Megan Breen | November 2020
This article was current at the time of publication.
Annual reports released by the Australian Taxation Office (ATO) and Tax Practitioners Board show a continued focus on compliance and detail the responses from both organisations to COVID-19 and outline new tax gap estimates.
The response to the bushfires and COVID-19 from both agencies was rapid by necessity as the Australian Government rolled out a series of escalating emergency responses and stimulus measures to help the economy stabilise and recover.
The ATO helped to design the economic stimulus measures and delivered key relief programs. On the day JobKeeper began 170,000 enrolments were received and there were more than 270,000 logins to online services using MyGovID.
By 30 June, $35 billion had been paid to businesses through JobKeeper and refunds from boosting cash flow for employers.
On the first day the early release of superannuation became available, the ATO received more than 315,000 applications. By 30 June, $20 billion had been approved for almost 2.5 million holders of super.
In the TPB Annual Report, chair Ian Klug recognised that most tax practitioners were providing high levels of support to their clients. For example, the TPB implemented a COVID‐19 hotline for queries, support, and referrals and released a new legislative instrument.
"The TPB moved swiftly to ensure that business activity statement [BAS] agents were able to legally advise clients on the JobKeeper payment and cash flow boost initiatives by registering the Tax Agent Services [Specified BAS Services No. 1] Instrument 2020 Tax Agent Services [Specified BAS Services No. 1] Instrument 2020," Klug says.
The TPB also provided 39,000 practitioners who were affected by floods, bushfires and COVID-19 with an exemption from annual declarations due from February 2020.
Practitioners with an annual declaration due on or before 31 December 2020 have also been given an automatic extension to 2021 or 2022 if they were required to renew their registration in 2021.
Increase in investigations and sanctions
Compliance continued to be a focus for the TPB, with new procedures introduced to deal with improper activities and claims associated with the stimulus measures.
The TPB focused on practitioners acting to undermine the integrity of JobKeeper, the cash flow boost, and early access to superannuation stimulus measures.
Compliance operations included the TPB sanctioning 964 tax agents, compared with 749 the previous year, a 32 per cent increase. Some 170 tax practitioners' licences were terminated, up 129 per cent from 74 terminations in 2018-19.
"Collectively, this unlawful minority of practitioners represented a surprising 60,000 clients, many of whom will face ATO investigations, tax adjustments and heavy penalties," Klug says.
New tax gap estimates released
The Commissioner of Taxation annual report 2019–20 includes the full release of the 2017-18 tax gap research program for the first time, with the inclusion of the following new gap estimates:
- medium business income tax gap of 6.2 per cent ($860 million) — 94 per cent of revenue expected to be received
- fringe benefits tax gap of 21.2 per cent ($104 billion) — 79 per cent of revenue expected to be received
- luxury car tax gap of 7.8 per cent ($58 million) — 92 per cent of revenue expected to be received
- alcohol tax gap with a gap of 9.6 per cent ($596 million) — 91 per cent of revenue expected to be received
- product stewardship for oil program with a gap of 1 per cent ($1 million) — 99 per cent of revenue expected to be received.
In total, the ATO collected gross tax of about $537 billion and provided refunds of about $132 billion, with net tax collections of $405 billion — down $21 billion (5 per cent) over the previous year as a result of the economic impact of bushfires and COVID-19.
This equates to a tax gap of almost 7 percent, or $31 billion, says Elinor Kasapidis, Tax Policy Adviser at CPA Australia.
"We know that no tax system can eliminate tax gaps — the goal is to sustainably reduce them over time. In 2017-18 the tax gap for the tax and superannuation system meant the ATO received more than 93 per cent of tax revenue it expected to collect," Kasapidis says.
Including five new estimates provides a more complete picture of the overall tax gap, which is dominated by small business and individuals making up $19.4 billion, or 60 per cent of the total net gap.
"This is the first time we have seen all the estimates and it provides a whole system overview," Kasapidis says.
"While the number is high, 6.9 per cent overall is not out of line in terms of what other jurisdictions have as their estimates."
Tips for auditors
CPA Australia, with the assistance of PwC partner Valerie Clifford, has developed these tips to assist members conducting audits when economic conditions are uncertain. These tips should assist auditors when managing the greater risks presented in tough times.
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