Saturday, August 18, 2012

Tax audit criteria to be probed

By Business editor Peter Ryan

The man watching the tax man has raised concerns about the way some taxpayers are selected for much-feared audits of their tax affairs.

The inspector-general of taxation, Ali Noroozi, is about to review so-called "risk engines" used by the Australian Tax Office (ATO) to determine whether audit targets are selected by computer programs or ATO staff.

He has told ABC's AM that some feel the right taxpayers are not being targeted.

"We have had [taxpayers from] across the board, right from the very large to the very small, saying that perhaps this risk-identification process, or this risk engine, is not yielding the right results," he said.

Listen to the interview with Ali Noroozi broadcast on AM.

"In other words, some of those that have been identified feel that they're not risky enough to have been identified or practitioners feel sometimes that they have not identified the right taxpayers."

Mr Noroozi says the ATO compares incomes and deductions to the average to determine if there needs to be a closer look at a business.

"Let's say if you're a coffee shop for example with a turnover of a certain amount, they would expect you to have reported income of this much and perhaps this level of deductions. If you fall outside of that range, you may well be selected for the Tax Office to have a further look at," he said.

Mr Noroozi says it is important for the taxation system to have greater transparency.

"I think taxpayers want to understand how that risk engine works, but one of the things I think taxpayers take a lot of comfort from the work of this office, is that I can shed light on what they sometimes see as a black box of the Tax Office," he said.

"How much is computer-based, how much of it is human interaction is something that will come to the fore when I conduct a full review."

Mr Noroozi says the issue of delays in tax returns needs to be looked at.

"The Tax Office is on record as saying that some of it [the delay] is due to their more improved IT systems, where they are capturing more people, based on different indicators on their system," he said.

"So it needs to be looked at and [we need to] find out why - is it really because these refunds were held up for good reason and whether those delays were reasonable."

Twitter: @peter_f_ryan

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