Time for action: the ATO's electronic service strategy and Standard Business Reporting
Speech by Geoff Leeper, Second Commissioner
People, Systems and Services Group
to the Advanced Professional Solutions Annual Client Conference
Queenstown, New Zealand, 16 November 2013
Thanks for the introduction. I would like to take the time now, as I stand, to acknowledge the people whose land my feet stand upon. I acknowledge your ancestors, your languages and your songs. May it be with your blessing that we gather here today.
I am very pleased to be here today to talk about the Australian Taxation Office’s future business directions for online tax arrangements and ebusiness.
They say that death and taxes are the only two unavoidable things in life – well, I am pleased to be working on the nicer of those two activities. It’s also said that we in government should always be seeking to reduce red tape, although experience seems most often to go the other way.
Imagine if paying tax was as simple and straightforward as any other internet transaction, or if you did not have to do anything because the Tax Office sent your completed tax return to you! – I think we would all sign up to that.
I imagine you are thinking 'we have heard plenty of talk from government people about how we can make it easier for you to do this or that'.
But in this brief talk I want to leave you with some key messages about ways in which we think the tax system can be both highly effective, and also low cost (for government and taxpayers) by outlining where we plan on taking the business of taxation and superannuation administration over the next five to seven years. With the continuing influx of new technology, we have to be able to adapt our plans to the opportunities this may bring.
As part of this, I will discuss the more immediate changes for reporting to the ATO – that is, the transition from our current Electronic Lodgement Service to Standard Business Reporting – hereafter SBR.
We are all acutely aware that businesses incur significant costs in dealing with government, including reporting to government agencies such as the ATO. We know that these costs directly impact the time and resources businesses have available to do what matters most – run and grow their business. These compliance costs also affect the efficiency of the economy, restricting innovation and dampening productivity.
Increasing the productivity of our economy is one of the key challenges Australia faces going forward - if we want to improve our standard of living.
In the 1990s, the ATO developed what has become known as the Braithwaite model of compliance – under this model, taxpayers fall into four simple categories:
- those willing and able to comply with their tax obligations (most taxpayers);
- those willing but who find it difficult to comply;
- those who choose opportunistically not to comply; and
- those who have no intention of complying (hopefully, the smallest group).
I say to our people that I am in the service delivery business because the great majority of taxes paid in Australia come to the ATO voluntarily. It follows from this that we in government ought to make the process of meeting tax obligations as easy as possible, consistent with receiving the revenues warranted by the law and policy, and the prevailing economic settings.
- Our compliance arm exists to ensure that taxpayers in similar circumstances pay the same amount of tax – that is, that the ATO ensures a level playing field for all.
- The ATO has the regulatory and compliance capacity to take to task those taxpayers seeking to reduce or avoid their tax obligations, and the willingness to do so, in support of the broader objective of having all Australians value their tax and superannuation systems.
- And we are lucky in Australia to have a high degree of community support for the tax system – the OECD estimates that nearly a quarter of the net tax revenue received by the Italian government comes only as a result of compliance activity – in Australia, the comparable figure is less than four per cent, a remarkable difference that underscores the willingness of the vast majority of taxpayers to do the right thing.
- Increasingly, technology and analytics are playing a part in how we identify and deal with those seeking not to comply and we still have plenty of development ahead in this area – but already for most noncompliant taxpayers, it is already a matter of 'when', not 'if' we catch up with them.
Your conference theme is 'Time for Action' and at the ATO we wholeheartedly support that theme. This is a time for business evolution, driven by our digitised society and new technology. Acknowledging the broader trends, the ATO is deliberately taking a longterm perspective, lifting our gaze beyond the next 12 to 18 months, to ask a simple question – 'What should the tax and superannuation experience be like in 2020?'
By looking that far out, we are consciously challenging ourselves to imagine a future state where it is possible to see policy and technology changes that could radically reshape how the tax system operates.
At the moment, when you think 'innovation' you may not think of the Tax Office, or even the government, in the same moment, but I hope that is about to change.
To give you an idea of our 2020 vision, here are some of the main headlines. By 2020:
- there will be a whole-of-government account, which will provide businesses with a complete view of their taxation relationship with us;
- businesses will use software to keep their records;
- the software will automatically provide the interaction needed between the ATO and those businesses and/or their advisors for tax and government programs compliance;
- using a standard chart of accounts, developed in consultation with industry, businesses will be able to keep records, deal with their bank and meet their tax obligations;
- the use of standard business software will enable the seamless provision of the data to the ATO; and
- the ATO will use the standard chart of accounts to determine a business’s tax obligations.
In essence, through the use of business software, the records needed to run the business will automatically generate the data needed to meet business tax obligations.
At least initially, this model will be available for all businesses. Consistent with our vision to administer the tax system based on trust and transparency, we will support businesses who voluntarily comply with streamlined reporting arrangements.
However, if compliance concerns are identified, business reporting requirements could be increased based on the business’s circumstances and risk profile.
Let me be clear though, there is a lot of detail still to be worked through in consultation with industry. Achieving our full 2020 outcome is quite likely to require government policy changes. But this reform is about transforming our service delivery model to make it easier for taxpayers to comply with their obligations.
Importantly, this reform will significantly reduce compliance costs to businesses as meeting tax obligations will be a by-product of good record-keeping; and therefore the key gain is increased productivity. Its other benefits include providing greater certainty to business regarding tax obligations; reducing the administration costs to the ATO and increasing voluntary compliance with tax obligations.
Let me give you some examples of the other changes that we are thinking about:
Tailoring your individual tax return to your specific circumstances – for example, if you are 30 years of age, why does our current electronic tax form ask you to complete the label relating to the Seniors Tax Offset?
Using so-called natural systems – how can the ATO use the systems that entities use for their own business purposes to generate the information needed for tax purposes? A good example here is payroll data, where the use of standard business reporting software can radically reduce the compliance burden for business without compromising the quality and accuracy of information required by State and Commonwealth governments.
Reducing (or even eliminating) the burden for compliant individuals with simple tax affairs by generating 'push' tax returns – the ATO has substantial amounts of information about taxpayers and for those with simple returns, we estimate that on current policy settings we could initially offer a 'push' tax return for as many as 1.4 million people, and in fact are aiming to do so from 2014.
The key principle here is to exploit what we already routinely receive about taxpayers’ affairs (for example, income, bank interest, shares and dividends) to send the tax return to the taxpayer, rather than the current way where the best we can offer is a pre-fill service while still requiring the taxpayer to prepare and lodge a return each year. Scandinavian countries such as Denmark and Norway send nearly three quarters of tax returns to the taxpayer, and in Norway since 2008 there is silent acceptance – if you do not respond, the tax return is treated as final.
In Australia there are some reasons why we could not offer this service widely (e.g. some complex deductions), but over time and with some careful and creative thinking, we think we could effectively liberate around 4.5 million taxpayers from any significant response burden at tax time, including up to 2.6 million self preparers.
Offering more flexible and contemporary services – this year we have (finally!) offered etax for the Mac platform and we now have a relatively straightforward mobile app for Apple, Android and Windows devices. Already over 300,000 Mac users have lodged their tax return this year using the Mac platform and our mobile app is rating highly in the download lists. And, with an app, you get instant (and some would say constant!) feedback about how it works and what people would like to see the app do next, so we are listening carefully to user feedback.
More apps will follow, especially in the small business area where we need to help small businesses to better comply with their tax obligations and to reduce their current high debt levels with the ATO. We’re planning a superannuation app too.
Our future online offerings will need to be informed by user needs, and be device agnostic, if we are to become the more contemporary service organisation we aspire to be.
Working across government – the ATO is working with the Department of Human Services to bring together government services for Australian citizens. In early 2014, the ATO will be part of MyGov, which provides a single entry point for key government services, including Medicare, the Personally Controlled e-Health Record and other Human Services-related business. Over time, other Commonwealth and State agencies are expected to join MyGov.
Registered MyGov users will have access to services such as 'Tell Us Once' for change of address, and will be able to update tax and bank account details and see their current superannuation accounts, and even consolidate these into a single account. From Tax Time next year, we expect to be offering a streamlined tax return for individual taxpayers with simple tax affairs using MyGov to access your tax information via a web services model. We anticipate that as many as 1.4 million individual taxpayers could use this service next year.
Using analytics more effectively – as you would expect, the ATO holds vast amounts of data and receives large amounts each year. Our data warehouse currently holds over 20 terabytes of data and is growing at over 20 per cent a year; we receive over 500 million transactions of data each year from third parties. Our challenge is to organise all this data in such a way that analytics programs can find the key bits of information that will help us target our activities and programs in the most efficient way.
We are already using analytics to automate some high volume processes, to make automatic corrections in data supplied to us by taxpayers, and to mine large amounts of textual information to find the nuggets of value from a compliance and business management point of view.
We have an opportunity to improve our use of analytics to predict lodgement patterns for taxpayers, their propensity and capacity to pay in debt cases, and objections from audit cases. There is much more to do here, but analytics will play a key role in supporting our intended move to more real-time, online taxpayer interaction with the ATO.
Lastly and perhaps most relevant here, we are looking to drive Standard Business Reporting as an initiative to reduce the regulatory reporting burden on business.
Standard Business Reporting – or SBR – simplifies the business to government reporting process by providing standardised electronic reporting. SBR is comprised of three key capabilities:
- the SBR online gateway, which enables reports to securely pass between business and government (in both directions);
- the SBR taxonomy, which provides a single reporting language; and
- the AUSkey credential, which provides a single secure logon for business.
SBR has been available for business use since 1 July 2010. Together with the Australian Business Number as the identifier, SBR offers both a communication format and a way of reengineering business processes to streamline reporting and reduce the cost to business of complying with tax and other government policies.
The initial implementation of SBR was focused on financial and payroll reporting. But SBR is now entering a substantial period of expansion, with the introduction of its standards for all SuperStream transactions in 2013-15 and the ATO’s intended transition of the Electronic Lodgement Service to SBR from 2015-16. To further streamline business reporting, the SBR program is working with other government agencies, including the Department of Human Services, to expand its usage.
Business use of SBR has significantly increased in this financial year with the introduction of SuperStream Tax File Number Integrity Checks – or SuperTICK. Across the 2012-13 financial year, there were nearly 150,000 lodgements using SBR, but already this year, there have been more than 750,000 transactions by the end of September. The vast majority of these have been SuperTICK checks supporting member transactions and we estimate that 3.2 million such checks will be undertaken by the end of this financial year.
For business, SBR offers significant benefits.
- In 2012, the Australian Government Productivity Commission estimated the potential benefits of SBR to business, under the program’s initial financial reporting scope, to be in the order of $500 million a year based on 60 per cent take-up.
- SBR means businesses will spend less time and money on reporting, which allows them to focus on core business activities, thereby increasing productivity.
- SBR can deliver benefits to business by:
- reading the financial data in a business accounting system;
- pre-filling forms with the required information;
- allowing the business to check for accuracy; and
- delivering the forms to the agency through a safe, secure online channel.
- While the present Electronic Lodgement Service allows the one-way flow of information from a business to government, SBR allows the two-way flow of information and also supports much more flexible data management and reporting formats.
- As the data used in reporting via SBR is more consistent and integrated with natural business processes, it can also improve compliance outcomes.
- In addition to reducing reporting burdens, SBR also provides opportunities for large business to improve its internal reporting. It can assist with the challenges faced by large business with complex corporate structures, with many reporting entities; and possibly the need to source data from multiple software applications.
- Businesses can realise internal efficiencies, because SBR uses an international accountants’ reporting language (Extensible Business Reporting Language, or XBRL) which offers tagging of data at its source; and uses a consistent definition of terms. The XBRL data can be re-used internally for value-add activities, with enhanced analytical capabilities and re-use of the data for internal management and decision making.
- Fundamentally, SBR offers benefits commensurate with the redesign effort put in by a company.
- ITP example here – web form that is rekeyed into ELS could be replaced by an 'all the way through' SBR process that could be edited prior to submission.
Intermediaries, including bookkeepers and accountants, can also benefit from SBR with a reduction in the time they spend on gathering, analysing and assembling data for their clients. It also reduces potential input errors from manual entry, as much as the information will come from the intermediaries’ business’ systems and government records.
An example of the demonstrated benefits from SBR can be seen in Price Waterhouse Coopers’ tax integration project using SBR.
- Its Private Clients practice prepared approximately 4,850 tax returns. Each accountant spent on average approximately 1 to 1.5 hours rekeying data and manually preparing work papers from internally or client prepared financial statements.
- When using SBR, it estimated savings of $1.8 million per annum in non-value added time.
A Deloitte Digital pilot demonstrated similar benefits – it showed an 82% saving in time for the preparation of financial statements from SBR.
As I mentioned earlier, since 1 July 2013, there have been a significant number of SuperTICK checks using SBR. The CEO of the Association of Superannuation Funds of Australia estimates 'that the use of the SuperTICK service, when replacing the manual processes previously used to verify member details for rollover purposes, offers potential savings of around $40-$50 per transaction for successfully matched member details. This, together with the maximum three day processing time delivers real benefits for fund members which will ultimately improve their retirement incomes.'
SBR also delivers benefits to Government, with more efficient reporting, and improved accuracy and reliability of reports, which can reduce the cost of managing business non-compliance. SBR is also key infrastructure which can be re-used in many ways.
We are looking for willing partners to help us demonstrate the benefits of SBR in very practical ways that will build the credibility of SBR as a way of doing business with government. And we want feedback on your experience with SBR.
As I have mentioned, the ATO is committed to providing contemporary services that make complying with taxation and superannuation obligations as easy and as cheap as possible. We want to work collaboratively with technology partners, software developers and tax practitioners to achieve this outcome. We are committed to using whole-of-government approaches, such as myGov for individuals, and SBR for business transactions, but we are also open to advice on the role emerging technologies can play.
While SBR has been available to the market since 2010 and takeup is increasing, recent developments such as the rise of mobile computing, cloud computing and the ongoing need to support large-scale data exchanges may require consideration of a wider range of transmission methods and messaging formats for SBR than are currently being used.
At the time the Electronic Lodgement Service was introduced in the late 1980s, it was a contemporary service offering. It provided the first automation of income tax return processing, which allowed tax agents to complete and lodge tax returns electronically.
However, since the 1980s, we have seen significant advances in technology and it is safe to say that the Electronic Lodgement Service is no longer a contemporary offering.
The ATO therefore intends to transition from the Electronic Lodgement Service to SBR from 201516. The Electronic Lodgement Service will be switched off. While the lodgement experience with SBR could be much the same as ELS, the ATO is hopeful that software providers will pick up the chance to use SBR to streamline aspects of the business process flow.
For businesses, the ATO will deliver taxpayer services in the following ways:
- As I mentioned earlier, we will co-design with software developers and accounting industry representatives to prepare a standard chart of accounts that will cater for the majority of small and medium size businesses to assist them in meeting tax and reporting obligations. Through software vendors, the standard chart of accounts will automatically generate the information required for tax reporting purposes and be transmitted to the ATO at the appropriate times using SBR and Extensible Business Reporting Language (XBRL). The ATO will be open to direct provision of that software and also to third party provided and hosted solutions.
- We intend to provide support through online services such as our Small Business Assist banner, to help a small business more easily meet its tax payment and reporting obligations. Our preferred standard for the transmission of small business tax returns will be SBR/XBRL/Electronic Business eXtensible Markup Language Messaging Services (ebMS).
- For larger businesses, we will work with software providers to ensure that software packages use SBR/XBRL to streamline the effort required to prepare ands submit tax and reporting information to the ATO and other government agencies. For transactions involving high volumes of data (either high volumes of one to one data exchange or bulk data uploads), the ATO will support the provision of that data via a limited range of formats including Extensible Mark-up Language (XML), XBRL and Bulk Data Exchange (BDE) formats.
- In the superannuation sector, we will use SBR/XBRL/ebMS to support open two-way communication between super funds and the ATO, between funds themselves, and also between employers and funds. This implementation is already underway for fund-to-fund rollovers and work on ensuring that relevant messaging standards can interact is underway.
For tax practitioners, we are committed to providing a better service integrated with business software. We recognise the fundamental importance of the Tax Agent Portal to tax practitioners’ business and seek to improve upon the current service by taking advantage of new and emerging technology.
- We are in the process of enabling, from July 2015, the transmission of tax return data via SBR.
- We will consult and co-design with the Tax Practitioner community about the future of the highly valued Tax Agent portal, to ensure that our business directions reflect the business needs of this group. One option we will explore in ensuring practitioners have a better interaction in relation to their clients’ tax affairs, is whether, in a world of a common computer language, the current functionality of the Tax Agent Portal could be more effectively provided through direct software packages from the developer market.
The ATO will always provide software for those taxpayers wishing to prepare their returns, but for software developers, the ATO will:
- make available to the broader software market the streamlined income tax lodgement services to develop an income tax lodgement offering directly from individuals;
- develop all services so they are able to be made available as retail (i.e. directly from the ATO) or wholesale (for software developers to consume and make available); and
- support the outcome of simplified services for business taxpayers allowing both ATOsponsored and third party software services.
Returning to the theme for this conference – 'time for action'. What I have outlined today is a significant change agenda for the ATO, but it is a necessary change.
As you have heard today, the ATO wants to completely transform the way we work with you. We could continue to improve our existing services, but with the dominance of the internet, social media, cloud computing and broadband, we will need to get ahead of the technology wave in order to meet our clients’ needs.
For some of you, these changes will be immediate and unpredictable, while for others these changes will be gradual and less obvious; and for some it will be the catalyst to innovate your business.
I encourage you all to be in the latter category – innovators.
Recently, the president of the Institute of Chartered Accountants of Australia said 'I am now full bottle on digital innovation and how it’s impacting professional services and the accounting profession, as well as the opportunities it presents for all of us.'
This digital innovation is just an extension of the computing and online advances of the past few decades, for example – email, mobile phones or even recently tablets.
There are many examples of businesses, large and small, that have not kept across the rapid pace of change and technological advancement. The harsh reality is that many are no longer in business.
My purpose here today has been to be 'upfront' and let you know our thinking and to start a dialogue with you. And no doubt this will be the beginning of many conversations.
There is no denying technology plays a significant role in your businesses, and going forward, it will play an even greater role. It is time to think about how you will evolve your business with the changes that I have outlined today – how will you maximise the opportunity? This opportunity is not just about the adoption of technology, it is about transforming the way financial and other services support your business objectives and re-shaping your business model.
I hope these brief comments have outlined our intention, and our determination, to improve the tax experience in Australia and our willingness to look 'outside the square' in developing solutions.
Thank you for your time and your attention, I hope this has been an interesting speech for you to hear, and my thanks again to Advanced Professional Solutions for inviting me to speak here today.