To more accurately target non-compliant taxpayers and reduce the number of compliant taxpayers being audited, the ATO should consider improvements including:
- examining completed correspondence cases to identify whether additional useful predictors of underreporting and/or compliance exist and use such predictors to refine the risk identification process, and
- implementing strategies to exclude compliant and low risk taxpayers from correspondence audits at the earliest point possible.
We agreed with this recommendation and implementation was completed on 28 August 2014.
A review was conducted on cash economy and correspondence audits and lodgment enforcement cases.
The review did not reveal any additional predictors of risk in the information reported by the taxpayers. However, the lodgment behaviour of a taxpayer was identified as a predictor of risk for subsequent incorrect reporting by taxpayers. The teams responsible for cash economy will work more closely with the lodgment areas on matters relating to businesses in the cash economy population with poor or unusual lodgment behaviour.
The review did identify that there may be value in securing additional types of third party data for inclusion into case selection models.