Risk assessment and engagement

Here you'll find information about how we work with you and other intermediaries to help your clients manage their tax and super affairs, and our approach to risk assessment and compliance issues.

Working with you

By working collaboratively with tax professionals and other intermediaries to help taxpayers comply voluntarily with their tax obligations and maintain the integrity of Australia’s tax and super systems.

Our relationship with you allows us to:

  • understand the changing nature of risks in the tax and super systems
  • identify new and emerging threats or areas of concern
  • consult, collaborate and co-design on issues of importance.

A cooperative approach

Through our dealings, we seek to maintain a mutually beneficial, open and cooperative approach.

We will always have a purpose when we seek to engage with you. In the majority of instances, it is to provide you or your clients with advice or support to help you understand and comply with an aspect of the tax and superannuation system.

In other instances, we will be seeking your views to help us pilot new approaches or co-design new processes.

However, there will be occasions where we will need to engage with you, your clients, or both of you, to understand and manage potential compliance issues.

In these circumstances, we will openly and directly discuss our concerns with you and seek the necessary information or action from you or your clients to help finalise our enquiries. Where our concerns are addressed through additional information you provide, we will close our enquiries as soon as possible in order to minimise the compliance costs to you and your clients.

This relationship is two-way. You can expect that we will:

  • follow agreed guidelines when contacting you or your clients
  • be open and honest about our intent for engaging with you
  • provide relevant materials to support our interaction with you
  • seek to conclude our enquiries in a timely manner.

As a representative of your client, we expect you will:

  • work with us to arrive at mutually agreeable outcomes
  • consult with us to aid our understanding of a matter, or to design new processes that improve our administration of aspects of the tax and superannuation systems
  • deal openly and frankly with us about your client’s affairs, within scope of any applicable privilege or concession governing sharing of information.

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Engagement channels

We engage with you through a number of direct and indirect means. We tailor this engagement to the nature of the conversation we are seeking. The following broadly covers the types of engagement approaches we may undertake.

Consultative arrangements

Consultative forums and other working groups can provide you with a direct voice into the ATO, consulting with our senior leaders and technical specialists on significant new and emerging matters, helping us in design products and services that affect your clients and your practice.

Our services

We provide a range of services and support to help you manage your practice and your clients to meet their tax and super obligations. We deliver our services in many ways, including:

  • dedicated segments of ato.gov.au for tax and super professionals
  • news and alert services
  • secure online services to help you manage your clients' affairs
  • phone service using Fast Key Codes to stream your call where it needs to go (for registered agents only)
  • publications and online tools to support you in your role
  • inbound and outbound paper and electronic correspondence channels
  • specialised assistance services.

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Our approach to compliance

As our tax system is based on self-assessment and cooperative compliance, we prefer to work with you and your clients in a way that supports voluntary compliance.

We will seek your help where we perceive compliance issues in your clients’ affairs. This will generally result from our risk-assessment processes where individual clients, or groups of clients, attract our attention in relation to:

  • registering correctly
  • lodging on time
  • reporting correctly
  • paying on time.

We may also contact you directly where we hold concerns about aspects of your own tax or superannuation affairs.

Our compliance activities cover a broad spectrum, from supporting and educating those willing to do the right thing to using the full force of the law on those who deliberately choose to avoid their obligations.

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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.

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How our processes work

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

  • relative likelihood of non-compliance or relative influence over the likelihood of non-compliance
  • consequences of any potential non-compliance that arises as a result of a taxpayer’s compliance posture.

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.

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.

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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.

Managing information security

We continue to promote the need for intermediaries to manage the security of client and personal records, and access to our online services. Intermediaries have reported us increasing instances of physical and cyber break-ins which have led to loss of client data and compromise of client identities. Some incidents result from a lack of understanding of basic security practices or basic procedures such as proof-of-identity checks.

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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.

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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.

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Managing tax evasion and crime

Where we identify behaviour or activities which we believe are representative of tax crime, or other forms of serious non-compliance with the tax and superannuation laws, 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 tax evasion and tax crime are particularly evident, including the cash economy, international tax evasion, refund fraud, fraudulent 'phoenix' activities in business, tax avoidance schemes and organised crime.

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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 has 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.

Australian Securities and Investment Commission

The Australian Securities and Investment Commission 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.

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ATO information exchange with Tax Practitioners Board

The Tax Practitioners Board (TPB) is a national body, independent of the ATO, responsible for the registration and regulation of tax agents, BAS agents and tax (financial) advisers – collectively referred to as 'tax practitioners'. The TPB is also responsible for ensuring compliance with the Tax Agent Services Act 2009 (TASA), including the Code of Professional ConductExternal Link.

The role of the ATO in relation to the TPB

The role of the ATO includes:

  • identifying and referring inappropriate tax practitioner behaviour to the TPB
  • collecting civil penalties imposed by the Federal Court pursuant to the TASA.

The referral process

In the course of normal activities ATO officers may identify potential breaches of the TASA. The ATO acknowledges that the vast majority of tax practitioners comply with the law; however there are some that may operate in a manner detrimental to the integrity of the tax system. The TPB has requested the ATO advise of those instances where it is alleged:

  • the behaviour or actions of a registered practitioner indicate they may not be a ‘fit and proper’ person to hold registration as a tax practitioner
  • there is evidence to suggest a registered practitioner may have breached the TASA, for example one or more items of the Code
  • there is evidence to suggest an unregistered practitioner may have provided a service for a fee, advertised that service or otherwise represented that they are registered

ATO referrals are independently considered and reviewed before a referral is made to the TPB.

After a referral is made, the TPB may request further information from the ATO related to the referral in order to carry out any further enquiry into the matter.

Last modified: 31 Mar 2016QC 40885