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, 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 took 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. The Commissioner of Taxation is the accountable authority for the ATO. In addition, the Commissioner of Taxation is also the accountable authority for the Tax Practitioners Board, the Australian Business Registrar and the Australian Charities and Not-for-profits Commission. The Commissioner is also the Registrar of the Australian Business Register and the first Registrar of the newly established Australian Business Registry Services. Further information is available from the ATO’s website.

In the 2022–23 Portfolio Budget Statements (PBS) for the ATO, the aggregated budgeted expenses for 2022–23 total $24.8 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 29 March 2022–23 PBS.

The ATO is implementing its ‘Towards 2024’ program which aims 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 2022–23 audit work program, the ANAO considers prior-year audit and other review findings and what these indicate about portfolio risks and areas for improvement. The ANAO also considers emerging risks from new investments, reforms or changes to the operating environment.

The primary risk identified for the ATO relates to the return on investment for new policy funded compliance activities and its effectiveness when delivering programs with or for other agencies where the activity does not easily fit within its tax administration framework.

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 research and development, 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 in managing risks.

There is a risk that as compliance activities return to their pre-COVID-19 levels appropriate mechanisms will not be in place commensurate with the level of compliance risk.

Australia’s Cyber Security Strategy 2020 outlines a range of initiatives to uplift Australia’s cyber security, including to harden government IT systems. The ATO is one of the pilot entities under the ‘cyber hub’ model developed as part of the Hardening Australian Government IT Initiative. While this initiative aims to strengthen Government’s cyber security posture across Commonwealth entities, it is still under development and there are risks related to the delivery and implementation of services to entities.

Regulation

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 avoidance of tax and superannuation guarantee responsibilities, whether through specific tax avoidance schemes, non-lodgement of tax returns, inaccurate tax returns, non-payment of superannuation guarantee or non-payment of debts.

Monitoring the return on investment for new policy funded compliance activities is a risk to the ATO.

- An audit of 2016–17 Budget measures to enhance ATO compliance activities found that the ATO had not implemented a methodology to clearly identify revenue arising from the activities and it was unclear how much revenue had increased as a result of compliance activities.

As part of the 2018–19 Budget, the government announced a range of Black Economy Package measures, to be implemented by the ATO in conjunction with other entities. The shadow economy remains an ongoing risk to the ATO’s purpose of fostering willing participation in the tax and superannuation systems.

Since 2020–21 the ATO, working with a number of other entities, has assumed responsibility for maintaining and delivering the Modernising Business Registers program, with the aim of making it easier for businesses to meet their registration obligations, making business information more trusted and improving efficiency. There are risks associated with stakeholder engagement, design, planning for and early implementation of the program.

Financial management

Risks in the preparation of financial statements arise from the significant value of taxation revenue, specifically the accuracy of taxation revenue, estimates of administered income and expenses and the valuation of tax receivables and provisions for refunds.

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	1
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 the tax and superannuation systems that support and fund services for Australians, together with the provision of administrative support to the Tax Practitioners Board, the Australian Business Register and the Australian Charities and Not-for-profits Commission.

The ATO’s budgeted revenue for 2022–23 is just over $501.0 billion, with the majority of these revenues attributable to income tax and indirect tax. Budgeted taxation receivables are $37.1 billion, or around 67% of total budgeted assets (Figure 2).

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

Source: ANAO analysis of 29 March 2022–23 PBS.

There are five key risks for the ATO’s 2021–22 financial statements that the ANAO has highlighted for specific audit coverage, including two 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 taxation revenue)
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 and provisions for refunds).
The compliance program relating to the collection of taxation revenues and the COVID-19 economic response measures expenses, supported by the ATO’s risk management approach to compliance activities in a self-assessment and voluntary compliance regime.
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.