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  • How we assess risk

    We use intelligence, sophisticated data matching and analytics to detect risks, understand your circumstances and profile privately owned and wealthy groups.

    Where your dealings are transparent we can tell you what we know about you, including our view of your group's tax risk profile so you can work with us where needed to get things right.

    We use a framework to differentiate risk and tailor our engagement with you according to your risk profile and the choices and behaviours made by the group.

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    Risk differentiation framework

    We use a risk differentiation framework to tailor our engagement based on our understanding of your risk position, circumstances, choices and behaviours.

    The risk differentiation framework is the first step in our risk-assessment process. It's based on information we hold and our understanding of your group. We use it to assess your level of tax risk, taking into account likelihood and consequences.

    When seeking to understand your group, we consider your tax and economic performance in comparison to similar businesses. We define similar businesses as private groups with similar characteristics to your group.

    To determine groups that are similar to you, we consider three general phases for a private group:

    • establishing wealth
    • retirement and transitioning wealth
    • the associated behaviours and activities that affect the way wealth, income and tax is managed.

    This method of group comparison recognises that income and wealth may be derived through different activities including:

    • operating a business
    • investing
    • working for a salary.

    When determining similar businesses to you, we also consider the size and complexity of the groups used for comparison. We adjust our comparison as we learn more about your group.

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    We use this group comparison to determine our initial view of you tax and economic performances. For your:

    • tax performance we use a tax to income ratio when comparing your tax performance with similar businesses. If this ratio is high, it may indicate under-reported income or over-reported deductions
    • economic performance we use profitability ratio when comparing your tax performance with similar businesses. If the ratio is low, this may indicate compliance risks such as bad debts, profit shifting, under-reporting of income or over-reporting of expenses.
    • These comparisons form a part of our likelihood and consequence scores. Your:likelihood score is the propensity of a tax outcome occurring with which we do not agree. We form this assessment by considering
      • the tax and economic performance of the group compared to similar businesses
      • the complexity of group structure
      • specific indicators of compliance risk
    • consequence score is the potential impact of non-compliance on revenue, in influencing community engagement, our reputation and precedential outcomes of non-compliance. When considering consequence we take into account factors such as
      • wealth
      • total business income
      • the potential quantum of tax at risk.

    The combination of likelihood and consequence informs our initial perception of risk. This perception does not assert non-compliance but may prompt our engagement with you.

    We continue to improve our risk differentiation framework to maximise the effectiveness of our client engagements. For example, we have enhanced our risk differentiation framework so we can better take into account what we learn through our interactions with our clients.

    Risk differentiation framework

     A graphic representation of the preceding text. Risk is shown as increasing according to the consequence and likelihood of non-compliance.

    How we apply the risk differentiation framework

    We tailor our engagement and services with you based on our understanding of your risk position, circumstances, choices and behaviour. Initial risk categorisations are preliminary only and not definitive. Our initial risk categorisation does not assert non-compliance (or compliance). It simply indicates we may wish to ask further questions based on what we currently know.

    Lower risk

    Most privately owned and wealthy groups are assessed as lower risk. We generally accept this level of risk and reflect it in the nature of our interactions.

    Our engagement and services for lower risk groups focus on making it easy to get things right. This includes help and education initiatives, advice and guidance services and pre-lodgment support.

    Significant restructures and one-off significant transactions will still attract our attention and we may contact you prior to lodgment to provide advice so you get things right up front.

    There will be some situations where we will engage you regardless of your risk category. An example of this includes providing educational material or pursuing outstanding debts or lodgment.

    Higher risk

    Higher risk categorisation may warrant us asking further questions.

    In addition to the engagement and services provided to lower risk groups, we will provide a strong level of support and engagement to help you get things right.

    Our engagement approach will be influenced by the perceived risk. Your willingness to cooperate and engage constructively with us in mitigating the risk will influence the intensity of our approach. Our engagement approach is also influenced by the potential consequences. For example, as your risk profile moves up the consequence scale, our engagement is likely to be more intense and frequent.

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    Last modified: 30 Nov 2017QC 44838