Overview of total revenue effects
Total revenue effects (TRE) is one indicator we use to monitor and understand how our engagement activities impact the performance and operation of the tax and super systems. It's a measure of the impact our activities have on improving taxpayer compliance.
Total revenue effects is a combination of revenue from:
- correct reporting of compliance activities
- preventative actions
- incorrect claims stopped
- audit activities
- sustained compliance
- lodgment compliance activities
- lodgment actions
- sustained lodgment compliance.
Preventative actions
Preventative actions is the estimated additional tax paid voluntarily by clients as a result of the preventative activities we undertake to improve compliance without corrective action. For example, prompts we make to clients to help them understand and meet their reporting obligations before lodgment.
When we measure preventative actions, we ensure there is a clear connection between our activity and the change in taxpayer behaviour. This connection and our assumptions that underpin it must be reasonable and defensible.
Audit actions and incorrect claims stopped
Audit actions is the collection of liabilities, including penalties and interest, directly connected to adjustments we make through our audit actions after the client has lodged to ensure the right amount of tax and super is assessed and paid.
Incorrect claims stopped is the value of overpayments that we stopped or reduced through our audit activities after a client has lodged, and before the return is processed and a refund is issued.
Sustained compliance
Sustained compliance is the estimated additional tax paid voluntarily by clients in the reporting periods following an initial compliance action (that occurs after the client has lodged). This additional tax paid is due to improvements in voluntary compliance.
When measuring sustained compliance, we ensure there is a clear connection between our activity and the change in taxpayer behaviour. This connection and our assumptions that underpin it must be reasonable and defensible.
Lodgment compliance
Lodgment compliance is revenue associated with our lodgment activities. We undertake these activities to improve or enforce the lodgment of due returns and statements. Sustained lodgment compliance then measures the impact of future lodgment compliance following these interventions.
Significant refund
Taxpayers can dispute the decisions of ATO compliance actions. These disputes are managed through the objection or litigation pathways.
A significant refund represents the amount that is repaid to taxpayers from resolved disputes in the reporting period that relates to a previous collection, from a compliance action, reported in a prior year.
Note: All revenue categories are reported on a cash rather than accrual basis. This recognises the impact of our activity when the additional revenue is paid by, or in the event of the refund, refunded to the taxpayer.
Method used to measure TRE
Our current methods are designed to:
- estimate the revenue effects of improvements to compliance over time
- follow our engagement with taxpayers and their registered tax or BAS agents (including corrective and preventative work)
- exclude outlier cases, which include mistakes or deliberate fraud of such high value that our automated risk detection processes stop them – these figures are excluded to avoid distorting the true impact of our discretionary action.
We subtract from the annual overall total revenue effects figure for any significant refunds paid during the year because of the resolution of litigation or objection activity where:
- it's in the client's favour
- it can be linked to a prior year specific compliance outcome
- the revenue effect was counted within total revenue effects in a previous year.
Results of our engagement activities
In 2024–25, the gross total revenue effects from our engagement activities totalled $18.6 billion, against our target of $16.0 billion. We also refunded around $100 million that was reported as a revenue effect in a previous year, resulting in a net total revenue effect of $18.5 billion.
Additional revenue commitments of $71.9 million for the 2024–25 financial year were announced after the total revenue effects target had been set at $16.0 billion. With these additional commitments the target would have been $16.1 billion. Our revenue estimate has exceeded this revised target.
|
All taxes |
2021–22 |
2022–23 |
2023–24 |
2024–25 |
|---|---|---|---|---|
|
Total revenue effects ($ b) |
$14.9 |
$20.3 |
$18.5 |
$18.5 |
|
Audit actions and incorrect claims stopped($ b) |
$7.9 |
$7.7 |
$8.6 |
$8.3 |
|
Preventative actions and sustained compliance ($ b) |
$1.7 |
$6.6 |
$3.3 |
$3.4 |
|
Lodgment compliance ($ b) |
$4.2 |
$4.4 |
$4.8 |
$4.7 |
|
Sustained lodgment compliance ($ b) |
$1.1 |
$2.2 |
$1.9 |
$2.2 |
|
Significant refunds due to objections or litigation ($ b) |
n/a |
-$0.5 |
-$0.1 |
-$0.1 |
|
TRE Portfolio Budget Statement (PDS) target ($ b) |
$15.0 |
$15.0 |
$15.0 |
$16.0* |
*PDS published target is $16.0 billion. Additional revenue commitments of $71.9 million were announced after the target was published.
Limitations of TRE
Measuring total revenue effects is complicated. There are technical limitations involved in establishing defensible causal connections between our engagements with taxpayers and any improvements to compliance.
Even when we establish a causal connection, it can be difficult to understand and identify where our activities resulted in a revenue effect outcome or an unrelated external factor.
Some of our estimates rely on the use of statistical methods which have inherent variability, and we work to improve the reliability of our methods over time.
We do not estimate a revenue effect for several compliance strategies and treatments where we are yet to develop reliable methods.
Changes to our methods
Statistical methods we use to estimate components of the total revenue effects may be subject to revision or improvement because of new or refined methods. We continually review our methods to better understand our impact on improving voluntary compliance.
In 2024–25 the GST, PAYG withholding and Companies models were reviewed as a part of our continual review process.. The outputs of these models all contribute to the prevention and sustained compliance revenue effect category.
A future focus area is to increase our measurement capability to keep pace with new system based integrity measures which are designed to prevent, detect and treat fraud as well as increase data driven upstream activities that support taxpayers to correctly comply at lodgment. We are exploring ways in which we can measure these upstream and fraud detection and prevention strategies in our revenue estimates, and as this progresses, we expect to see these outcomes increasingly included in the TRE target and estimates from 2025–26.
We also expect to introduce a new way of reporting lodgment revenue effects from 2025–26. This new approach builds on a randomised control trial to determine the efficacy of lodgment enforcement actions. This trial provided lodgment behaviour insights establishing evidence for the counterfactual that some taxpayers self-remediate by lodging overdue returns even when they have been subject to some sort of lodgment action.
This new approach addresses one of the issues identified by the Organisation for Economic Co-operation and Development (OECD) guidance on measuring tax compliance outcomes which states the lodgment (or filing) outcomes can be measured reliably but outcomes are not necessarily directly attributable to an agency’s actions. The OECD guidance suggests developing a counterfactual position to what would have happened without the revenue body’s activity or intervention.