Australian Taxation Office

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 and significant aspects of Australia’s superannuation system. The ATO has a single outcome delivered through 18 programs. It administers legislation governing tax, superannuation and the Australian Business Register and supports the delivery of government benefits to the community. The ATO is taking 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 boosts and early release of superannuation. In addition, the ATO provides support to the Tax Practitioners Board, the Australian Business Register and the Australian Charities and Not-for-profits Commission. Further information is available from the ATO’s website.

In the 2019–20 Portfolio Budget Statements (PBS) for the ATO, after accounting for the Portfolio Additional Estimates Statements (PAES), the aggregated budgeted expenses for 2019–20 total just under $22.93 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 2019–20 PAES.

The ATO is responsible for administering the tax and superannuation systems and the delivery of administered programs. It is continuing to reform its administration of the tax and superannuation systems under the ‘journey of transformation’ theme. Its 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, improvements to technology systems, improving taxpayer interaction, and system integrity.

Audit focus

In determining the 2020–21 audit work program, the ANAO considers emerging risks from the ATO’s initiatives, reforms and changes in its operating environment, together with the usual 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. In 2019–20 and 2020–21, the ATO’s delivery of COVID-19 economic response measures is impacting on its business-as-usual activities. The ATO faces specific risks in stakeholder communication, information technology 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.

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 scheme, raises a range of implementation risks. These risks relate to appropriately balancing new policy implementation with business-as-usual activities; workforce redeployment; IT system development and data integrity; stakeholder engagement and coordination; potential internal and external fraud; and noncompliance with new and existing regulatory activities.

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 and compliance processes.

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-lodgement of tax returns, inaccurate tax returns, or non-payment of debts.

Financial management

Risks in the preparation of financial statements arise from the significant value of tax revenue, specifically the accuracy of administered income and expenses, which includes 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	3	2
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

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 2019–20 total $22.93 billion, with 52 per cent of these expenses attributable to subsidies and supplier expenses, as shown in Figure 2.

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

Source: ANAO analysis of 2019–20 PAES.

The five key risks for the ATO’s financial statements that the ANAO has highlighted for specific audit coverage in 2019–20, including those that the ANAO considers potential key audit matters (KAMs), are 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 (KAM – Accuracy of administered income and expenses) and expense estimations relating to the JobKeeper Payment scheme;
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);
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 – Completeness and accuracy of taxation revenue);
complex manual data compilation processes required for financial reporting that increase the risk of error or misstatement; and
complexity and reliance on IT business systems and technology for the processing of taxpayer returns and statements.