DTC believes that if practitioners and their clients were more informed about the tax compliance landscape the tax system would function better. This is the first in a series of articles where we provide insights into the ATO’s compliance program.   


From time to time the ATO mentions a measurement tool that they call the “tax Gap”.  Simply put this measures the difference between the statutory tax rate for a population, e.g. Wealthy Australians 30% and what was paid by that population on average.  Getting to that point is complicated. 

The old saying, you get what you measure, points to the benefit of hindsight which is key to our topic.   As an example, the other week on a webinar, Accountancy Insurance and the CPA conducted a session which covered the aftermath of the ATO’s compliance work. This dissection of the program showed how the ATO’s intended compliance agenda played out.  We saw how the program is based on what the ATO have learnt from their deep insights into the compliance landscape.  This learning will be meshed with current issues e.g. COVID19 initiative compliance, analytics (data matching) and the application of their resources.  


A greater appreciation of this picture makes the future ATO program to understand. Going further from the CPA webinar is worth the effort. Getting a feel for the Government’s taxation agenda and the relationship with the economic environment, the ATO strategic agenda, the capability of its people and the ICT it uses is required.  This is not to take a simplistic approach.  It is not just trying to provide an early warning, e.g. the ATO will be targeting home office expense claims this year.  We think that practitioners need more than this.   A perspective of why and how the ATO sets up its program will equip practitioners to deal more effectively with whatever comes their way.  

One benefit of an improved understanding of the compliance program is that there are less surprises.  If the key players, ATO; practitioners, businesses and individuals understand the “game” the surprise element is mitigated.   in the first instance surprise may enable an audit result.  An old fashioned ATO audit “win” because a taxpayer was not prepared may be overturned in today’s world as process was not followed.  Much more importantly a quick win normally misses a greater educational opportunity. Education impacts to a much deeper level.   

A clear example of this is proven when a practitioner can educate their clients.  A clear message is given not just to one client (admittedly an audit does this to an extent) but to a practice and even a wider say professional colleagues.  In an earlier DTC message, we discussed a TPB update concerning Work Related Expenses.  A considered question, based on an improved understanding of compliance the way that the ATO sees and measures it, starts a process of client education.  over time produces a sound result for the tax system.  In such a way we are pointing to building the ATO’s compliance approach into educating your clients.   

Similarly, the ATO would be expected to develop an improved comprehension of the taxpayer’s world.  The better understanding would include business issues, the difficulties that taxpayers face in what transpires in the day to day world which is not always clear cut and transparent and that tax legislation is not easy to interpret.  Time and other pressures in themselves create problems.  We would hope for a more productive relationship between both parties. 


The alternative is that of reacting to the audit program.  This can surface the following elements.   Once targeted the victim/client adopts a defensive “why me” stance.  They lodged their return based on what they understood and what they assumed their advisor told them.  Their view is that there is no possibility of them having a problem. The ATO comes from the point of view that the taxpayer has hit several our high-risk indicators.   The extensive publicity campaign delivered by the ATO has informed the public of what is acceptable and what is not.  On that basis a taxpayer should expect an audit.  If there was anything the client was unsure about, they should have approached the ATO.  When the review happens the ATO hits a wall of obfuscation; much of it unintentional. Mostly what follows is contentious. 


The Tax Gap looks to produce tangible measures of client tax performance.  These measures include “what attracts the ATO’s attention”.  From a big picture perspective this encompasses what the ATO needs to do to manage the tax system.   It supplies a means of monitoring what they have done so that they can demonstrate that they are administering the tax system as they should. 

The Tax Gap – what does it measure and why that is important, how the Risk Differentiation Framework works are subjects we will look at in the next article. 


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