Inspector-General of Taxation’s Report
Review into improving the Self Assessment System
"The Inspector-General of Taxation's review into improving aspects of the income tax self-assessment system [arises] from stakeholder concerns that recent administrative practices have swung the pendulum from a pure self-assessment system back towards a quasi-full assessment system, without any of the previous benefits available from the former regime and with increased taxpayer costs."
The Inspector-General of Taxation (IGOT) has released the findings from his review of Australia's self-assessment system for income tax. The review arose from a concern that the Australian Taxation Office's (ATO) recent administration of certain large business and international taxpayers indicates that the ATO is (for these taxpayers) operating a quasi-full assessment system, absent the benefits of the previous system and with increased costs to the taxpayer.
The report makes 33 recommendations. Of those recommendations, the ATO accepted 13 outright or in principle, disagreed with 1 recommendation and considered that it was more appropriate for the Government or Treasury to consider 17 recommendations1.
Areas of concern in the current Self Assessment system
The review identifies four areas of the existing Self Assessment system as being of particular concern:
- The advice framework - assistance by the ATO in helping taxpayers to understand their responsibilities under the tax law, and the operation of the tax law by the provision of advice.
Problems noted in this regard include unnecessary delays, costs and a perceived lack of sufficient objectivity by the ATO.
- ATO compliance approaches - the impact of the ATO's current risk-based approach to identifying and reviewing taxpayers, including the earlier (pre-lodgement) compliance review activity of the ATO.
The report notes concerns that those taxpayers subject to this new compliance approach face an increased compliance burden without a corresponding increase in the level of certainty.
- Penalty and interest regimes - the impact of the ATO's current compliance approaches on the administration and imposition of penalties and interest.
The IGOT observes that there has been a significant level of unsustainable penalty decisions, perhaps arising due to certain penalty decisions being made arbitrarily by the ATO, and an unfair burden being placed on taxpayers to prove their position regardless of materiality.
- Tax law complexity and administering the law in a practical manner - given the ever-increasing complexity of the tax law, and the requirement of the ATO to interpret and administer the law, the ATO's role in developing this legislation (to ensure that it accords with policy intent) is crucial.
Given this complexity and problems inherent in the ATO administering tax law which may often not align with the policy intent, the report notes that taxpayers face continuing increased costs and uncertainty as regards their tax affairs.
Deloitte's view on the ATO's response to the IGOT's key recommendations
It is disappointing that the ATO has deferred 17 of the key recommendations to the Government. This includes a number of recommendations which would offer taxpayers increased certainty such as limiting the ATO review period for those taxpayers subject to earlier and more comprehensive disclosure (such as pre-lodgement compliance activities).
Notwithstanding, the recommendations accepted by the ATO do demonstrate a commitment to increasing disclosure by the ATO and offering taxpayers more certainty at the same time as reducing the costs of complying with their tax obligations.
1. The ATO agreed in part with 2 recommendations