agent’s suspect behaviour.

    It is estimated that around $15 million in refunds was involved. The case continues to be under investigation and the agent has been referred to the Tax Practitioner Board.

    End of example

    Identity crime continues to be an area of concern affecting the community and we continued to see sophisticated attacks on the system from organised networks attempting to claim fraudulent refunds. We continue to strengthen our detection systems, which include checks at the time of registration. During 2015–16, we examined approximately 30,000 GST registrations and cancelled over 1,700 of these.

    We work with other agencies such as the Australian Crime Commission and the Australian Federal Police when dealing with substantial criminal behaviour on large operations. In 2015–16 this included Operation Nosean (GST refund fraud) and Operation Caballus (disengaged property).

    We continue to expand our strategies to minimise unnecessary intrusions on our clients. This includes using digital channels such as SMS, email, social media, newsrooms and YouTube to highlight common BAS errors and reinforce messages around how businesses can protect themselves from identity crime.

    We are contacting property developers prior to their property sales taking place. This is to assist in correct reporting of GST liabilities by assisting the client to understand their tax obligations. We are taking particular interest in developments that have not previously been reviewed and that are not yet finalised. This approach is different to previous strategies where we have looked at sales after they have taken place.

    There is a continued effort in enhancing our data matching to third party data from State and Territory Revenue Offices, Land Title Offices, planning and development agencies, and other sources. These enhancements have enabled us to identify future large residential development sales and to progress our early engagement activities with the client to ensure correct reporting of GST.

    We have continued to use contemporary and digital communication channels to assist clients in applying the right GST treatment to their property transactions. We have engaged with property developers and their advisers through our Let’s talkExternal Link live chats and will discuss topics such as the margin scheme in upcoming webinars. This allows clients to ask questions of our technical experts.

    In 2016–17 we intend to keep disrupting the business models of fraudulent phoenix developers by implementing a series of sequential interventions. Our strategy is to gather intelligence and engage with ‘at risk’ property developer clients as early as possible in their project’s life cycle to ensure taxation obligations are met (eg through part period assessments).

    Reporting of financial transactions can be complex because of the need to apportion GST on costs between the mix of input taxed and non-input taxed supplies. To identify and resolve areas of uncertainty in the financial services industry, we developed an early engagement approach last year. This approach was implemented in 2015–16 and is reducing claims to input tax credits.

    We also trialled the apportionment assurance method we developed with the Australian Bankers’ Association during 2015–16. This method is providing increased clarity and certainty for apportionment methods. In particular, it focuses on identifying common ground with taxpayers on material issues.

    We have used key data from external sources, such as the Reserve Bank of Australia, in developing and conducting quantitative analysis to measure the appropriateness of apportionment methods. We have also collaborated with State Revenue, in particular South Australia, in sharing intelligence and examining compliance with GST law in the area of general insurance supplies with life insurance.

    Our approach to protecting honest businesses from the minority operating in the cash and hidden economy includes an education component. This helps small business with their GST obligations, in particular to get their BAS preparation right and lodged on time.

    We are taking a much more public approach to protect honest businesses. This year our high-risk industry approaches included visiting over 600 businesses in Box Hill, Victoria and the Gold Coast, Queensland. These visits gave us the opportunity to demonstrate our digital services, to discuss their particular circumstances, and to identify any issues we need to follow up.

    We maintained a strong focus on the deliberate and organised evasion of GST obligations within the gold bullion and precious metals refining industry as the evasive behaviour of taxpayers in this industry appears to be continuing. We have established some taxpayers are participating in a scheme. In one case, non-existent metal supplies were created in order to generate input tax credits from those supplies. Assessments were issued for $122 million with additional penalties of $58 million.

    Our activities to mitigate this risk and deliver a fair and level playing field within this industry have so far raised around $181 million in GST liabilities.

    CASE STUDY: Serious evasion of GST

    We worked with the New South Wales Department of Fair Trading (DFT), which was undertaking an ongoing investigation into an entity retailing counterfeit products (trademark fraud).

    DFT collected a substantial amount of information and intelligence. Our further investigation detected a bank account owned by the primary entity that was used for deposits of substantial amounts of daily cash earnings from each of the six retail outlets operated by the entity. This bank account was not identified in any of the entity’s accounting records, so none of the incoming or outgoing transactions were reported to the ATO.

    Our investigation into the primary entity resulted in spin-off audit cases for three related entities.

    The DFT’s investigation was to collect evidence to address the entity’s risk of trademark infringement. The information they shared assisted us in understanding the business and establishing the behaviour of the entities. Total GST adjustments and penalties raised were over $1.2 million. This included a GST shortfall amount of $695,556.

    End of example

    We investigate and prosecute fraudulent and criminal behaviour. This year, we completed 96 GST-related fraud investigations and had 58 successful outcomes. We referred 26 new GST-related briefs of evidence for breaches of the Crime Act 1914 to the Commonwealth Director of Public Prosecutions (CDPP) and 2 briefs of evidence to our internal prosecution area for the prosecution of offences under the Taxation Administration Act 1953 (TAA). The matters referred to the CDPP cover a range of GST risks including fraudulent BAS, disengaged property developers, real property transactions and identity crime.

    During the year, there were 14 GST-related fraud matters where successful prosecution action was taken by the CDPP. The publicity around these types of prosecutions helps to deter criminal behaviour and emphasises to the community the importance of doing the right thing. Sentences ranged from 150-hour Community Service Orders to an imprisonment sentence of seven years and three months, with a non-parole period of four years and three months. Reparation orders of $3.36 million were also obtained.

    Our current GST-related investigations are focused on phoenix-type behaviour, gold bullion and precious metals dealings, building and property construction and real property transactions along with cases involving controlling minds, tax agents and intermediaries. We also progressed several major investigations involving GST fraud with the Australian Federal Police, including a special operation examining labour hire arrangements in South Australia.

    There are also a range of matters that the ATO prosecutes, such as not complying with lodgment requirements, making false and misleading statements on our forms, keeping false records, and not attending to answer questions when required to do so. In 2015–16, we successfully prosecuted 877 matters for administration offences under the TAA that resulted in $6.08 million levied in costs and fines.

      Last modified: 20 Apr 2017QC 51810