Commissioner of Taxation Annual report

2015–16VOLUME 01

ContactMail Director Corporate Performance, ATO Corporate Australian Taxation Office PO Box 900 Civic Square ACT 2608

Phone (02) 6216 1111 Email annualreport@ato.gov.au Annual report ato.gov.au/annualreport Website ato.gov.au

Copyright© AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA, 2016

You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).

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PublishedAustralian Taxation Office, Canberra, October 2016 NAT 0995-10.2016 JS 37087

AcknowledgmentsAnnual report team: Sharon Robinson, Yolanda Applebee, Lisa Tutalo, Craig Berry, Liz Spindler, Sonya King, Lara Smigielski and Bronwyn Shepherd. Thank you to all ATO contributors.

Designed and editedDigital Delivery, ATO Corporate, Australian Taxation Office

PrintedPrinted on Monza Recycled paper that contains 55% recycled fibre, and 45% elemental chlorine free pulp. All virgin pulp is derived from well-managed forests and controlled sources. Monza Recycled is manufactured by an ISO 14001 certified mill.

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Delivering a better experience

Tax and super info on the goIndividual taxpayers, small businesses and self-managed super funds can now get tax and super information and tools ‘on the go’ with the ATO app.

Download it from your App store now. Learn more at ato.gov.au/app

MyDeductions saves time and makes claiming a refund easier

MyDeductions, in the ATO app, makes it easy to keep track of work-related expenses, donations, interest, dividends and other deductions all in one place as they occur – ready for tax time.

Learn more at ato.gov.au/mydeductions

Easy access with voice authentication

Voiceprint provides an added layer of security when using ATO online services from a smart phone or tablet. Users simply log in with their voiceprint for faster, easier access.

Enrol your voiceprint using the ATO app. Learn more at ato.gov.au/app

Pre-filling means easier and more accurate tax returns

When completing a myTax return, most of the information is already pre-filled. This saves time and acts as a reminder about income to declare and deductions you can claim.

Learn more at ato.gov.au/mytax

SuperBusiness MoreIndividualsHome

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Key dates

Taxwithheld calculator

Onlineservices myDeductions Key dates

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Lodging with myTax is quick, easy and secure

Lodging a tax return is faster, easier and more convenient than ever. MyTax is available 24/7. Helpful messages guide you through and refunds are issued faster — generally within 2 weeks.

Learn more at ato.gov.au/mytax

Connect to ATO online services via myGov

It’s now easy to manage tax and super using ATO online services through myGov. Receive mail electronically, update your details and link your ABN to access business services.

Learn more at ato.gov.au/mygovinbox

Supporting small businesses right from the start

New businesses receive help from the ATO right from the start – information to help manage and grow the business, including how to make best use of our new digital services.

Access the tools at ato.gov.au/businesshelp

A better experience with our website

It’s now easier and faster to find information on our website. We’ve removed duplication and complexity, improved content, navigation and the search function, and the site is improving every day.

See what’s changing at ato.gov.au/refresh

This year, we have been improving our digital services to provide the best possible experience with the tax and super systems for our clients, our staff and our partners. Our range of improved digital services is making it easier to access the right service, in the right way, at the right time.

Commissioner of Taxation Annual report

2015–16VOLUME 01

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About this report This annual report relates to the ATO’s performance for 2015–16. The report forms a primary mechanism of accountability to the Parliament of Australia.

It is published in two volumes:

Volume 01 Performance, governance and accountability

Part 01 OverviewThe Commissioner’s review, as well as information on our Executive and organisational structure.

Part 02 Performance reportingHighlights of our performance during the year, including our annual performance statement.

Part 03 Management and accountabilityThe ATO’s governance arrangements, including workforce, financial and property management.

Part 04 AppendixesAspects of our administration, such as reporting on specific legislation, a summary of reports by external scrutineers, significant court cases and workforce demographics.

Part 05 Reference materialA list of tables and figures within the report, a glossary, lists of key documents and acronyms, a compliance index and an alphabetical index.

Volume 02 Financial statements

Part 06 Financial statementsOur audited financial statements and a report by the Auditor-General.

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Commissioner’s review

Looking back on 2015–16, it was a year of solid and consistent performance for the ATO. We fulfilled our mission this year by implementing a range of strategies to foster willing participation in the tax and superannuation systems.

We delivered against our commitments to government and met all of our service commitments, at the same time as progressing our transformation program, Reinventing the ATO.

We improved the client experience by:�� making things easier to use and understand�� giving greater certainty with better guidance

materials�� providing more support to help people get

things right�� engaging early and ‘upstream’ more often�� making greater use of data and pre-fill, for

both service and compliance purposes.

A number of our new and improved services were well received:�� the streamlined online tax return, with

1.8 million individuals using myTax, up by 725,000 over the previous year

�� new features on our app, such as myDeductions and the Business performance check tool

�� the ability to lodge activity statements and set up and manage payment arrangements online

�� greater availability of alternative dispute resolution

�� better website content, a web-chat facility and a virtual assistant

�� tax governance guides for businesses�� ‘Show me what, how and why’ sessions in

regional centres for small businesses.

While we delivered these new and improved services direct to clients, we also delivered improvements for the tax profession. The tax profession is critical to the effective and efficient administration of the tax and superannuation systems in Australia, and our service and support of the profession is vital to our success.

Over the past couple of years, there have been growing concerns about some of our services for the profession, so this year we invested in greater communications, connections and making improvements. We consulted extensively, including visits to many practitioners’ offices, to understand their experiences and

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what we could do to ‘fix’ irritants; in particular, with the client correspondence list (CCL) and performance of the Tax Agent Portal.

We conducted ‘show me what, how and why’ sessions for agents to help them optimise the performance of the portal and their own technology, introduced a complex issue resolution service, eliminated irritants with the CCL and worked with software providers to build the new practitioner lodgment service (PLS) for Tax Time 2016 and beyond.

In the coming year, we will continue to improve the experience of the tax profession and will work collaboratively with them and software providers to bed down PLS, offer more online tools, and help create a joint future that provides ‘value-add’ services for Australians and businesses.

Over the past year or so, there has been much community, government and media attention on the tax behaviour of large corporates, especially multinational enterprises, and on those contriving structures in low taxing jurisdictions to avoid their tax obligations in Australia.

We have made many representations at parliamentary committees, in the media and other platforms to ensure the community and key stakeholders understand and have confidence in our approaches to dealing with these risks and issues. This has been an important commentary for us to make because we know that willing participation in our tax system is heavily reliant on the perceived fairness of the system and our administration.

Our engagement with large businesses focuses on a cooperative relationship, transparency, prevention before correction, early assurance and certainty for all parties. This approach is our starting position for working with all businesses and by far, the majority of businesses work this way with us.

Our tolerance, and that of the community’s, for game-playing and tax avoidance has dropped considerably. We have been and will be very deliberate and strong in our messages and actions with those seeking to avoid their tax obligations. I have been very pleased with the

compliance work of our International Structures and Profit Shifting Program, raising $1.2 billion in liabilities since the program started in 2013.

The introduction of the Multinational Anti-Avoidance Law, the transparency measures and the voluntary disclosure code are all tools to influence changes in the behaviour of taxpayers and I am grateful that we have such a strong suite of tools to draw on and use as necessary.

The investment in the Tax Avoidance Taskforce, announced in Budget 2016–17, was a welcome endorsement and vote of confidence in the work we have done to date in this area. Over the next three years, we will be undertaking significantly more work, reporting to the community regularly about our actions and results.

I would also like to acknowledge the work of the ATO in helping drive an international approach to dealing with the data leak from Mossack Fonseca, known as the Panama Papers leak. In April 2016, the ATO initiated a worldwide collaboration of tax authorities to deal with the phenomenon.

We continue to lead collaboration internationally via the Joint International Taskforce on Shared Intelligence and Collaboration (JITSIC) Network made up of 37 Organisation for Economic Co-operation and Development (OECD) member jurisdictions. We have successfully transformed the way we work with other jurisdictions by leading the expansion of this network and driving the international agenda through the coordination of joint projects. Here at home, as part of the Serious Financial Crimes Taskforce, we work with our partner agencies to bring to account those who use, or facilitate the use of, offshore entities, phoenix companies, trusts and complex corporate structures to undertake serious financial crimes. These crimes include the evasion of tax, the avoidance of corporate responsibility, and the laundering of the proceeds of crime.

Australians want to know we are doing what we can to level the playing field for businesses – with multinationals, the sharing economy, the cash economy and other risk areas. We will continue to use more sources and more sophisticated intelligence to target compliance action on those who warrant such attention.

Commissioner of Taxation Annual report 2015–16

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We will, of course, protect the identity and information of taxpayers, but we will not be silent about our approaches and results. Nor will we let commentary or statements stand where they have the potential to undermine integrity or confidence in the system, or the ATO.

We expect that in such a large and complex system we will have disputes. Our intention is to resolve them as early as possible, in a way that is fair and respectful. On 1 July 2015, we moved all objections out of the Client Engagement Group into the Review and Dispute Resolution business line in the Law Design and Practice Group signalling a fresh, independent set of eyes for disputes.

We have been transforming the way we manage disputes. Our increased use of alternative dispute resolution, new settlement guidelines and the use of independent ATO facilitators to help achieve breakthroughs in disputes, has meant that in 2015–16 fewer cases went to litigation. Our approach ensures that we pursue the right litigation matters for the right reasons and has meant a success rate of 85%, with 77% of cases fully favourable to the ATO and 8% of cases partly favourable.

The reduction in litigation cases has largely been in the Administrative Appeals Tribunal (AAT) and while we have fewer cases that go through to the court, we have been successful in pursuing litigation for law clarification purposes, in administrative law challenges and in matters including fraud and evasion.

The number of appeals to the AAT against decisions by the Commissioner fell by 26% during 2015–16, further evidence of our success in achieving earlier resolution and our commitment to pursuing the right cases.

Despite a challenging environment, employee engagement, as measured by the Australian Public Service (APS) Employee Census 2016, has improved since 2015. This outcome maintains the ATO’s relatively strong employee engagement performance compared with similar APS organisations.

We continued to implement workforce efficiencies as part of the organisational realignment program, which was largely completed by the end of 2015.

This program has reshaped and rebalanced our workforce to reflect our business needs and provide the right skills and jobs to deliver a better client experience. Key outcomes have included:�� the removal of unnecessary layers of

management to reduce red tape, empower staff and better reflect the accountabilities of leadership positions

�� greater workforce flexibility through flexible job design and making the best use of available skillsets

�� further investment in our staff to equip them with industry standard skills and qualifications, and securing the talent and capabilities we need for the future.

Building on the continuing program of work from 2015–16, we face new challenges and risks that have emerged over the past year, including:�� trends in use of technology that are difficult

to predict but manifest in rapidly growing community expectations for digital services that are accessible, secure, easy to use and available 24/7

�� increasing cyber security threats – to the ATO’s systems and to the identity security of taxpayers

�� mounting public concern with the impact of global economic forces on the integrity of the tax system

�� new tax measures, including the extension of GST to consumer imports of digital services and low-value goods, and a simpler BAS

�� further pressure to achieve more with less.

I am confident that we have the capability to meet these new issues.

As the next financial year gets under way, I thank my Executive team and staff at all levels for their commitment to our transformation and to delivering a better experience for the community.

I would also like to thank our stakeholders in the tax profession and colleagues in other agencies for their valued contribution to the design and administration of the tax and superannuation systems.

Thanks for a good year.

Chris Jordan AO Commissioner of Taxation

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What’s inside

Commissioner’s review viiLetter of transmittal xii

Part 01 Overview 1About us 2Mission and vision 3Outcome and program structure 4ATO Executive Committee 5Organisational structure 11Our clients 12

Part 02 Performance reporting 13Environment and expectations 14Encouraging participation with contemporary and tailored service 15Operational performance 36Building purposeful and respectful relationships 45Building a professional and productive organisation 49Australian Business Register 54Annual performance statement 57

Part 03 Management and accountability 79Corporate governance 80Workforce management 86Property and environment 91Financial management 95

Commissioner of Taxation Annual report 2015–16

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Part 04 Appendixes 99Appendix 1: Reporting on specific legislation 100Appendix 2: Laws conferring powers on the Commissioner 102Appendix 3: Legal services expenditure 103Appendix 4: Strategic litigation 104Appendix 5: External scrutineers’ reports 111Appendix 6: Compensation statistics 113Appendix 7: Diversity and inclusion 114Appendix 8: Workforce demographics 116Appendix 9: Advertising, direct mail, media placement and market research 120Appendix 10: Use of access powers 122Appendix 11: Information provided to law enforcement agencies 123Appendix 12: Agency resource statement 127Appendix 13: Reporting on activities (outputs) 132Appendix 14: Corrections 139

Part 05 Reference material 141List of tables 142List of figures 144Glossary 145Key resources 148Acronyms and initialisms 149Annual report compliance index 151Alphabetical index 155

SnapshotsTwo new senior executive roles 8Cutting red tape by questioning what we do 17Employers say SuperStream streamlines contributions 24Fix-it Squads remove irritants 25Helping business operators meet their tax and superannuation obligations 26Practical compliance guidelines deliver savings to taxpayers 26Engaging early provides assurance for consolidated groups 31Countering offshore arrangements designed to avoid tax obligations 32Assisting tax practitioners through field visits 35Tailoring our tax collection approaches to local circumstances 38Creating the workplace of tomorrow 51SBR benefits 56

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The Hon. Kelly O’Dwyer MP Minister for Revenue and Financial Services Parliament House CANBERRA ACT 2600

The Hon. Michael McCormack MP Minister for Small Business Parliament House CANBERRA ACT 2600

Dear Ministers

I, as the accountable authority for the Australian Taxation Office, the Australian Charities and Not-for-profits Commission (ACNC), and the Tax Practitioners Board (TPB), present you with the annual reports for presentation to Parliament in compliance with section 46 of the Public Governance, Performance and Accountability Act 2013.

The reports follow the guidelines approved by the Joint Committee of Public Accounts and Audit, as well as other legislative reporting requirements as listed in: � Appendix 1 of this report (for the ATO) � subsection 60-130(1) of the Tax Agent Services Act 2009 (for the TPB) � Division 130 of the Australian Charities and Not-for-profits Commission Act 2012

(for the ACNC).

Due to their operational independence and statutory obligations, the TPB and the ACNC have produced their own annual reports.

As required by section 10 of the Public Governance, Performance and Accountability Rule 2014, I certify that we have: � prepared fraud risk assessments and fraud control plans � appropriate fraud prevention, detection, investigation and reporting mechanisms that meet

the specific needs of the ATO � taken all reasonable measures to appropriately deal with fraud.

Yours sincerely

Chris Jordan AO Commissioner of Taxation

11 October 2016

Ian R Taylor Chair of the Tax Practitioners Board

Susan Pascoe AM Commissioner Australian Charities and Not-for-profits Commission

COMMISSIONER OF TAXATION

Commissioner of Taxation Annual report 2015–16