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  • Top 100 risk categorisation approach

    The top 100 population consists of public and multinational businesses and super funds that have substantial economic activity related to Australia. They form the largest contributors to corporate income tax, good and services tax (GST), excise, and petroleum resource rent tax (PRRT) collections.

    As the top 100 can have a significant impact on the health of our tax system, we engage with them one-to-one to manage their compliance.

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    How we identify and categorise the top 100

    We risk assess each large public and multinational business at the economic group level. We consider an economic group to include all Australian-based entities under a direct or indirect Australian or foreign majority controlling interest.

    Top 100 clients are initially identified based on the size of their Australian operations. Other factors we consider include income tax, GST or excise paid and the influence the client may have on their market segment.

    We provide top 100 clients with a risk categorisation for income, goods and services, petroleum resource rent taxes and excise.

    This is based on a point-in-time assessment of a client's:

    • consequence of potential non-compliance – based on business size and influence
    • likelihood of non-compliance – including transparency, behaviours and tax compliance risks.

    We use our professional judgment to make this assessment. The factors we consider for likelihood and consequence vary for each tax product and the amount of information and interaction we have with each client. We consider both quantitative and qualitative measures.

    Top 100 clients receive an annual letter from the Commissioner of Taxation advising them of their risk categorisation. We clearly outline the categorisation and basis of our assessment for each applicable tax, what this means for clients and how we intend to engage with them over the next 12 months.

    We also provide top 100 clients with additional detail about our concerns, areas of their economic and tax affairs over which we have assurance, and our future engagement approach in annual tax assurance reports. Our engagement with clients is tailored to the specific behaviours, level of risk they exhibit, and the level of assurance we have obtained over their economic and tax affairs.

    Our future approach

    2019 will be the final year we apply a risk categorisation to the top 100 clients.

    From 2020, top 100 clients will know how we view their compliance behaviour and risk level through the level of assurance we obtain under our justified trust approach and their Action Differentiation Framework (ADF) categorisation. Top 100 clients will continue to receive an annual letter from the Commissioner.

    We will provide further guidance on our Top 100 categorisation approach for 2020 towards the end of 2019.

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    Risk categories

    For 2019, we use three risk categories for clients:

    • key taxpayer
    • key taxpayer with significant concerns
    • higher risk.

    Key taxpayer

    A key taxpayer generally has a lower risk level relative to other clients in the top 100 population. This does not mean they have no risks and that we would not have any disputes or differences of opinion on the tax outcomes intended by law.

    A key taxpayer is generally proactive in advising us of issues, allowing us to work with them on a resolution. They would not seek to conceal issues, instead providing full and true disclosure of significant and potentially controversial tax positions and engage cooperatively in seeking a resolution, keeping us informed of their decisions and actions.

    Where we don't have a high level of assurance over all aspects of a key taxpayer's economic and tax affairs, our ongoing engagement with them would be cooperative and aimed at achieving high assurance.

    Key taxpayer with significant concerns

    Key taxpayers with significant concerns may have multiple identified risks or have economic outcomes that don't appear to be reflected in their tax outcomes.

    Clients in this category will have more complex risks with larger amounts of tax at risk than clients in the key taxpayer category. However, we would generally still expect the relationship with the client to be positive.

    We work closely with clients in this category to resolve concerns and to increase our level of assurance.

    Higher risk taxpayer

    A higher risk taxpayer may have multiple complex risks across different parts of the tax law. They typically do not engage in an open and transparent manner and are more likely to enter into disputes rather than trying to resolve matters cooperatively with us.

    A higher risk taxpayer may have a structure that appears unnecessarily complex or may enter into arrangements that objectively make little sense other than for the tax benefit.

    We continuously review higher risk taxpayers and are more likely to use comprehensive audit and other intensive risk assessment approaches. It is likely a higher risk taxpayer will have an overall low level of assurance. Under our justified trust approach, we seek to increase our level of assurance for higher risk taxpayers. We are also more likely to use our formal powers of information gathering.

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    Last modified: 18 Jun 2019QC 54108