Justified trust is a concept from the Organisation for Economic Cooperation and Development (OECD).
Justified trust builds and maintains community confidence that taxpayers are paying the right amount of tax. It also allows us to focus our resources in the right areas.
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How we achieve justified trust
To achieve justified trust, we seek objective evidence that would lead a reasonable person to conclude a particular taxpayer paid the right amount of tax. This is a higher level of assurance than confirming certain risks do not arise.
We tailor our assurance approach based on the unique business profile of a taxpayer.
When engaging with a taxpayer, we review the following four key areas:
Understanding a taxpayer's tax governance framework
We confirm the existence, application and testing of a tax risk management and governance framework.
We recognise entities use different governance practices based on a range of factors.
Identifying tax risks flagged to the market
We review risks or concerns we communicated to the market (for example, through Taxpayer alerts, Practical compliance guidelines, or Public rulings). We then determine whether these may be present.
Understanding significant and new transactions
We seek to understand current business activities, particularly significant or new transactions, and the tax outcomes.
Understanding why the accounting and tax results vary
We analyse the various streams of economic activity and how they are treated for taxation and excise purposes.
This requires a holistic understanding of the taxpayer's business operations and financial performance. We compare this to its tax performance.
For example, we analyse:
- the Effective tax borne (ETB) and global value chain to understand why accounting and income tax results vary
- sales, acquisitions and other data and compare this to net goods and services tax (GST) paid.
For a copy of the ETB Guide and workbook we use to complete our ETB calculations, email Top100@ato.gov.au
GST analytical tool
The GST analytical tool (GAT) is one of the tools we use to obtain greater assurance you are paying the right amount of GST and to help us better understand why accounting and GST results vary. It is not intended for use by taxpayers with pre-dominantly input taxed supplies. Different analytical approaches are under consideration for those taxpayers.
The GST analytical tool (GAT) FAQ, top 100 GAT example and top 1000 GAT example may also help you when considering the application of the GAT as part of a GST assurance review.
For a copy of the GST analytical tool (GAT) Guide and method statement we use to complete our GAT calculations, email GATSupport@ato.gov.au.
Intended outcomes from our approach to justified trust
Justified trust gives the community confidence that large businesses are paying the right amount of tax. This fosters broader willing participation and engagement across the tax and superannuation system.
Our approach helps us focus how we minimise the income tax and GST tax gaps through:
- our engagement strategy (for example, identifying and resolving areas of concern at the earliest possible time)
- active compliance (for example, audit cases)
- active prevention across the market (for example, through Taxpayer alerts, Practical compliance guidelines, or Public rulings).
Other guidance materials
Addressing the tax gap and justified trust.