Los materiales carbonosos en las pilas de combustibles

2.69 The ATO takes a risk management approach to its compliance activities, directing its resources to areas of greatest risk.64 _{The ATO chooses which taxpayers it} will audit. The ATO’s Strategic Statement 2010–15 says ‘we use a risk-based approach to prioritise our work’.65 _{The ATO has also indicated:}

Where you have limited resources and the scale of your role covers a broad canvas, it is necessary to adopt a risk management approach.

… Managing risk is about recognising risks, and making the right choices, and opting for the right trade-offs.66

64 _{ATO, above n 33, p 2.}

65 _{Australian Taxation Office, Strategic Statement 2010-15 (2010).}

66 _{Michael D’Ascenzo, ‘Risk: The framework, the vision, the values’, (Speech delivered at the CPA Public Sector}

2.70 A risk-based approach to compliance activity is often contrasted with random selection.67 _{While random selection is useful for gathering compliance information, and} presents a ‘fair selection strategy’ — in that a given population of taxpayers have the same chance of being selected — it does have a drawback of presenting a high opportunity cost.68 _{The World Bank notes:}

Cases selected for audit by methods focused on high-risk taxpayers or even by manual screening are likely to raise higher revenue than cases selected randomly (even with stratification). As a result, random audits have a low impact on direct generation of revenue and, arguably, on deterrence of non-compliance.69

2.71 The risk-based approach, therefore, may be viewed as a way of managing the opportunity costs associated with limited resources:

We are in an opportunity cost business. For all practical purposes, the areas and issues we can cover are limited, and every hour we spend with taxpayer A is an hour we cannot spend with taxpayer B. Effective use of our time is vital. If there are areas with high levels of compliance we will get out and look elsewhere.70

2.72 It should also be noted that the adoption of a risk-based approach to resource allocation is well founded in the origins of the administrative law notion of the ‘good-management rule’. This rule acknowledges that, whilst the Commissioner must administer the tax law and ensure the correct amount of tax is collected, it has finite resources with which to do this:

Having regard to the competing duties and powers that arise under the taxation laws, the courts have acknowledged that the Commissioner must make administrative decisions as to the allocation of scarce resources to achieve an optimal, though not necessarily the maximum, revenue collection. This ensures that the Commissioner is not obliged, for example, to pursue every last cent of revenue where the cost of doing so is prohibitive.71

2.73 Section 44 of the Financial Management and Accountability Act 1997 (FMA Act) also imposes a general obligation on the Commissioner to ‘manage the affairs of the [ATO] in a way that promotes proper use of the Commonwealth resources for which the [Commissioner] is responsible’.72 _{Section 16 of the Public Governance, Performance}

and Accountability Act 2013 (which is anticipated to effectively replace the FMA Act

from 1 July 2014) imposes a new specific duty for the Commissioner to establish and maintain an appropriate system of risk oversight and management.73

2.74 However, another important reason for the risk-based approach is to seek to reduce the compliance burden on low-risk or compliant taxpayers. The use of random

67 _{World Bank, Risk-based tax audits: approaches and country experiences (2011) p 18.} 68 _{Ibid p 19.}

69 _{Ibid p 20.}

70 _{Michael D’Ascenzo, ‘Commissioner’s perspective on audit programs’, (Speech delivered at the Taxation}

Institute of Australia’s Lecture Series on Tax Audits, Sydney, 10 October 1990).

71 _{Bruce Quigley, ‘The Commissioner’s power of general administration: How far can he go?’, (Speech delivered}

at the Taxation Institute of Australia’s Convention, Sydney, 12 March 2009).

72 _{Financial Management and Accountability Act 1997 s 44.}

73 _{Australian Government Solicitor, Bill introduces new governance, performance and accountability framework for}

selection methods inevitably means that some compliant taxpayers will be audited. In responding to the recommendation by the Joint Committee of Public Accounts and Audit (JCPAA) that the ATO report on a mechanism to estimate the GST gap, the ATO said:74

Not only would [a random audit program] consume large amounts of Tax Office resources that could otherwise be targeted at substantive compliance risks, it would place a significant additional burden on compliant taxpayers who otherwise would not need to incur audit-related costs.

2.75 A risk-based approach, therefore, is also considered to have a twin virtue of excluding likely compliant taxpayers from unnecessary interactions, while focusing ATO attention and resources on higher-risk taxpayers or populations. As an example, the ATO regards its small business benchmarks as a tool to, not only identify 76,000 small businesses likely to attract ATO attention, but also to exclude 800,000 businesses who it regards as ‘likely to be competing on a level playing field with their peers’.75 2.76 The risk management approach not only means the ATO is selective as to which taxpayer it audits. It also means that the ATO takes a variety of approaches depending on the taxpayer’s situation. The ATO has said:

… if you are in a lower risk category, our help and support services assist you to comply and the lower intensity of our compliance activities reduces compliance costs.76

2.77 In its 2008–09 Compliance Program, the ATO highlighted the relationship between the level of risk, the intensity of verification activity and the numbers of taxpayers involved. The ATO states that:

When risks are identified, our contact with people depends on the nature and complexity of the risk. But it typically starts with letters and phone calls seeking more information or clarification, and extends to field visits and audits where required. Risk profiling is as much about identifying individuals or businesses that represent little or no risk to the tax and superannuation systems, as it is about identifying non-compliance.77

2.78 This risk management differentiation approach ensures the intensity of the compliance activity is commensurate with the risk. The approach also reduces the taxpayer population it seeks to interact with as risk increases. This is shown diagrammatically in Figure 5 below:

74 _{Australian Taxation Office, Response to Joint Committee of Public Accounts and Audit, Recommendation 5 of}

Report 398 —Review of Auditor-General’s Reports 2002-2003 Fourth Quarter March 2004(undated)

<http://www.aph.gov.au>.

75 _{ATO, above n 33, p 28.} 76 _{Ibid p 2.}

Figure 5: Differentiation in intensity and visibility of ATO verification activities

Source: ATO, Compliance Program 2008-09, page 8.

2.79 The IGT made similar observations in his Review into Tax Office Audit

Timeframes:

… audit activities are directed at areas of greatest risk. The level of taxpayer interaction should be proportionate to the nature of the risk being addressed and such matters as the complexity of the issue and the level of taxpayer assistance. The aim is to minimise the level of taxpayer interaction to that needed for the Tax Office to assure itself of a business’s compliance level.78

2.80 Therefore, where there is a level of uncertainty as to the correctness of a taxpayer’s tax return, the ATO may not necessarily conduct a full audit to verify it. Rather, the ATO may use information gathering approaches which are less formal, intense and costly to ensure returns are correctly lodged. These may include telephone enquiry, letters requesting an explanation or substantiation for a particular item in the tax return, or more comprehensive risk review interactions. In some circumstances, where the level of risk is considered low, the ATO may take no further action despite the existence of such uncertainty. Where ATO perceptions of risk persist, the above figure highlights the ATO’s ability to escalate its verification activities.