The “risk engine” used by the Tax Office to single out Australians for audits may itself face an audit as part of the new work program being developed by the complaints watchdog.
Inspector-General of Taxation Ali Noroozi puts the risk engine at the top of a list of eleven priorities for investigation in the year ahead, along with what seems to be a systematic bias in the delay of tax returns, the ATO’s choice of penalties and the distance it keeps from the Australian Valuers office.
“The Tax Office no longer does random audits,” Mr Noroozi told BusinessDay. “They use what they call a risk-differentiated model, focusing audits on what they think are the riskiest clients.”
“We’ve had a good few complaints from people who think they are being targeted when they should not be. These complaints are also coming to other professional bodies.”
“At the very least an inquiry would shed light into how this risk engine works, so that people have more confidence in it. At the moment people see it a black box.”
Under the legislation setting up his office Mr Noroozi has the power to decide which matters of tax administration he will investigate without reference to the government...
“Delayed tax returns may be related. The new Tax Office computer system may be picking up more returns for closer examination and a delay. This could be quite valid, but we would like to find out what is going on.”
Mr Noroozi is also considering investigating the ATO’s administration of tax penalties, an area in which he says it has considerable discretion.
“The penalties for false statements vary by criteria such as whether you were fraudulent, whether you were reckless, whether you had a reasonably arguable position. People are saying it is sometimes used as a bargaining chip. At the initial meeting with the Tax Office they are told it has discretion. We need to find out what’s going on.”
The draft work program would also shine a light on the ATO’s relationship with the Australian Valuation Office.
“There are many things in the Tax Act that require market values - transfer pricing is one,” Mr Noroozi said. “The Valuation Office appears to be not wholly removed from the ATO. One of the things people raise is its relative independence.”
The Inspector-General has already inquired into the ATO’s compliance approach to so-called larger small and medium enterprises and high wealth individuals, making more than 40 recommendations. His draft work program would set up the same sort of inquiry for micro enterprises and individuals.
"I really want feedback on these ideas,” he told BusinessDay. “I want my Work Program to target the areas that provide the greatest opportunity to improve tax administration.”
“My legislation permits me unrestricted access to the ATO’s internal system, records and personnel. I can navigate the system, address information imbalances, report on the issues and make recommendations to improve the system.”
Mr Noroozi is seeking submissions on his draft work program by September 28.
In today's BusinessDay Online
Ideas for Ali Noroozi's work program:
. the ATO’s Risk Engine;
. delayed income tax refunds;
. the ATO’s compliance approach to the micro enterprises and individuals;
. the ATO’s administration of penalties;
. the ATO’s interactions with the Australian Valuation Office;
. the ATO’s use of client feedback questionnaires;
. the ATO’s administration of the general anti-avoidance provisions;
. the ATO compliance approach to transfer pricing;
. ATO services and support for tax practitioners;
. the ATO’s Test Case Litigation Program; and
. Project Wickenby.
. Human Guinea Pigs. How the ATO used us to test its computer
. If you're a florist, a hairdresser... expect something from the tax office
. Four hundred 'please explain' letters per day - how the Tax Office gets money