Audit office points to ATO’s target miss

The Auditor General has referred to a key Parliamentary committee to a recent audit report which found that the Australian Taxation Office (ATO) had undermined its own risk management by not meeting its stated taxpayer review targets.

The Australian National Audit Office (ANAO) pointed to its audit of the ATO around its management of transfer pricing for related party debt which found that while the tax office is “largely effective” in identifying and prioritising risks to transfer pricing for related party debt, it had fallen short.

The Senate Standing Committee on Economics is conducting an inquiry into Australia’s taxation system and the ANAO pointed to the findings of recent audits of the ATO.

It noted that In its 2021–22 annual report, the ATO estimated that the overall net tax gap for the Australian tax and superannuation system was $33.4 billion for 2019–20 and that  within this total, the estimated net tax gap for the taxpayer population of ‘individuals not in business’ was the second largest gap in dollar terms — $9 billion for 2019–2020 meaning that for this gap, the ATO collected around 94.4 per cent of the tax revenue it would have collected if all taxpayers were fully compliant with tax law.”

Referring to the ATO’s processes, the ANAO said the risk was primarily managed through use of the Top 100 Justified Trust Program and Top 1,000 Combined Assurance Program.

“However, management of risk is undermined by the ATO not meeting its stated taxpayer review targets to gain its desired level of assurance,” it said.

“Annually, the ATO seeks to review the entire Top 100 population, and 250 taxpayers within the Top 1,000 economic groups. This has not occurred during the audit period and the ATO has not conducted a process to determine whether an annual review of 250 Top 1,000 taxpayers provides sufficient oversight,” the audit report said.

The ANAO made four recommendations all of which were accepted by the ATO including determining the number of completed Tax Assurance Reports considered sufficient to gain assurance that Top 100 taxpayers are appropriately using transfer pricing for related party debt.

It also recommended that the ATO “take action to ensure all taxpayers with related party debt that do not apply Practical Compliance Guidelines 2017/4 are reviewed in accordance with the Australian Taxation Office’s goals.