This effectiveness story is about how we have improved the voluntary compliance of wealthy Australians
In 2009–10, we began to focus on improving the voluntary compliance of wealthy Australians. Wealthy Australians are defined as Australian residents who control net assets of between $5 million and $30 million. This group consists of approximately 70,000 individuals who control in excess of 400,000 entities.
This work is an expansion of our focus on highly wealthy individuals (Australian residents that control net assets of over $30 million) which began in 1996. Our Wealthy Australians program recognises the taxpayers that fall just outside of our definition of highly wealthy individuals, but may pose the same risk to compliance.
Our ultimate goal is to influence all wealthy Australians to pay their fair share of tax, by changing attitudes and behaviours associated with tax manipulation, avoidance and schemes. Their compliance also helps instil community confidence in the tax system.
Addressing the risks
Our strategy to influence wealthy Australians includes:
* gaining a greater and more detailed understanding and engaging with wealthy Australian’s generally through their advises by:
* focusing on areas of concern, and working with taxpayers on their tax affairs
* treating systemic tax risk
* heightening ATO visibility in the community through education
* building expertise of our staff and systems to provide service focused interactions
We have undertaken direct enforcement action, including comprehensive reviews and audits. We also engage with individuals through letter and phone campaigns, informing them of their tax obligations and clarifying their tax affairs.
We provide broader messages through printed and online information such as our annual compliance program and wealthy individuals’ compliance booklet. We also communicate our broader messages during tax agent visits and in forums such as the ATO Tax Practitioner Advisory Group and the online Let’s Talk Platform.
We developed our booklet, Small-to-medium enterprises and wealthy individuals: Our compliance approach, with the assistance and feedback of the target market. It explains what wealthy Australians can expect during our dealings with them. We observed great demand for this information following its release in 2012. It is now available on our website.
Effective results achieved
As a result of our compliance activities, we have exceeded liability targets and met our collection commitments in each of the four years since the program started. To date, we’ve raised total liabilities of $640 million and collected $223 million in cash, exceeding the revenue commitment of $285 million and $170 million respectively.
We have also exceeded our case commitments for each year, recording approximately 7,000 cases to date (including phone and letter campaigns and Project Wickenby cases). This exceeds our total case commitment of 3,632 over the four years.
Our direct compliance enforcement actions have had a lasting impact on the tax performance of entities, beyond the initial tax adjustment itself. We’ve observed taxpayers with sustained, improved tax performance after our interactions. For these entities, we’ve seen a slightly better net tax position in the year following compliance activity, when compared to taxpayers with similar characteristics.
Companies that are part of a wealthy Australian group that has undergone compliance intervention have also shown improved voluntary compliance following our activities.
Figure 2 shows the average effective tax rate, over a three-year period, for wealthy Australians that have undergone compliance intervention compared to with those that haven’t.
A broader influence
Many people that fall into the definition of ‘wealthy Australian’ are asset rich, but cash poor. Therefore we have been working to manage disputed, collectable and insolvent debt, and focusing on the conversion of liability assessments into collections before debt arises. This will continue to be our focus.
We have also gained a greater understanding of the impacts and reach of our work. As well as the direct returns on compliance liabilities, we have had a secondary and broader measurable influence.
For example, improvements were made in the tax compliance of entities related to entities in the targeted wealthy Australian group. The changes they’ve made to their tax behaviour, in response to what happened to the related entities, have resulted in approximately $12 million additional tax revenue.
We have also seen the flow-on effects from tax agents, measuring an improvement in tax performance by wealthy Australian groups that have not been subject to an audit or review, but use a tax agent who represents a wealthy Australian who has been subject to our activities.
Approximately 300 tax agents represented wealthy Australians who were subject to a tax adjustment through compliance actions. These agents collectively represent approximately 10,000 wealthy Australian groups, comprising 140,000 linked entities. The indirect impact amounts to approximately $67.5 million in additional revenue.
We can use what we’ve learned to improve our future work. Through our activities, we have a better understanding of the business structures of wealthy Australians, as well as the most effective ways of treating non-compliance and influencing longer term compliance behaviour.
We have received government funding to continue this work for a further four years, until 30 June 2017.