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  • Risk-assessment processes

    To maintain our service offers and address perceived compliance risk, we prioritise how we apply our resources.

    Among intermediaries and specific client segments, we consider the distribution of perceived risk throughout various populations. This helps inform and influence our choice of response in a coherent, considered and consistent way. We derive our approach from our compliance model, in which the intensity of our response should be based on perceived attitudes to compliance.

    Over a number of years, we have developed risk-differentiation processes in our compliance approach to income tax and goods and services tax relating to large businesses and small-to-medium enterprises. We have applied similar processes when looking at intermediary populations.

    On this page:

    How our processes work

    We take a risk-management approach to compliance. We differentiate our engagement with you and your clients based on our view of the:

    • relative likelihood of non-compliance and how much we can influence this
    • consequences of any potential non-compliance.

    By differentiating our response, we can apply a range of treatments proportionate to risk we perceive. This may mean we contact you to discuss matters of concern to us.

    To date we have sought to understand the influence of intermediaries on the compliance level of their clients. We have then considered how, with intermediaries, we might apply this knowledge to influence willing and proper participation by taxpayers. By considering the perspective of intermediaries, we believe we can better target our support, engagement and compliance activities.

    This means where you have a clustering of clients who, based on data we hold, appear different to a norm or to third-party information, we may approach you to understand and work through issues.

    We aim our interaction at correcting non-compliance where we find it, and improving our understanding of your processes and the taxpayers you represent.

    Our risk picture changes frequently as we consider new information and alternate data sources, the churn in taxpayers you represent, and the ongoing reporting information we receive. We will generally take snapshots of the risk landscape at points in time to aid our understanding of compliance in the tax and superannuation systems.

    Applying risk methods to intermediaries

    We take many approaches to risk, including the 'likelihood' and 'consequence' concepts detailed above. We have also considered other ‘linear’ approaches for intermediaries. These include direct peer-group comparison, where we look for outliers from a norm, or individual performance against working tolerances or thresholds – for example, addressing compliance with lodgment programs; after consultation with practitioners, we adopted the 85% threshold for on-time lodgment.

    The 'likelihood' and 'consequence' approach helps us to cluster populations which can assist our thinking on how we direct our resources to areas of risk.

    For this approach, we analyse a population and for each participant we establish the likelihood of their actually, or potentially, engaging in or facilitating non-compliant behaviour or actions. We then consider the consequence of that behaviour or action relative to their peers.

    One measure of 'consequence' we use is the scale of influence an individual intermediary wields – demonstrated by practice size or, alternatively, the value of tax revenue they control. From these measures we are able to group intermediaries of like consequence into cohorts on a 'consequence' scale.

    We derive 'likelihood' measures in a number of ways. Generally we look at ratios of participation by a client base in certain risk settings, dependent on the parameters we apply to the population. Ratio comparison among peer cohorts or to a norm or tolerance setting can be used to identify deviations within the population. Comparing ratios or deviations to peer groups allows us to determine approximate ‘normality’ for a particular risk picture. We can use this determination of ‘normality’ to test our tolerance or acceptance of an issue manifesting through intermediary practices.

    Overlaying 'likelihood' and 'consequence' risk measures allows us to group population participants. A participant's location relative to the population can help us decide how we engage with them.

    Our risk approaches will continually evolve to keep pace with the changing intermediary environment. We will continue to work with you and other parties to pilot initiatives and explain our processes.

    Information we use to assess risk

    We collect a large volume of transaction and reporting data through our general operations. This data comes from forms we receive, third parties, internal and external referrals and escalations and other information we hold, including through prior dealings with you or your clients. This wealth of information helps us make decisions about tax and superannuation risks and where to devote our resources for maximum effectiveness.

    In many cases we are looking at specific parts of information or transactions to form a decision regarding a particular facet of risk – for example looking at specific amounts reported at key form labels and comparing it to third-party information.

    In other cases we may have an interest in the individual client, or collective practice reporting pattern, against a specific label or collection of labels on a form and the deviation of that reporting from a population average. Where we observe particular concentrations of abnormal patterns within a practice, we may approach that intermediary to understand why.

    While we rely heavily on reported data in our analysis, we can and do moderate our findings with non-empirical and historical information. We can take into consideration the frequency of our contact with you, be that service driven or compliance focussed, and the outcomes of that contact. Additionally, we can use information we receive from third parties to inform our understanding of an intermediary. This information could come from the community, other intermediaries or through referrals from a regulator.

    While no one factor alone will generally prove definitive in forming our opinion of your practice or a particular issue, we consider each input in light of the whole, with respect to your practice and the broader population.

    Deciding on an individual or group approach

    In some situations, dealing with multiple client issues at the same time is more efficient for us all than attempting to address individual matters one at a time.

    Individual contact may be suitable in some instances, particularly relating to complex transactions or clients who appear in multiple risk views. For bulk or recurring issues (for instance, bulk non or late lodgment/payment within a single practice), dealing with the issues in bulk tends to minimise compliance costs for all parties involved.

    Applying risk treatments to intermediaries

    The treatment strategies we apply cover a broad spectrum of compliance behaviours. They range from support and education for those willing to do the right thing (our lowest risk intermediaries), to using the full force of the law on those who deliberately choose to avoid their obligations (our highest risk intermediaries). Through these strategies we protect revenue, the integrity of the system, and our clients.

    We address key areas of risk including:

    • identifying and coordinating effective, differentiated treatment strategies for those agents who do not participate appropriately in the tax and superannuation system, in order to protect revenue, the integrity of the tax and superannuation systems and our clients and to support a level playing field for the profession
    • focusing on those tax practitioners whose personal standards in meeting their own tax and superannuation obligations, such as correctly reporting their income, paying their liabilities and lodging their returns in a timely manner, are below the levels their profession and the community expect
    • reminding tax professionals that the relationship between us and the community is based on mutual trust and respect, and we ask that tax professionals treat our staff with the same courtesy, consideration and respect that is given to them
    • supporting and assisting agents with long-term poor on-time lodgment performance through our guided lodgment program, along with targeted interventions, with the aim of engaging agents, understanding their circumstances and working with them to improve their performance for the next lodgment program year

    See also:

    Managing client issues

    We try to identify specific instances, or potential areas of concern, where you may be experiencing difficulty in managing or reporting on your client’s obligations.

    In many instances this results from an intermediary's lack of experience or expertise in managing specific tax and superannuation events. It can also arise from an intermediary having insufficient resources or administrative processes to manage issues within a client base. In some situations a practice may have a high concentration of clients with unique attributes that do not conform to normalised testing results.

    In recent years we have engaged with intermediaries to manage:

    • on-time lodgment of client returns, focussing on individual performance relative to established performance benchmarks agreed in consultation with the profession
    • correct reporting of form labels, with a particular emphasis on under-reporting of income by participants in the cash economy, patterns of work-related expense claims by individuals and higher risk income tax returns. In each of these programs we measured practice participation rates and/or claim patterns against groups of like intermediaries. We followed up those we identified as sitting outside the norm for further action to understand that behaviour
    • correct reporting on regulatory and income tax matters for self-managed super fund clients, as well as conducting approved auditor competency checks and reviewing their compliance with their own obligations
    • promotion of schemes or taking of aggressive positions on the operation of tax laws
    • income tax and other debts arising within a client base.

    Using a variety of analysis methods, including risk-differentiation thinking, analytic business models and expert business rules, we identify intermediaries we can approach to better understand what we are seeing in our analysis, or to address perceived compliance risks we are observing in their clients.

    We are increasingly aware of attempts by third parties to use the services of tax intermediaries to mask non-compliant or fraudulent action. We have observed this in relation to both income tax and activity statements.

    We use a variety of risk detection processes, as well as community and intermediary referrals to manage risks associated with fraudulent activity. We publish and promote material to help you reduce the risk of fraud occurring in your practice.

    See also:

    Intermediaries and their own tax affairs

    Under the Tax Agent Services Act 2009, intermediaries are required to comply with tax law in their personal tax affairs.

    Under some of our work programs we consider your personal lodgment, reporting and payment arrangements as part of our risk-assessment processes. Where you need to take action we will contact you to seek action or advice.

    We also focus on the compliance of professional firms, particularly where the structure of a practice influences tax or superannuation outcomes.

    Right of review

    Our internal risk assessments do not carry rights of objection or review under legal review processes.

    Risk assessments are dynamic views we derive from information available at points in time. Our views are therefore subject to change as we gather new information. While these views may inform our decision on whether to interact with you, they do not dictate the specific response we may make. Our internal risk views do not mean we are asserting non-compliance.

    We do not publish our internal risk views about specific individuals or entities. In forming our view, we may raise specific issues directly with the interested party, with the intention of making our position known and encouraging open and frank discussion.

    If we do choose to engage on a matter, you and your clients have a right to dispute our underlying assumptions. To aid timely resolution of a matter, you may present new information we may not have considered in our original deliberations.

    Confidentiality of risk views

    We are obliged by law to not to disclose any information we have which could identify you or your practice.

    In some circumstances, the law allows us to disclose information about you or your practice to other regulators for specific purposes. Generally, this will be in the form of underlying administrative data and outcomes rather than our internal views on risk.

    See also:

    Dealing with matters arising from our interactions

    During the course of our interactions with you, or other parties, we may identify information or behaviours which cause us to consider further action is warranted. This may take the form of internal referral or escalation or, alternatively, referral to one of our partner agencies for advice or action.


    Internal referrals

    Aggressive tax planning, avoidance and promotion

    If, in the course of our duties, we identify concerns that you may be promoting contestable schemes or other arrangements we believe may contravene an Act we administer, we may refer that matter for further review under the promoter penalty regime.

    The promoter penalty regime seeks to deter:

    • the promotion of tax avoidance and evasion schemes
    • the implementation of schemes that have been promoted on the basis of conformity with a product ruling, in a way that is materially different to that described in the product ruling.

    See also:

    Managing phoenix, tax evasion and shadow economy activity

    Where we identify behaviour or activities which we believe are representative of phoenix, tax evasion or shadow economy activity, we may refer that matter for further investigation. In cases warranting it, we may refer the matter for administrative or criminal prosecution.

    We maintain a special focus on areas where these behaviours are particularly evident, including the cash economy, international tax evasion, refund fraud, tax avoidance schemes and organised crime.

    See also:

    External referrals

    Tax Practitioners Board

    While there is a clear separation of responsibilities between the ATO and the Tax Practitioners Board, both parties help maintain community confidence by promoting a capable and well-regulated tax profession.

    Where we identify intermediaries who we suspect operate contrary to their obligations under Tax Agent Services Act 2009, we will refer them to the board for review. A breach of the law may fall within the following categories:

    • there is evidence or information that a registered agent may have breached the Code of Professional Conduct or no longer meets the ‘fit and proper’ requirements to remain a registered agent
    • there is evidence or information that an unregistered entity has provided a service for a fee or other reward, advertised that service or otherwise presented themselves as a registered intermediary.

    We may also support the board by providing information we hold to aid investigations they may have initiated into the conduct of intermediaries. We may also use this process where we require information the board may hold in relation to a matter we are investigating.

    Find out about:

    • ATO information exchange with Tax Practitioners Board

    Australian Securities & Investment Commission

    The Australian Securities & Investment Commission (ASIC) is responsible for the registration, licensing and regulation of some intermediaries including those conducting a financial services business and approved self-managed superannuation fund (SMSF) auditors.

    Where we identify intermediaries who we believe to have acted contrary to their regulatory roles, we may refer those entities to ASIC for further investigation and action. We do not undertake an enforcement role in these situations as responsibility for enforcement falls to ASIC.

    Last modified: 01 Jul 2019QC 53939