Review into the non-lodgement of individual income tax returns
A report to the Assistant Treasurer
11 June 2009
Table of Contents
- 1. Executive Summary
- 2. Introduction
- 3. Methodology in Brief
- 4. Findings
- 5. Technical Notes
- 8. Appendix D: Sample Profile
Telephone: (02) 8239 2111
Facsimile: (02) 8239 2100
Level 19, 50 Bridge Street
Sydney NSW 2000
GPO Box 551
Sydney NSW 2001
11 June 2009
The Hon Nick Sherry MP
Canberra ACT 2600
I am pleased to present to you my report on findings and recommendations in respect of the review into the non-lodgement of individual income tax returns. The report has been prepared under section 10 of the Inspector-General of Taxation Act 2003 (the Act).
In accordance with the requirements of section 25 of the Act, I have provided the Commissioner of Taxation with the opportunity to respond to the report’s findings and recommendations. The ATO’s response, including the relevant covering letter, is in Appendix 2 to the report.
Overall, the review found that the Tax Office is managing the non-lodgement of individual returns well and with sophistication within the current legislative framework.
The review found that every year between 1.2 and 1.5 million individual taxpayers fail to lodge a tax return when they should. However, the review also found that this is not the result of Tax Office mismanagement, but is to be expected in a tax system that requires almost every individual with income to lodge a return annually, where administration is based on self assessment and risk management approaches, and where the Tax Office is not resourced to do everything.
Importantly, the review agreed with the Tax Office that considering the profile of the non-lodging taxpayers and the Tax Office strategies to identify high-risk non-lodgers, these non-lodged individual returns do not represent a high risk to revenue or the integrity of the tax system.
An independent community survey undertaken by an expert research company as part of the review indicated that the community expects the Tax Office to maintain individual non-lodgement at a slightly better level than the Tax Office is presently achieving. The survey also suggested that the level of individual non-lodgement has been static over recent years or may be improving slightly. The review does not however suggest that the ATO should commit more of its resources to tackling individual non-lodgement, recognising that there are bigger risks to address.
Notwithstanding the generally low risk of individual non-lodgers, they do generate some cost to the system, including for the ATO, tax practitioners and the taxpayers themselves. However, the review noted that the Commissioner’s powers to either formally exempt individuals from having to lodge or to inform them that they are unlikely to be pursued, are limited. Therefore, I have recommended that the Government refer the review’s findings and the results of the community survey to the Henry review of Australia’s future tax system for consideration in that broader context, noting that the Henry review has specifically sought input in this area.
The review also found that penalties for non-lodgement of returns are very low. The review has recommended that the Government should consider increasing penalties for taxpayers that have a high revenue risk in the community.
Other recommendations are focussed on improving the Tax Office’s reporting on lodgement compliance and the Tax Office’s accessibility to, and the usefulness of, third-party data for lodgement compliance activity.
The ATO has not addressed the recommendations directed towards the Government, but has agreed to all other recommendations.
I note my thanks for the co-operative approach taken by the ATO, the support provided by staff from the Australian National Audit Office and the contribution of professional bodies, business groups and individuals to this review.
Inspector-General of Taxation
© Commonwealth of Australia 2009
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Rick Matthews and Peter Glass