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Published 05 October 2012 09:43, Updated 09 October 2012 06:00
ATO Inspector-General of Taxation Ali Noroozi has recommended the tax office improve its risk identification and audit processes to ease unnecessary stress for compliant businesses. Photo: Louise Kennerley
Almost 6000 small business taxpayers were wrongly accused by the Australian Taxation Office of doing the wrong thing as part of its crackdown on the cash economy.
This was revealed with the Assistant Treasurer, David Bradbury, released the Inspector-General of Taxation Ali Noroozi’s review into the way the ATO uses benchmarks to target the cash economy.
The benchmark program aims to ensure that small businesses that are doing the right thing and paying their taxes are not painted with the same brush as those that try to dodge their income tax and GST obligations.
But Noroozi says many people who are doing the right thing are being wrongly accused.
His review found the ATO had made adjustments in only 24 per cent of the 7670 benchmark audit cases. That means 5830 taxpayers had been wrongly accused of doing the wrong thing.
“Small businesses and their representatives had raised concerns with me that the ATO’s benchmark-based compliance activities were capturing compliant taxpayers resulting in unnecessary stress, extra compliance costs and time away from running their businesses,” Noroozi says.
“I have recommended that the ATO improve its risk identification and audit processes to exclude more compliant taxpayers earlier in the process, saving them time and additional costs.”
Noroozi says it’s important compliant taxpayers were released from the audit process as soon as possible and recommends the ATO improve the skills of audit staff and give taxpayers better information about their reporting obligations.
“Good record keeping is a business’s best defence in the event of an audit but it also makes good business sense,” he says.
“I have, therefore, recommended that the ATO bring greater certainty to small businesses in this area by developing industry specific guidance and further promote its publications and assistance programs.”
The Inspector-General has made 11 recommendations to improve the use of benchmarks by the ATO. The ATO has agreed with nine of the recommendations in full and two in part.
The review found that there was a lack of publicly available information and awareness about how the ATO develops benchmarks. “To improve public confidence in the use of small business benchmarks, I have also recommended and the ATO has agreed to publish more information about how it develops and uses benchmarks,” he says. “However, the ATO has not agreed to publish geographical comparisons of benchmarks and, hence, some transparency concerns remain.”
The other recommendation the ATO only partially agreed to was regarding better record keeping and accurate reporting of income so that overall costs for small businesses are minimised.
Noroozi suggests that certain tax agents be certified as record-keeping gurus. In his words, there should be “consultation with relevant tax practitioner representative bodies with a view to establishing a ‘taxpayer record keeping assurance process’ that could be used as a factor in excluding compliant taxpayers from audit selection.
But the ATO did not agree, saying, “We are concerned that too specific a focus for the suggested consultations may restrict their scope and outcome” and that such a process would not necessarily lead to reduced costs for small business.
The ATO instead agreed to two other recommendations surrounding transparency, including to publish an assurance from an expert independent party that the bench-marking methodology is sound and that small businesses being compared are sufficiently similar. It also agreed to provide public access to internal software that identifies Australian and New Zealand Standard Industrial Classification codes identifying different industries.
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