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  • Reinventing the ATO – ready, willing and underway

    Speech by Neil Olesen, Second Commissioner, Law Design and Practice
    to the CPA Congress
    Canberra, 17 October 2013
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    What I would like to do today is to spell out for you a story of organisational renewal that is occurring in the tax office at the moment. It’s a story of many dimensions, hopefully something for everyone, as we all interact with the tax system, either as individuals, or in running a small business, or working in a large business or advisory capacity, and we certainly all have an interest in the superannuation system.

    The story begins with the Commissioners (that is, Chris Jordan and the three Second Commissioners) setting out a new long term vision for the organisation that we are now working to implement through new products and services, new business processes and cultural change. It is a change that has many dimensions:

    • A change in attitude that better reflects a service ethic and a sense of urgency and purposefulness, with modern services and technology to match contemporary expectations and practices for individuals and small business.
    • A change in the way that we connect with the community – through robust relationships and connections with the right stakeholders at the right time, and better consultation at a stewardship and issue level.
    • Work to enable substantially reduced red tape for small businesses in their tax dealings and a reduction in interactions required for individuals.
    • Greater independence in reviews and objections and greater use of independent third parties for settlements and dispute resolution.
    • A focus on leading internationally in the work to address base erosion and profit shifting.
    • A more credible voice and improved contribution in law design, advocating for change when the law is not working as intended or where the impact on the community is creating undesirable consequences.

    It’s an ambitious program and we are working methodically to put in place the structures and plans to give effect to it.

    It is a renewal that is taking advantage of the unique juncture in its history at which the tax office finds itself, having for the first time in 100 years a complete refresh of its most senior leadership team, which will be completed with the appointment of a new Second Commissioner of Taxation most likely towards the end of this year. This appointment will add to the appointments of Chris Jordan, Geoff Leeper and myself, all of whom have been appointed in the last 12 months.

    Chris as you know has a private sector background as well as broad and lengthy experience in tax policy and law development as a member of the Board of Taxation since its inception. He comes unencumbered with any baked on dispositions about the tax office's past performance or current capabilities, and an ability to bring a fresh perspective and ask ’why’ and ‘why not’ in all the right places.

    Geoff Leeper is an experienced public servant with a strong background in policy and program development as well as large scale people and corporate management, but without any prior association with the tax office in a management capacity.

    For myself, I have over 30 years experience with the tax office in any number of different positions, and I guess I bring the voice of experience from within the office, of corporate memory and context, but hopefully also with an openness to new opportunities and an enthusiasm for driving new levels of performance in the important work that we do on behalf of the community.

    Any student of organisational dynamics will recognise the significance of complete renewal at the head of an organisation. There is no more powerful symbol of change. Nor is there a better way to in fact implement change than a new leadership team committed to a single course and working in unity, articulating a cohesive vision.

    While there is still much work to do, we have sought to demonstrate our intent by moving quickly to improve a range of products and services. For example, this year for individuals we:

    • launched our first tax time app which provides easy access to a range of services such as tracking the progress of your tax return,
    • introduced a new digital magazine called taxtime for tablet devices to help with tax return preparation, and
    • and, of course, introduced e-tax for Mac, finally!

    For small business, we have:

    • implemented an after hours call back service, allowing small businesses to be in touch with us when it suits them,
    • launched an interactive online tool called Small Business Assist that gives easy access to tools that can help small businesses meet their obligations,
    • provided an online business viability assessment tool to help businesses manage their cash flow and debts,
    • given greater online access to tax office systems for advisors and BAS agents to help their small business clients, and
    • continued to offer General Interest Charge (GIC) free payment arrangements to small business – at 30 June 2013 there were around 32,000 such arrangements in place to the value of almost $700m.

    And for large business, we have:

    • put in place new arrangements for independent review and objections, separate from the compliance function,
    • increased the use of independent third parties (such as ex-judges) and the use of alternative dispute resolution,
    • begun recruitment for private sector audit professionals, lawyers and tax accountants, and
    • completed a trial of a new engagement model for private ruling requests.

    These are important developments in their own right, but also important symbols of change and some of the early wins needed to build momentum for a long term effort.

    The journey on which the tax office has now embarked is of course only possible because of the foundations we have upon which to build. But the opportunities before us are equally tremendous, and hopefully we can seize them for the benefit of all Australians. And we have deliberately taken a long term perspective, lifting our gaze beyond the next 12 to 18 months to imagine what we might be able to achieve by 2020 when our terms as commissioners begin to expire (Commissioners and Second Commissioners being appointed for seven years).

    Part of what we are doing is to deliberately ask ourselves ‘what should the tax and super 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.

    Let me give you some examples of the kind of things that we are thinking about:

    • For example, to what extent can your tax experience be tailored based on your assessed risk and complexity? Why for example should every company have to provide the same amount of information on a tax return when their level of risk and materiality is different?
    • And why don’t we tailor 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?
    • And how can we better use so-called natural systems? That is, 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 enabled software can radically reduce the compliance burden for business without compromising the quality and accuracy of information required by State and Commonwealth governments.

      Over time, payroll information could also allow the ATO to offer a single account-based view of a person’s taxation relationship with us, something that is not possible at the moment and a source of irritation for small businesses.
    • How can we reduce (or even eliminate) 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 next year (2014).

      Indeed the prototype we have developed for this new offering is looking pretty good, down to around 10 screens only from the current 140 screens in e-tax, with greatly improved navigation, and taking about 20-25 minutes to complete in our initial user testing.

      The key principle here is to use the information we already routinely receive about taxpayers affairs (for example, salary and wage income, bank interest, shares and dividends) to send the tax return to the taxpayer, rather than the current way where all we 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 within a certain period the tax return is treated as final.

      In Australia there are some reasons why we could not offer this service widely (eg 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.
    • More generally, we are keen to be offering more flexible and contemporary services. As I mentioned before, this year we have (finally!) offered e-tax for the Mac platform and we now have a relatively straightforward mobile app for Apple, Android and Windows devices. Already over 225,000 Mac users have lodged their tax return using the Mac platform and our mobile app is rating highly in the download lists. And, with an app, you get instant (and constant!) feedback about how it works and what people would like to see the app do next, so we are listening to what the users are saying. More apps will follow, especially in the small business area where we need to help small business to better comply with their tax obligations and to reduce their current high debt levels with the tax office. We’re planning a superannuation app too.

      Our future online offerings will need to be informed by user needs, and device agnostic if we are to become a more contemporary service organisation.
    • As part of our effort to offer contemporary services, we’ll be strengthening our design capability. The tax office has for many years now been an acknowledged leader in the application of so-called ‘design thinking’ to the design of the administrative elements of the tax system – a not entirely intuitive application of design, which is more typically associated (especially these days) with the design of technology products like tablets and smartphones.

      But we too are in the business of designing things, in our case administrative systems that give effect to the law, and we are as much interested in making the experience of using those systems a good one for our customers as any product manufacturer.

      We don’t pretend that we always get it right, but we do very deliberately and in a structured way engage real people in the design, testing and refinement of many of our products and services. We have a purpose built facility in our Brisbane office which allows our designers to watch people using prototypes of proposed products and services, feeding back those observations into the design of those products and services.

      But again we need to do more. As an example, we will be working directly with small business to identify irritants and unnecessary compliance costs, including giving access to a senior person in each state for small businesses to raise their concerns. We can then look to redesign processes that are unnecessarily burdensome to help reduce red tape, within the boundaries of what the law allows.
    • We are also working across government. The tax office is working with the Department of Human Services as part of the so-called Reliance Framework to bring together government services for Australian citizens. In early 2014, the tax office will be part of MyGov and registered MyGov users will be able to link their individual account with the tax office to the MyGov entry point. This will enable access to services such as ‘Tell Us Once’ for change of address, and provides a single entry point for key government services. Over time, other Commonwealth and State agencies are expected to join MyGov as well.

      As a MyGov registered user, a citizen could link their tax office account to their MyGov profile and use the MyGov entry point to access a range of ATO and other services such as Medicare, the personally controlled electronic health (eHealth) record and any other Human Services related business. When in the tax office linked account, the user can update tax and bank account details and see their current superannuation accounts, and even consolidate these into a single account. Over time, we think that using MyGov to access your tax information could include being able to complete a customised tax return via a web services model.
    • As a further point, we are continuing to use analytics more effectively. As you would expect, the tax office 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 pieces 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 increase our use of analytics to predict lodgement patterns for taxpayers, their propensity and capacity to pay in debt cases, or their tendency to object in an audit case. Having that kind of predictive capability allows us to intervene with the right kind of help or enforcement at appropriate times for the benefit of everyone. 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 tax office.
    • And finally, we are looking to drive Standard Business Reporting as an initiative to reduce the regulatory reporting burden on business. Standard Business Reporting (SBR) simplifies the business to government reporting process by providing standardised electronic reporting. It has been available for business use since 1 July 2010. Together with the Australian Business Number (the identifier) and AUSKey (the authentication token), SBR offers both a communication format and a way of re-engineering 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. SBR is now entering a substantial period of expansion, with the introduction of its standards for superannuation transactions beginning from 1 July 2013 and the tax office’s intended transition of the Electronic Lodgement Service (ELS) to SBR from 2015. To further streamline business reporting, we are working with other agencies, including the Department of Human Services and the Insolvency and Trustee Service Australia, to further expand its usage.

      Business use of SBR continues to increase, with nearly 150,000 lodgements in 2012-13, which is about seven times higher than the previous year’s total, although I should acknowledge that these figures remain below where we had hoped to be at this point. We will be continuing to focus sharply on realising the enormous potential of this important platform, not least by better explaining the benefits that it offers. That could well start by revisiting the name – SBR’s potential is less around helping to meet reporting obligations and more about removing the need to complete reports altogether through the sharing of data.

    In thinking about our future business strategy, we have been mindful not to assume that policy changes can be easily made. So, the tax office is looking at where we can make improvements to the taxpayer experience in three broad frames:

    • Firstly, working within the current legislative frame to reduce paper, streamline lodgements and provide a better experience for taxpayers.
    • Secondly, identifying simple legislative or policy changes that could make a significant difference – for example, making sure that the law properly supports electronic service of notice. Coupled with EFT transfer of your refund, we can save upwards of $20 million a year in postage and cheque costs and provide a faster, more secure refund process.
    • Finally, larger scale policy and legislative changes may be possible, but these are clearly matters for Government. But, as a delivery agency with considerable experience in the administration of the taxation system, the ATO can (and should) be prepared to offer ideas that could help progress a better tax experience and result in less red tape. Rest assured that we will do that.

    So far this morning I have focused on the kinds of dealings that can help facilitate a pain free, ‘light touch’ or ‘no touch’ experience for meeting regular tax obligations. But of course some times the interactions taxpayers have with us are of a different order, such as where a taxpayer is seeking certainty on a proposed transaction through a ruling, or where there is an audit on foot, or where there is a dispute about how the law applies. The transactions or matters involved are often economically significant, and almost always time critical.

    We are working to improve the taxpayer experience in these areas too.

    Let me start by talking about disputes, and in any large and complex system a little context is always helpful. Each year we issue something in the order of 14 million income tax assessments, and in the last year there were around 25,000 formal disputes to those assessments, less than 0.2 of 1 per cent. An even smaller number of disputes end up being submitted to the Tribunal or a court, less than a thousand last year, and only 185 ultimately ended with a court or tribunal decision.

    Now it could be tempting to conclude that this level of disputation is perhaps acceptable in such a large and complex system. But that would be to overlook that in each and every case where a dispute occurs the impacts can be significant in terms of time, cost and relationships, and that the costs are a deadweight loss. Our view is that we need to minimise disputes wherever we can, and where they do occur, handle them fairly and expeditiously, and be seen to visibly do so.

    With that in mind we have put in place, from 1 July this year a new process where we offer large corporate taxpayers that are having their income tax affairs audited a ‘fresh set of eyes’ to review the position reached by the auditors. The review is done by senior technical people outside of our compliance area and who have had no prior involvement with the audit. The process includes a case conference with both the taxpayer and auditors, and is based on the facts as discovered and disclosed during the audit. The review is done within a 12 week period.

    We have already completed our first review and the feedback has been very positive, especially in terms of the degree of independence brought to the process by the review officers. We have a further seven cases that we will complete by Christmas. The process offers a range of benefits, including faster objection and litigation processes should the outcome be an amended assessment that is still disputed. In fact, the Administrative Appeals Tribunal has indicated that matters that have been subject to this review process could be fast tracked to hearing.

    Importantly, the review process does not detract from our goal of having our best technical people involved early in audits to help determine the tax office’s position. But we will always have other, equally talented and experienced technical people, who have not been involved in the audit, available to undertake a review should the taxpayer wish us to do so.

    While this review process is currently only offered for large taxpayers on income tax matters, we will be reviewing it in the next 6 months, with a view to deciding a possible extension to other taxpayers and taxes.

    In addition to this new independent review process, the tax office is also playing a lead role in the Commonwealth with the adoption of alternative dispute resolution mechanisms, especially mediation and early neutral evaluation. It appears to be not widely or well understood that the tax office increasingly uses the assistance of former Federal Court and High Court judges, as well as other third parties, to help resolve matters without resorting to litigation. For example, we currently have over a dozen complex matters where ex-Federal and High Court judges are assisting us and the taxpayers involved to find a fair and sensible settlement within the framework of the law. And increasingly these efforts are occurring earlier in the process, rather than on the steps of the tribunal or court.

    We are also looking to extend these practices to smaller taxpayers. Earlier this year we undertook a pilot program with a small number of GST disputes where professionally trained ATO mediators who had not previously been involved in the disputes helped facilitate a dialogue, and in many cases a resolution, of the matters at hand. We are currently completing the evaluation of this pilot, again with a view to seeing how we can roll it out more broadly.

    In total, the number of settlements increased by 32 per cent in 2012-13 over the prior year, reflecting our increased emphasis on resolving disputes without having to go to litigation.

    Another important area of our administration, often especially for businesses, is the provision of advice. The tax law sets up a regime where a taxpayer can get certainty locked in for the tax treatment of a transaction by asking us to make a ruling. Naturally time is often of the essence in these cases. And so to improve our performance we have been moving away from correspondence-based, reactive processes to early engagement strategies. These emphasise open and transparent communication, are usually face-to-face and provide an upfront understanding of roles and responsibilities for each party through the process. This has been successful in substantially reducing the time it takes to respond to private ruling requests, and so makes a contribution to reducing dead weight compliance costs.

    We will soon be adopting similar early engagement practices for self objections (where a taxpayer objects to their own self assessment). Self objections comprise almost half of all objections amongst large corporate taxpayers and often take much longer to resolve as we don’t always have all of the facts.

    So, from 1 November we will be introducing a process designed in conjunction with the professional bodies and large firms that seek to achieve more timely resolution and improved service for self objections. At its heart will be a simple process so that when it becomes evident that a self objection will be lodged, the taxpayer’s advisers and the tax officer who will determine the objection can meet and discuss the information and documents required to be lodged with the objection to enable its fast resolution.

    A further way for the tax office to offer certainty to taxpayers is through the issue of public rulings. These are like private rulings, but as the name suggests they are published for the world at large, not for a particular taxpayer. Here we are also looking to substantially reduce the time taken to get our views to market. We have already made good progress over the last few years in better meeting the targeted timeframes for new rulings, but the real question is whether the current approach to public rulings – with a standard 12 month timeframe – continues to be appropriate.

    One approach could be to break an issue into its components and to produce a series of briefer tax determinations rather than a longer all encompassing public ruling that may take years to complete.

    Another approach could be to have a differentiated process depending on the nature and sensitivity of the issue. We will be looking to develop some of these ideas further in consultation with the professional bodies and others.

    In my view though the most critical thing is the identification of issues where a public expression of our views is in fact warranted to assist with certainty. This very much needs to be a joint endeavour between ourselves and other stakeholders in the tax system. Under current arrangements it seems too often to be the case that the importance of an issue does not surface quickly enough, or when an issue does surface, it takes too long to finalise a position. Collectively we can and need to do better.

    Part of the answer to that conundrum might lie in the way in which we consult and identify issues, and it’s worth me spending a few minutes talking about our consultation processes which we are also in the process of revamping.

    The tax office has openly embraced the benefit of community engagement in our administration for many years now. Our next phase in this area comprises of new arrangements that rationalises the number of ongoing committees, but provides a flexible and responsive mechanism to consult on important issues in a timely way, with the right people involved, and generating concrete outcomes in sensible timeframes. Our goal is to engage in a more focused, purposeful and timely way.

    The new arrangements we have put in place are supported through a dedicated page on our website launched in early September which allows potential matters for consultation to be raised and assessed, and for people to register to be involved in consultation processes. Already we have over 130 people registered from a range of backgrounds and disciplines.

    We have also established a Consultation Advisory Group comprising ourselves, tax professionals and industry representatives whose role will be to help ensure the new consultation arrangements work effectively. This group first meets in early November.

    Related to the new consultation arrangements, we are also revamping the way in which we bring our insights about the day-to-day operation of the tax system to bear on its design. That is, our role in tax design.

    This is a very traditional part of the work of the tax office – our position and role gives us a unique perspective in terms of being able to identify trends or issues with how the tax system is operating in practice.

    Recently we have put in place new internal structures that we think will give us the best opportunity to optimise our performance in this area.

    Nothing in these new arrangements alters the Treasury’s fundamental position as the Government’s tax policy adviser. But we are seeking to work more collaboratively with the Treasury to better prioritise and explain the issues we see, together with the supporting evidence and case studies, and accompanied by sensible and practical solutions, solutions that ideally have been developed in consultation with stakeholders. We are certainly interested in seeing if we can lever our new consultation arrangements to support this direction in those cases where consultation is possible.

    So far today I have talked about how we can improve taxpayers’ experiences of the tax system, whether they be the routine experiences of meeting regular obligations, or less routine transactions around advice, audits, disputes and consultation. Let me finish up by saying a few things about base erosion and profit shifting, an issue that has sparked public interest around the world and plenty of recent media coverage here. It is essentially an issue about how an international tax framework designed in an industrial age is struggling in a digital one.

    I mentioned at the beginning that the Commissioners are keen for the ATO to take a leading role internationally in the debate on base erosion and profit shifting. There are many dimensions to this work, and I can’t do justice to it all in the time available today. But a key contribution the ATO can make is to ensure there is a good appreciation in the international debate of how the laws play out in practice, the e-commerce business models that are in use (both in theory and in practice) and the impact that they are having. Part of this is through understanding the structures of relevant taxpayers that are selling products and services into Australia; another is through ensuring exchanges with other tax administrations to help develop common risk hypotheses, standards, guidelines and strategies for multi-lateral cooperation on compliance activities; yet another is having appropriate risk assessment filters to identify and act on immediate potential risks to our tax base.

    In the same way that multinational enterprises plan their business and tax affairs by looking top-down and across the globe to take advantage of different taxation rights and definitions, tax administrators need to operate in a similarly systemic fashion, looking beyond their own jurisdictions and working multi-laterally. The tax office is taking a leadership role in this area, and we will be continuing to bring our expertise and insights to bear, both multi-laterally with other tax administrations, and in collaboration with the Treasury as the OECD action plan is progressed through the various OECD working parties.

    In closing, I’ve given you today a fairly rapid rendition of some of the ambitions we have for our organisation and the systems we administer, with a particular focus on some of the new products, services and business processes that we have in mind. But I wanted to note that to achieve the agenda of renewal and reinvention that I have sought to explain requires not only the development of new products and services and ways of doing things, but also new skills, attitudes and behaviours. As the Productivity Commission noted last week in its report on regulator engagement with small business, ‘a regulator’s culture and attitude towards business can be as important as the content of the regulation itself’. There is much work we are doing and will be continuing to do within the tax office to address these dimensions of culture, and we understand that this work is very important to our success.

    The tax office has some exceptional foundations upon which to build, and some tremendous opportunities before it, and I hope I have managed today to give you some sense of where we are heading in our efforts to be a leading contemporary tax and superannuation administration.

    Thanks for the opportunity to speak with you today.

    ENDS

    Last modified: 17 Oct 2013QC 37423