The ATO’s profile and approach to dealing with taxpayers is ever-changing, whether it’s an in-depth audit, the facilitation of cash handouts under COVID relief measures or something in between. How the ATO interacts and the methods it uses are also ever changing as noted in its Annual Report.
Some of the key observations available from the ATO’s annual report which will affect large taxpayers including large corporates and multinationals include the following three areas.
Pre Audit Settlements are on the increase
Historically, when dealing with an ATO query, the position would often proceed to an audit so that the ATO could satisfy themselves that all relevant information had been identified. The amount of reviews and questions now proceeding to audit are on the decline, with 31% of ATO settlements occurring prior to audit. The increasing portion of settlements occurring early is a clear indication that the ATO are of the view that they already have the information from which a view can be formed. As such, taxpayers need to be aware of the large data collection mechanisms of the ATO – enabling them to obtain a clearer picture than would have historically been the case.
Private group settlements
The ATO’s increased activity in the private sector continues to reap benefits for the taxman with the ATO entering into far more settlements this year with private groups (263 settlements representing 58% of all settlements). The gap between public and private taxpayer settlements widening in the current year is the ATO’s focus with cash collections on the increase in the private group space.
This shift is a clear result of the ATO’s additional focus on private groups, including having expanded its justified trust assurance reviews over time to include the Top 500 private groups and then the Next 5,000. Given the increased funding in the recent Federal Budget further expansion is expected.
Ballooning tax debt is an ATO priority
In recent years, the ATO has been giving out cash through Jobkeeper and providing an additional banking facility through its very relaxed approach to enforcing collection of outstanding liabilities demonstrating an acknowledgement of the COVID environment. This approach has now changed with the ATO’s positioning on payment plans and collections having markedly changed in recent months. This is in response to ballooning debt with $29 of the $45 billion owed to the ATO by small business, being part of an insolvency process or subject to tax dispute.
In November 2021 the ATO resumed firmer debt management activity and says that a top focus for the 2023 Financial Year is “implementing targeted strategies to address collectable debt”.
Whilst we do not have a crystal ball to know what the ATO will do next, given the current Federal Budget deficit, and the political cost of raising taxes to fix the deficit, it would be reasonable to conclude that the ATO will be tasked with policing the existing framework in a more stringent manner.
If you have any questions about the ATO’s focus areas and how these may impact you, please don’t hesitate to contact your Engagement Partner.