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  • Commissioner’s address to the Tax Institute National Convention 2018

    Commissioner Chris Jordan, AO

    Keynote address to the Tax Institute 33rd National Convention

    Cairns, 15 March 2018

    (Check against delivery)

     

    Thank you for the invitation to talk again with members of the Tax Institute – my sixth address to the Tax Institute annual convention. I enjoyed the catch up with many of you yesterday and had the pleasure of listening in to the sessions in the afternoon – including the round table with Robert Deutsch, Vanessa Priest, and my colleagues Andrew Mills and Kirsten Fish.

    I was very interested to hear Mark Leibler’s speech – he raised some thought-provoking points about power, positive cultural change, scrutiny and humanity. It was the Tax Institute’s advertisement for Mark’s presentation that helped spur thoughts for my address today.

    I read this in one of the emails from the Tax Institute:

    “Wielded unwisely, the draconian powers bestowed on Australia’s Commissioner of Taxation could destroy the system entirely. …..

    And……..tax administration, rather than tax law, ultimately determines the fairness, workability and durability of the tax system, and the enduring strength of the Australian economy.”

    What struck me was the perception some people may hold that the economy can hinge on my job and the role of the ATO.

    While this could be taken as frightening or flattering, or both; I do take it seriously. I understand the need for balance, pragmatism, respect and empathy for taxpayers and their representatives; at the same time as being able to hold the nation’s interest uppermost in this position as Commissioner of Taxation.

    Taking money from people and businesses is not always welcomed, and at times we have to be very firm and resolute in our actions so the majority knows we are acting in their interests to ensure everyone is paying the right amount.

    I do not underestimate how important it is that people have trust and confidence in me and the ATO.

    ATO directions

    My approach since taking the role as Commissioner has been just that; to recognise that how we do our job at the ATO is critical – we can impact people’s lives, and influence whether or not they want to comply with their obligations into the future.

    That is why we reset our mission at the end of 2013, to recognise the broader impact we can have on economic and social wellbeing, and to focus on encouraging voluntary compliance. Our mission is:

    The ATO contributes to the economic and social wellbeing of Australians by fostering willing participation in the tax and super systems.

    In setting this as our mission, it gave us the ‘what’, ‘why’ and ‘how’ we should do our job. It reframed our role from just protecting the revenue to protecting taxpayers, and to working with them in a way that I could describe as ‘facilitative’ for the majority.

    In 2013, I gave you the analogy of dealing with your taxes is a bit like going to the dentist; at some stage you have to do it, you may not want to, but much better to face up to it. I told you then that I wanted interactions with the ATO to be infrequent, quick and painless. And I have not changed that intent.

    It is why we reset our vision to be about contemporary service, expertise and integrity.

    It is also why our transformation program, Reinventing the ATO, has been about improving the client experience and changing our culture to one with more of a service orientation; making it easier for people and businesses to comply with their obligations – whether or not they use a tax professional for managing their tax affairs.

    Changes since 2013

    Before I go on, I do want to describe some of the changes that have occurred in tax and super administration in the past five years. And while not everything is smooth, or perfect, we are collectively in a better place to deal with the challenges facing us now and in the coming years.

    There is earlier engagement, with more upfront advice and guidance and a focus on prevention rather than correction; practical compliance guidelines that give people ’flags on the beach’ so-to-speak, or a type of safe harbour, law companion rulings, and taxpayer alerts. With our focus more on prevention (and assurance), the notion of audit yield will become less relevant as a measure of success.

    We are using a range of alternative dispute resolution techniques like in-house facilitation and external mediation; and have introduced Dispute Assist to help those suffering personal difficulties.

    The triage service for objections we introduced last year has led to a significant portion of disputes being resolved within two weeks, with a sustained 30% decrease across the board in the average time it takes to resolve a dispute.

    And the Independent Review process introduced in 2013 for large market cases continues to receive favourable feedback.

    Our use of settlements to resolve disputes has been found effective by the ANAO’s review that concluded at the end of last year. The ANAO also remarked that the ATO has the highest level of public reporting available for settlements when compared to other international revenue authorities.

    Our small business benchmarks (the latest released in the past fortnight) provide over 100 different industries with average cost of sales and average total expenses. Businesses as varied as seafood retailers, bricklayers and dentists can see clearly what the relevant benchmarks are for their industry. The benchmarks are a great way for businesses and their agents to see how they compare to others in their industry.

    Our small business education workshops are received well by small business owners and accountants, as are our New to Business Essentials and Newsroom communications. We’ve provided new services and support tools such as the cash flow coaching kit for use by practitioners with their clients, and this is getting positive feedback – some saying that profit and loss is now better understood, that the conversation stimulated by use of the tool helps clarify thoughts and get a business plan in place, and accountants telling us that working through this tool helps clients face up to their financial situations, and help get them back on track.

    Digital services have increased – directly and through software providers; we’ve developed the Let’s Talk Tax Agent online forum; and the Practitioner Lodgment Service (PLS) is now being used successfully by more than 18,000 of the 21,500 agents. We are on track to have lodgment of all individual returns by agents on PLS for tax time 2018.

    There is now a very healthy diversity of experience and background in the mix of people in senior roles in the ATO – some with long term ATO knowledge, some from Treasury, some with private sector experience in the tax profession and other disciplines, and some from other government agencies. This gives us freshness and perspective and has helped us to drive and reinforce the service culture I have been seeking.

    You heard from some of our standout external recruits yesterday; Andrew Mills and Kirsten Fish, and you will hear from Duncan McCarthy and Shahzeb Panhwar later. Some of our stellar long-term ATO officers will also be talking – Will Day, Jade Isaacs, Debbie Boyd, Trevor Jones and Debbie Hastings.

    There is a greater connection between the ATO and the various client market segments – evidenced by relationships with key representatives, and importantly, more products and services that reflect consultation and co-design with users. Consultation and co-design is working better with tax practitioners too. Just this financial year, over 350 practitioners have participated in consultations on more than 20 different matters, including:

    • Communication preferencing
    • Single Touch Payroll
    • The future of the tax profession
    • Real time analytics and online services for tax practitioners.

    We’ve convened more than 45 Open Forums this past year in CBD and regional locations to discuss various topics and provide practitioners with access to experts and support. And more than that, we have embraced livestreaming technology which enables people to watch from where they choose, at a time that suits them.

    Our formal consultation groups include the Tax Practitioner Stewardship Group, the BAS Agent Association Group, the Digital Implementation Group, and the new Professional Services Reference Group established last year. We also engage with legal practitioners; with the peak bodies like the Law Council of Australia and the different bar associations.

    Better services for tax practitioners

    I know some of you will be sitting there thinking ‘it’s good to talk and consult but what about our services?’ Are they up to scratch – especially following the aberration of last year’s systems issues. I was very disappointed we lost the momentum we had built up in 2016, and I am personally monitoring the progress of service improvement to you – for both the immediate and longer terms.

    I hope it was evident to you the intensive and extensive efforts we put in to the systems recovery last year. In the end, 2017 was the best Tax Time, even more successful than 2016, in terms of ease of experience, speed of return processing and issuing of refunds, client satisfaction and number of complaints.

    We are determined to provide quality services to you and we are making good progress, fixing irritants and developing new online functionality now; albeit this is a long, large and complex undertaking.

    Since September, we’ve completed over 600 visits to tax agent practices to see first-hand how our systems are used and how they perform. These visits are invaluable for all kinds of feedback and on-the-ground intelligence for IT systems fixes and improvements.

    Just to give you a sense of the IT environment; we have over 100 applications that manage our services to the community, over 2,000 computer servers that deliver those applications and services; we store around 2 Petabytes of data, and in a calendar year, we manage over 6,500 system changes through our production environment.

    We launched a new beta pilot in December to test new online services that will become more widely available later this year and eventually replace the tax agent portal – and about 110 tax and BAS agent practices volunteered to work with us to provide feedback and input. The number of agents involved will climb to around 200 (many of them from rural and regional Australia) in the coming weeks in a live (production) environment as we get more confident with the services and refinements we are making.

    Thank you to those who took up the invitation to be involved – you have helped to make online services suit you and your peers:

    • There will be greater visibility of client data in real-time and access to historical (lodged) income tax returns (which includes every label as it was processed by the ATO from 2010 onwards). This will largely eliminate the need to contact either the ATO or a previous agent for this information. This functionality not only makes it easier to obtain a comprehensive history of a client’s tax lodgments, but also saves significant time!
    • Overall improvements to the visibility of client information, including being able to view additional accounts and transactions which were not previously accessible through portals – all available in real-time. Also, the ability to see when clients are in payment plans, including access to payment plan instalment schedules.
    • Flexible search functionality which means you can find clients by name from anywhere within the system rather than having to perform a time-consuming client search using a unique identifier (such as a TFN or ABN).
    • Access and visibility of lodgment program statistics, allowing tax agents to keep track of their on-time lodgment performance.

    Looking ahead to the next level of change

    While there is ongoing change and much has happened since 2013, it is time for us to step up further. I am pushing for more and essentially this is about the next ‘phase’ or ‘level’ of reinvention.

    What do I mean by that?

    Voluntary compliance, or willing participation as we call it, is driven by an array of factors; as I have spoken about each year. Service, costs and ease of compliance are some of those factors, and we are continuing to drive improvements and make refinements to those as I have already mentioned. Now it is time to focus on winning hearts and minds, the key to willing participation – trust and confidence in the ATO and the tax and super systems more broadly.

    Trust that the ATO is fair in our decisions and actions, that we are sensible, ethical and empathetic, and that we support the majority of those willing to do the right thing and take firm action with those who play games or do the wrong thing.

    I was thinking about this the other day and the similarity of managing compliance is a bit like managing performance. Think about the workplace – one of the important motivators for good performers is the knowledge that those who are not performing are dealt with, and that there are consequences.

    Building trust and confidence means, among other things, that the ATO needs to hold people to account for their behaviour, whatever their role in the system. And we too need to demonstrate that we effectively manage performance and accountability of, and within, the ATO.

    We have to be open and responsive to feedback, use complaints as intelligence for systemic improvement, and work constructively with those whose role it is to scrutinise our performance, for example, the Inspector General of Taxation, the Australian National Audit Office, the Commonwealth Ombudsman, the Australian Information Commissioner, the House of Representatives Standing Committee into Tax and Revenue, and the Senate Economics References Committee Inquiry into Corporate Tax Avoidance as well as Senate Estimates hearings three times a year.

    We have to have the necessary checks and balances in our processes and procedures, and be able to assure the community that we are performing our role with the highest levels of professionalism and integrity. Our Internal Auditor, our Fraud Prevention and Investigation Unit and our recently appointed Integrity Adviser are all in place to provide an independent eye within and for the organisation. Ultimately, our Audit and Risk Committee with independent members also plays a key role in assurance about how we are doing our role.

    We also need to explain how well things are working. We need to ensure that we defend the system from unfounded, distorted or sensational commentary that has a negative impact on community sentiment.

    We need to make administrative decisions that are for the benefit of the system overall, improve willing participation, and that make sense for the long term – even when the decisions are hard to make and may involve a shift in the way we do things.

    We need to ensure that those who play a role in the system or are involved as partners in the system – IT providers, outsourced functions, digital service providers, and other suppliers are all working to the same standards and are aligned with our directions and our mantra of trust and confidence.

    Our context

    We are in interesting times to take this on …

    We’ve got the technological, economic and social developments affecting all of us – greater automation and digital business, an increasingly digital savvy population, increased use of data and data sharing between businesses, taxpayers, third parties and tax authorities, changes in patterns of work, increased globalisation and cross-border dealings, new business models, different employment patterns, block-chain, more sources of information and methods of communication available to consumers, crowd-sourced advice, policy and advice by social media, and on it goes.

    Closer to our core topic, we’ve got ongoing insatiable interest in multinationals and large corporates’ tax behaviour, policy debates about tax rates, data leaks like the Paradise Papers, renewed attention on the Black Economy, estimates of tax gaps with the release of the large market tax and superannuation guarantee estimates last year, a program of random enquiries for other markets, and the ongoing work of the Tax Avoidance Taskforce.

    In the context of our roles, how do we shape the future of tax and super, how do we ensure these systems are working effectively and that administration is fit for the globalised economy and our domestic needs? At the same time, how do we build trust and confidence in different generations and in new Australians so that they view paying the right amount of tax and meeting super obligations as the norm?

    Worldwide, people are interested in the performance of tax systems, and the performance and actions of governments and tax authorities, and the role of tax advisers and accountants – more so than ever before.

    All of us have our competence, transparency, ethics and integrity under the spotlight, as well as our longer term thinking and management of the tax and super systems for tomorrow’s success.

    To 2024 … trust and confidence

    When I finish up as Commissioner in 2024, I intend to hand over the baton and be able to say “the experience with tax and super is better. It is easier now, more digitised, more integrated with, and using data from, business and natural systems. People know and feel that complying with their obligations is not so hard, but more importantly, worth it, for peace of mind and for the satisfaction of doing the right thing. And there are consequences for those who do the wrong thing – they get caught, and are held to account.”

    You also have an integral role to play.

    Common goals

    While the role of the tax profession in the tax and superannuation systems is different to that of the ATO, the mission of the ATO is readily translatable and relevant to you.

    You too contribute to the economic and social well-being of Australians. You have the ability to influence the behaviour and attitudes of your clients and how well they participate or comply with the tax system and other regulatory requirements. Your advice and help can make or break them.

    You can help people and businesses develop good habits that will ultimately aid them in their endeavours and keep them in our good books and those of other regulators.

    The concepts in our vision are relevant for your practices too. Think about the value to your clients of offering contemporary service, expertise and integrity.

    Offering contemporary services

    While we (and others) have been contemplating the future of the tax profession, and the Inspector General is yet to finalise his review, I have no doubt it means making the most of technology and automation. Think of the broader trends in our country and across the globe. Even the government has initiated a small business digital taskforce to ensure that more Australian small businesses can thrive in an increasingly digital economy. No doubt this will apply to your clients – but it will also apply to you. How ‘tech’ and ‘dig’ savvy are you? How up-to-date are you?

    The Taskforce says evidence shows that when a small business begins to digitise and use digital tools, it creates new growth opportunities. Adopting digital technologies also helps small businesses to find talent, access finance, work smarter and enhances the value of the business when it is time to sell.

    To be known for integrity

    We are fortunate to live in a country where our tax system and our tax office are not corrupt. But just being free of corruption is not enough. When I talk about integrity, I am talking about integrity that engenders trust in others. How do we operate in a way that is beyond question? How do you show integrity in terms of your own compliance behaviour and how do you do that in terms of your clients meeting their obligations?

    Just like the broader community, we see diverse behaviours and capabilities in the practitioner community. The majority are very good at what they do and get it right, some display a lack of competence, or outdated knowledge and practices, or do not take proper care when undertaking their work; others are deliberately scamming or cheating the system.

    Just by way of example, on the last practitioner webcast we got questions about how to calculate deductions for everyday expenses like phones and clothing, and then this question: if the ATO does an audit, will we ‘ask for substantiation of motor vehicle expenses?’

    One of the comments made during the webcast was ‘I would say if you don’t claim the $300 deduction for your client you are pathetic and are a waste of time as a tax agent. You should retire.’

    I could comment here, but instead I will share with you some comments made by other practitioners on the day:

    ‘OMG some agents are asking basic questions... how did they get their licence????’ and

    ‘I think there could be much stronger action, if an agent is doing things like claiming laundry for all clients or a standard deduction, they are not fit to be Agents.’

    Let me share with you some things the data is telling us from our random enquiry program and other compliance activities conducted for the individuals-not-in-business market (9.5 million). We are continuing to see a level of incorrect claiming for deductions that is concerning – particularly in relation to over-claiming of work-related expenses.

    While the amount of each adjustment may be small, the overall impact when extrapolated to the whole population is significant. As I have mentioned previously, the work-related expenses gap is estimated to be greater than the large corporate tax gap of $2.5 billion.

    Though this is not new news, what is concerning is the different results for self-preparers and those who use an agent.

    The incorrect claiming in these random enquiries is actually worse in agent prepared returns. It would seem complacency has crept in and the three golden rules of deductions are not being observed. That is, you must have spent the money and not been reimbursed, it must relate to your work (not private expenditure), and you must be able to prove your expenditure if asked.

    These results are really disappointing. For years I’ve heard how tax agents were guardians of the system – these random enquiry results tell me this is not the case for some agents. They are not fulfilling their duty as a registered tax practitioner in line with the Tax Practitioners Code of Conduct. In reality, they are selling their clients short – they are not bringing their expertise, nor taking care beyond reliance or blind acceptance of information given by clients, or even, leading clients to deductions that are not allowable. Tax practitioners are meant to take steps to ensure the information is accurate and complete, and claims can be substantiated, and it would appear this is not always happening.

    I understand that agents want the best for their clients, and that they are also competing for business. But not doing the right thing might be a “sugar hit” for your clients in the short term but in the long run is not good for your clients, not good for the profession and not good for the system. High integrity agents encourage, enable and ensure their clients do the right thing.

    Let me turn to that now; the integrity of the system – where our actions can have a significant impact on levels of trust and confidence.

    You will have noticed an increase in our attention on:

    • Undeclared income
    • Unexplained wealth or lifestyle for individuals and small businesses
    • Incorrectly claimed private expenses
    • Unpaid superannuation guarantee
    • Concentrations of cash-only businesses or those with low usage of merchant banking facilities.

    I also want to mention the coverage and action on other parts of the system and client segments:

    The Tax Avoidance Taskforce continues to achieve results in engagement, assurance and revenue in the markets of multinationals, large companies, high wealth individuals and their associated private company groups. From July 2016 to December 2017, we raised $5.2 billion in liabilities against public groups and multinationals.

    The Multinational Anti-Avoidance Law (MAAL) is having a positive impact on the behaviours of multinationals operating in Australia. Since the introduction of the MAAL in January 2016, we have identified 221 taxpayers within its scope and as at 31 December 2017, we have assured 179 taxpayers and have 42 ongoing MAAL engagements; 38 multinationals have brought, or are in the process of bringing, their Australian sourced sales back onshore. As a result of the restructures, we estimate $7 billion of additional income per annum will be returned to the Australian tax base.

    Building on the decision in the Chevron case, our Practical Compliance Guideline (PCG) 2017/4 on cross-border related party financing arrangements has encouraged taxpayers to work collaboratively with us to resolve issues and lock in the future. Already, around $80 billion of related party loans have been brought within the PCG framework, with a reduction of about $1.4 billion in interest deductions in the 2018 year alone.

    The MAAL is also having a significant impact on GST collections, $290 million of additional GST was paid in 2016–17 by taxpayers who have restructured to recognise an Australian taxable presence; an additional $206 million in GST has already been collected in 2017–18.

    As to the work we have been doing on the black economy; we visited over 2,600 businesses across eight locations last year. In the first six months of 2017–18, we conducted 5,020 reviews and audits resulting in approximately $143 million in tax and penalties.

    Briefly, on the international front, we continue leadership, contribution and participation in the OECD’s Forum on Tax Administration’s work program, including projects under the Joint International Taskforce on Shared Intelligence and Collaboration (JITSIC) such as the analysis of the Panama Papers and Paradise Papers and the identification of significant promoters of these offshore evasion schemes.

    And we are working with other agencies here and overseas to tackle tax crime under the banner of the Serious Financial Crimes Taskforce.

    Conclusion

    Before we move to questions, I want to finish up with a few final remarks.

    We in the Australian Tax Office are starting from a position of disadvantage in our relationship with people – we take money from them – which is never a great starting point for any relationship.

    But recognising that difficulty, I want the ATO to be comparable with the best of any large organisation anywhere in the world with a large and diverse client base – where people in our community, key stakeholders, partners and government have trust and confidence that we are fair, effective and efficient in carrying out our mission.

    Last modified: 15 Mar 2018QC 54778