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

Thursday, August 16, 2012

Commonwealth Bank boss rules out independent rate cut; rejects "crying poor" criticisms; will cooperate in banking inquiry

By Business editor Peter Ryan

The Commonwealth Bank's chief executive Ian Narev has ruled out a rate cut independent of the Reserve Bank in the short-term.

The major banks have increased mortgage rates relative to the Reserve Bank's cash rate since the onset of the financial crisis, by lifting rates when the Reserve has kept them on hold, increasing them by more than the RBA's cash rate rises, or not passing on the same percentage point reduction as the RBA when official rates have fallen.

Westpac's chief executive Gail Kelly and Mr Narev had both intimated previously that their banks will eventually reduce their mortgage rates relative to the cash rate as funding costs ease.

However, speaking to AM, Mr Narev says funding costs remain high, meaning that a potential home loan rate reduction relative to the Reserve Bank's cash rate will have to wait.

"You've got to bear in mind that what puts pressure on our wholesale funding is the cost of new funding relative to the cost of the funding it replaced, which isn't usually funding from a month ago, it's funding from two or three years ago, and that continues to go up," he said.

"The other factor we've got here is that deposit competition is increasing and, as I said before, depositors do well, but that does continue to put pressure on our deposit pricing so, as we sit today, unfortunately we're not at the end of a cycle where funding costs are going up."

Ian Narev says that situation is unlikely to change in the short-term while volatility and uncertainty about Europe's economic future reigns.

"We think there must be a solution, it involves greater integration, but we can't see how that solution's going to be workable politically and I continue to hold that view today. And I don't think that uncertainty's a good thing for the global economy or indeed the economy here in Australia," he observed.

"So, we don't foresee a big disaster in Europe, although that is a possibility, but at the same time we can't really see yet what the catalyst is going to be for a significant improvement."

However, despite the prospect of mortgage rates remaining high relative to the cash rate and the bank's record $7.1 billion profit, CBA's chief has brushed aside calls for a another banking enquiry.

"We do think it's a very competitive banking system, so I don't think you need an enquiry to tell as that. And indeed we've had various versions of enquiries trying to get at that and, I think what I've said before on the impact on margin shows that it is competitive," he added.

"But there are legitimate questions about Australia's long-term funding that need public debate and, if the way to do that is through an enquiry, then we would be happy to participate in that."

You can follow Peter Ryan on Twitter @Peter_F_Ryan

Tuesday, August 14, 2012

Tax watchdog worried about ATO's monopoly power

By Business editor Peter Ryan

The man keeping an eye on the Australian Tax Office has raised concerns about the agency's monopoly power, likening it to Telstra's predecessor Telecom.

The Inspector-General of Taxation, Ali Noroozi, is calling on taxpayers to come forward with complaints about alleged unfair treatment relating to issues such as tax audits and delayed tax refunds.

Mr Noroozi has also told AM he's identified the controversial Project Wickenby as an area for potential scrutiny after complaints that the ATO's pursuit of high wealth individuals is heavy- handed.

"I guess you could compare (the ATO) it to Telecom before it was merged with OTC and Aussat. The Australian Taxation Office is a monopoly by necessity, by and large they do a very good job. But by the same token, any organisation of that size that is a monopoly provider requires a certain degree of scrutiny and proper governance procedures," Mr Noroozi said.

"I want taxpayers to come forward and share their concerns with the way the tax office has dealt with them or their interactions with them so that I can have a better idea what the systemic issues are."

Mr Noroozi has identified a range of issues to be scrutinised such as the way tax audit targets are selected, delays in tax refunds, the administration of penalties and questionable "U-turns" on decisions.

But Noroozi stopped short of accusing the Tax Office of abusing its sustantial power over most aspects of life in Australia.

"I don't know whether abuse is the right word but certainly all the areas that I've reviewed have obviously been areas where taxpayers have cited that they've had issues and I have established that there is a systemic issue to be investigated. There's a whole range of reviews that we have done," Mr Noroozi said.

He agreed however that complaints about strong-armed tactics had been examined in the past.

"We see some very good examples of how the tax office has conducted itself and the way its dealt with the taxpayers, but we also see some ordinary ones and we also see some not so good ones. So yes we do see the range."

Mr Noroozi has extensive powers to monitor the ATO's activities including unrestricted access to the agency's internal systems, records and personnel.

While the ATO has implemented and agreed to many of Mr Noroozi's recommendations, it is clearly a sensitive relationship.

"It's not necessarily an easy relationship. My job is to only look at the problems. So obviously I'm constantly pointing out things that at least in my view are not working well," Mr Noroozi said.

"So of course that does not make an easy relationship."

That's an understatement that some Australian businesses and households might agree with.
Listen to an extended version of my interview with Ali Noroozi here.

Visit the Inspector-General of Taxation website.

Twitter: @peter_f_ryan