Monday, 18 December 2017 Sydney
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IPA National Congress::

Address by Commissioner of Taxation, Chris Jordan AO

Speech to the IPA National Congress

RACV Royal Pines, Gold Coast, 23 November 2017

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Thank you for the invitation to join you in this lovely location; and for the opportunity to talk with tax practitioners who are members of the Institute of Public Accountants; people who are critical players in our tax and superannuation systems.

We have representatives of the IPA on our consultative forums and working groups; and we welcome their ideas and constructive feedback on both strategic and operational issues.

Well, what an exciting time it is to be in tax – it is certainly more topical than ever. We have had the ongoing Senate Inquiry into Corporate Tax Avoidance, the Black Economy Taskforce, release of the large market tax and superannuation guarantee tax gap estimates, our new Tax Avoidance Taskforce, rebuild of our systems, and Tax Time. And just a couple of weeks ago the Paradise Papers leak put tax on the front pages of media again, as the story was reported across the globe with various angles about tax and the behaviour and arrangements of people and companies.

I cannot recall a time ever before when the worldwide community was so interested in people’s tax affairs; and by direct association – the performance and actions of governments and tax authorities, and the role of tax advisors and accountants.

Our competence, transparency, ethics and integrity, and our capacity and speed to respond, are all under the spotlight. And while that is a challenge, it is also a huge opportunity to show what we stand for.

Since my appointment in 2013, as the first ‘outsider’ to the position of Commissioner of Taxation, I have focussed on defining and sticking to enduring directions and long term transformation of the ATO, which we call Reinventing the ATO.

Our mission is:

To contribute to the economic and social well-being of Australians by fostering willing participation in the tax and superannuation systems.

With fostering willing participation (or voluntary compliance) at the core of why we exist, our transformation has been, and is, aimed at:

  • improving the client experience; making it easier for people to comply with their obligations; and
  • giving people confidence that we target and take the necessary action with those who are not doing the right thing.

I describe this approach as ‘designing for the majority’ – where we focus more on the needs of the 95% who are willing to do the right thing, rather than the 5% who don’t.

In Australia, there are many regulators (including the ATO historically), and government agencies that focus more on the people who do the wrong thing. They administer systems for the very last worst person – which imposes unnecessary burdens on those who want to do the right thing. It causes the majority of people to have a more expensive, time consuming and painful experience.

My intention is to be a tax administration that focuses on the client experience, making things easier for people, paying attention to material matters, recognising time has a cost, where our decisions are clearly understood, and our activities are not an unnecessary drain on the productivity of our nation.

Over the past few years we have employed a number of strategies to make these intentions a reality:

  • decluttering and reducing red tape – we have eliminated unnecessary processes and mindless checklists and thrown out the associated thousands of pages of procedures – freeing people up to think and use their judgment.

We have reduced the number of words on our website by approximately 5.3 million words (or 45%), removing duplication and complexity to allow greater ease of use, and we have just implemented a simpler form of activity statement for businesses with a turnover of less than $10 million – now only requiring reporting against 3 labels about GST, instead of 8 or 9.

  • We’ve emphasised prevention, rather than correction and ‘gotcha’ – with taxpayer alerts and practical compliance guidelines which give people the ‘flags on the beach’.

    We’ve also been using SMSs to habitual late lodgers and payers. Our automated SMS reminders (rather than formal letters) reaped an extra $800 million in on-time payments in 2016–17 at a cost of just $0.09 per SMS (compared with $1 for a formal letter). This method of communication is much cheaper than chasing payments after they are due with phone calls and more letters.
  • We have very deliberately ramped up our early engagement, greater use of alternative dispute resolution, and support for those who are in dispute. These techniques and interventions have resulted in a 61% reduction in the number of actions proceeding to courts and tribunals. Resolving disputes more quickly has reduced time, money and angst – for taxpayers and us.

    While I mention disputes I want to also say that alongside our strategies for dispute prevention, resolution and settlements, we have a very considered and purposeful litigation program. We are having success in nearly 90% of cases, indicating we are selecting the right cases to continue through the courts – ones where:
    • The dispute is intractable and it is worth pursuing
    • We need to send a message that certain behaviour or arrangements will not be tolerated
    • Where we need to clarify the law.

You may be aware of the results of one of our landmark litigation cases - the Chevron case was one of the most important decisions in corporate tax in Australia and will have direct impacts across a range of sectors. The Full Federal Court’s decision on the pricing of related-party debt and subsequent assessments have yielded revenue in excess of $1 billion, and discussions since have shored up tax collections significantly for the future.

  • We’ve also been getting more sophisticated in our use of data for both service and compliance purposes – prefilling returns with data from banks, share registries, health funds and employers; real time messaging to prompt people when completing their returns; and tools such as ‘nearest neighbour’ to compare the income and deductions for people in like groups; and SCOUT a tool that can search both structured and unstructured data – accessing and making use of so much more information we hold.
  • And we have increased digital service offerings – like our streamlined on line tax return called mytax, our app with voice authentication and tools like myDeductions, and Australian Business Number Lookup service, our Small Business News Room, our Let’s Talk online forum for agents, and our online services for agents via practice management software.

While these strategies and initiatives are working well, and we have made good progress, we still have more work to do. True, comprehensive transformation takes many years and we are in this for the long haul.

I want to update you now on our efforts to improve our services to tax practitioners.

The IT hardware failure at the end of last year and consequential outages not only impacted systems availability and functionalities, but also caused us to defer the program of work we had been pursuing to improve our services to you.

Up to 12 December 2016, we had been making good progress on the commitments I had made to the Tax Institute in March last year – fixing irritants, redesigning services and developing new platforms for better services – but all that had to be paused once we had the SAN failure – to make sure that we could deliver on new policy implementation for government and Tax Time 2017.

Now that we are over with Tax Time (which, by the way was one of our most successful ever), we have refocussed on our program of work to:

  1. provide stability of the tax and BAS agent portals
  2. address irritants with systems, communications or processes
  3. work with digital service providers and help practitioners transition to PLS (and by the way, last week PLS became the predominant lodgment channel for tax agents, with over 50% of 2017 tax returns received electronically from tax agents via PLS software)
  4. we are developing new portal services to be available in ATO Online and work with digital service providers to make those services available through practice management software
  5. And we are in a constant consultation and co-design mode to more effectively implement and test future initiatives such as:
  6. Communication preferencing
  7. Cash Flow Management Program
  8. Single Touch Payroll
  9. Streamlining business registration.

This service improvement program is being well informed by our consultation groups, monthly tax practitioner experience surveys, and ongoing one-on-one visits to practitioners in their workplace to understand their experience firsthand.

We have conducted nearly 250 such visits over the last few months to learn exactly what is happening, what is working, what is not, and whether we can do anything to fix any problems.

When we are visiting the practitioners, some things are easily dealt with on the spot, some can be fed back into the ATO to fix, others may need the practitioner to change their business process or update their IT. Some may relate to something so obscure and the incidence will be so uncommon that we will all have to manage by doing work-arounds.

So far, we have been able to address and rectify a myriad of issues related to the new Activity Statement forms and the Client Communication List including:

  • Access and user permissions issues
  • Rules alignment and form errors
  • Display or print options for Document ID Numbers (DIN), BPAY details, GST accounting method and Receipt numbers
  • Simplified display and enhanced print versions of forms
  • CCL capacity in the document library – with now a 30% improvement in download times.

And we have ongoing work on communication preference functionality which will enable agents to tell the ATO to send the client’s communication to them even if the client has a myGov account linked to the ATO.

I want to assure you that I am committed to giving tax practitioners a quality service. Your experience matters to me. We have listed ‘services for Tax Agents’ among our top four investment priorities for this year and I have weekly meetings with key people in the ATO to monitor progress, hear about insights and understand any new issues.

I will continue to personally monitor the progress of service improvement to you – for both the immediate and longer terms.

Now to the longer term…

You would be well aware that business practices are changing, and consequently so too, is the administration of the tax and superannuation systems.

There is:

  • greater automation and digital business
  • increased use of data and data sharing between taxpayers, third parties and tax authorities
  • increased globalisation and cross border dealings
  • more sources of information and methods of communication available to consumers; and of course,
  • the perennial demand of doing more, with less, and faster.

These changes and demands are likely to impact on the practices of all accountants if they haven’t already; and in particular, they will challenge the viability of those with a business model of low complexity, low margin and high volume. The ATO is not driving these trends; they exist in both the private and public sectors, in big and small businesses and in our personal lives and those of our children.

There are opportunities and challenges for all of us dealing with technology, communication, the pace of change, testing us in how we adapt, evolve and work together.

I am well aware that the ATO and tax practitioners are dependent on each other for success every day and I would like to see us work more in concert to achieve common strategic goals – like becoming fully digital where possible.

While on this theme, you may have noticed the announcement earlier this week about the government’s Small Business Digital Taskforce led by Mark Bouris AM – aimed at ensuring more Australian small businesses can thrive in an increasingly digital economy.

The role of tax practitioners in the tax and superannuation systems is of course different to that of the ATO, but I think the mission of the ATO is readily translatable and relevant to the whole tax profession. This is why I extend an invitation to the IPA and its members to join us in aiming for big goals.

You too contribute to the economic and social well-being of Australians. You have the ability to influence the behaviour and attitudes of your clients and how well they participate or comply with the tax system and other regulatory requirements.

You can help people and businesses develop good habits that will ultimately aid them in their endeavours and keep them in our good books and those of other regulators.

And the concepts in our vision are relevant for your practice too. I am sure that you too would be pleased to be known for your contemporary service, expertise and integrity. Think about that value for your clients ….

How do you make the most of technology and automation so that you can use your time for more meaningful engagement with your clients? What will you need to deliver contemporary services? How well digitised is your business? How are you communicating with clients and peers?

What do you need to do to maintain your expertise? How do you remain relevant?

How do you exemplify integrity? How do you meet the standards of the profession? How do you show integrity in terms of your own compliance behaviour and how do you do that in terms of your clients meeting their obligations?

Let me share with you some things we are observing in our work and research on tax gaps. From the random audits and other compliance activities conducted for the individual market, we are concerned by the level of non-compliance we are seeing – particularly in relation to over-claiming of work-related expenses.

Where record keeping requirements have been simplified (for example $150 for clothing and laundry expenses and cents per kilometre method for car expenses), we are seeing some agents accepting these as ‘standard’ claims, with the assumption that ‘no explanation’ is required. We also see some agents neglecting to check that their client has actually spent the money on the required item and that it was directly related to earning their income; and some claiming for personal (not work-related) expenses through carelessness, miscalculations and mistakes.

While these can be small amounts in each case, when you add them all up, you end up with a large figure – an aggregate larger than the large market tax gap of $2.5 billion.

And likewise with the small businesses market, we are seeing similarly some careless preparation and opportunistic claiming.

We are yet to release the Individual market and Small Business tax gap estimates, but given the work to date and the preliminary work of the Black Economy Taskforce, I can tell you we are focused on, and are targeting:

  • Undeclared income
  • Unexplained wealth or lifestyle for individuals and small businesses
  • Private expenses incorrectly claimed
  • Unpaid superannuation guarantee
  • Concentrations of cash only businesses or those with low usage of merchant banking facilities

At a higher level, for the rest of my tenure (and I finish in 2024), the ATO will:

  • Continue our Reinvention focussing on the client and staff experiences
  • Reinforce a culture of service
  • Update and release tax gaps estimates for the various client segments and tax products
  • Balance attention on all client segments so that the service and compliance initiatives are well spread and well targeted. For us this means turning up our attention next on the black (or cash) economy, small business and the individuals market
  • Strengthen our IT infrastructure and resilience
  • Drive digital initiatives including digital identity and modernisation of the business registers in Australia
  • Use and share data in more sophisticated ways for both service and targeted enforcement activity
  • Continue to work with international counterparts to deal with existing and emerging risks, and
  • Work with tax practitioners and other partners to ensure integrity and efficiency of the system in operation.

The business of tax and super is increasingly dynamic, topical and constantly changing. You can find out the latest developments from us by subscribing to the ATO’s news/alert services, watching and participating in our series of livestream webcasts, and keeping up-to-date with your software provider.

Before we move to questions, I want to wrap up with a few final statements.

Australia is in a good position. We have high levels of voluntary compliance, there are relatively few disputes and complaints and we are performing well against our measures. We have constructive relationships with key stakeholders, we are getting positive feedback and we have recovered well from the IT setbacks. We are on track to deliver the services that our partners and clients want, and we have great people who are committed and engaged.

We in the Australian Tax Office are starting from a position of disadvantage – we take money from people – never a great starting point for any relationship; and some people simply don’t like it.

But recognising that difficulty, I want the ATO to be comparable with the best of any large organisation anywhere in the world with a large and diverse client base, where people who interact with us, although they probably didn’t want to, think their dealings were about as good as they could ever expect from a modern revenue authority.

Thank you and I am happy to take questions.