Entity overview

The Australian Taxation Office (ATO) is the Australian Government’s principal revenue collection entity, and is part of the Treasury portfolio. The ATO’s role is to administer Australia’s tax system, significant aspects of Australia’s superannuation system and business registry services.

The ATO has a single outcome delivered through 19 programs. It administers legislation governing tax, superannuation and the Australian Business Register and supports the delivery of government benefits to the community. The ATO has taken a lead role in delivering several of the government’s economic response measures to the COVID-19 pandemic, including the JobKeeper payment scheme, cash flow boost, early release of superannuation and the JobMaker Hiring Credit scheme. In addition, the ATO provides support to the Tax Practitioners Board, the Australian Business Registrar and the Australian Charities and Not-for-profits Commission. Further information is available from the ATO’s website at ato.gov.au.

In the 2021–22 Portfolio Budget Statements (PBS) for the ATO, the aggregated budgeted expenses for 2021–22 total $24.01 billion. The PBS contain budgets for those entities in the general government sector that receive appropriations directly or indirectly through the annual appropriation Acts.

The level of budgeted departmental and administered expenses and the average staffing level for the ATO are shown in Figure 1. Administered expenses represent the largest proportion of the ATO’s total budgeted expenses.

Figure 1: Australian Taxation Office – total expenses and average staffing level

Source: ANAO analysis of 2021–22 PBS.

The ATO is responsible for administering the tax and superannuation systems and delivering administered programs. It is continuing to reform its administration of the tax and superannuation systems under the ‘Towards 2024’ program. The program’s aim is to build trust and confidence in the tax and superannuation systems and to create a streamlined, integrated and data-driven future. The ATO is focusing on the delivery of major projects and improving technology systems, taxpayer interaction and system integrity.

Audit focus

In determining the 2021–22 audit work program, the ANAO considers emerging risks from the ATO’s initiatives, reforms and changes in its operating environment, together with service delivery and compliance risks, and the ANAO’s prior-year audit and other review findings.

Audit considerations are predominantly related to the ATO’s regulatory responsibilities to ensure high levels of compliance with tax and superannuation obligations, and any changes in compliance and controls during the COVID-19 pandemic. The ATO faces specific risks in stakeholder communication, information technology (IT) systems and compliance controls. These risks need to be managed through well-designed systems and frameworks to support taxpayers to submit information efficiently and process their financial transactions in a timely, accurate and secure way.

Specific risks in the ATO relate to governance, regulation and financial management.

Governance

The ATO has a significant role in working with other entities on shared programs such as trade support loans, research and development, and the tourist refund and farm management deposit schemes. Previous audits of the ATO’s work with other government entities have found that there was scope to improve coordination.

The ATO’s role in delivering COVID-19 economic response measures, such as the JobKeeper payment raise a range of administration risks. These risks relate to scheme integrity measures and monitoring the operational performance of the schemes.

Regulation

In administering the tax and superannuation systems, previous audits have found that while the ATO generally has sound administration arrangements in place, there is room for improvement in risk management, compliance processes and demonstrating supplier procurement requirements are met.

An ongoing risk for the ATO relates to the arrangements in place to ensure tax and superannuation are paid in accordance with legislation. This includes reducing the incidence of taxpayers avoiding tax responsibilities, whether through specific tax avoidance schemes, non-lodgment of tax returns, inaccurate tax returns, or non-payment of debts. An audit of 2016–17 Budget measures to enhance ATO compliance activities found that it was unclear how much revenue had increased as a result of these activities, as the ATO had not implemented a methodology to clearly identify revenue arising from the activities.

Financial management

Risks in the preparation of financial statements arise from the significant value of taxation revenue, specifically the accuracy of administered income and expenses, which include the COVID-19 economic response measure expenses such as the JobKeeper payment scheme, the valuation of tax receivables (including tax debt provisions), and completeness and accuracy of tax revenue.

Financial statements and other audit engagements

Overview

The risk profile of the ATO is shown in Table 1.

Table 1: Australian Taxation Office risk profile

 

Type of entity

Risk of material misstatement

Number of higher risks

Number of moderate risks

Material entities 

Australian Taxation Office

Non-corporate

High

4

3

Other audit engagements (including Auditor-General Act 1997 section 20 engagements)

Australian Taxation Office – GST Cost Statement

Australian Taxation Office – GST Controls Statement

     

Material entities

Australian Taxation Office

The ATO’s core areas of responsibility are managing and shaping tax, excise and superannuation systems that fund services for Australians, together with the provision of support to the Tax Practitioners Board, the Australian Business Register and the Australian Charities and Not-for-profits Commission.

The ATO’s budgeted expenses for 2021–22 total $24.01 billion, with 55 per cent of these expenses attributable to subsidies and supplier expenses (Figure 2).

Figure 2: Australian Taxation Office’s total budgeted expenses by category ($’000)

 

Source: ANAO analysis of 2021–22 PBS.

There are seven key risks for the ATO’s 2020–21 financial statements that the ANAO has highlighted for specific audit coverage, including four risks that the ANAO considers potential key audit matters (KAMs).

  • The estimation and allocation processes associated with the reporting of taxation revenue, given the value of transactions subject to estimation that involve the application of significant judgement and specialist knowledge is higher risk, except for Petroleum Resource Rent Tax, Fringe Benefits Tax and Excise which are moderate risks. (KAM – Accuracy of administered income and expenses)
  • The eligibility and completeness of subsidy expenses in response to the COVID-19 pandemic, given the significant value and higher risk of material misstatement. (KAM – Eligibility assessments and completeness of reported subsidy payments in connection with JobKeeper payment scheme and Cash Flow Boost measures)
  • The processes for estimating debt provisions and adjustments to taxpayer accounts, including settlement adjustments and the allowance for credit amendments and impairment losses associated with taxation receivable balances at year end. This is due to the complexity of the ATO’s debt management and settlement processes and the volume of transactions subject to estimation. (KAM – Valuation of taxation receivables)
  • The compliance program relating to the collection of taxation revenues and the COVID-19 economic measure response expenses, supported by the ATO’s risk management approach to compliance activities in a self-assessment and voluntary compliance regime. (KAM – Accuracy of taxation revenue)
  • The complex manual data compilation processes required for financial reporting that increase the risk of error or misstatement.
  • The complexity of, and reliance on, IT business systems for processing taxpayer returns and statements.

Potential audits

Potential Performance audit: 2021-22
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Potential Performance audit: 2021-22
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Potential Performance audit: 2021-22
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Potential Performance audit: 2021-22
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In progress audits

Recently tabled