Institute of Certified Bookkeepers

How the ATO identify and categorise the top 100

The ATO risk assess each large public and multinational business at the economic group level. The ATO consider an economic group to include all Australian-based entities under a direct or indirect Australian or foreign majority controlling interest.

Top 100 clients are initially identified based on the size of their Australian operations. Other factors the ATO consider include income tax, GST or excise paid and the influence the client may have on their market segment.

The ATO provide top 100 clients a risk categorisation for income, goods and services, excise, and petroleum resource rent taxes.

The categorisation is based on a point in time assessment of a client's:

  • consequence of potential non-compliance – based on business size and influence
  • likelihood of non-compliance – transparency, behaviours and tax compliance risks.

The ATO use their professional judgment to make this assessment. The factors the ATO consider for likelihood and consequence vary for each tax product and the amount of information and interaction the ATO have with each client. The ATO consider both quantitative and qualitative measures.

Top 100 clients receive an annual letter from the Commissioner advising them of their risk categorisation. These clearly outline the categorisation and basis of this for each applicable tax, what this means for them and how the ATO intend to engage with them over the next 12 months.

Risk categories

The ATO use three risk categories:

  • key taxpayer
  • key taxpayer with significant concerns
  • higher risk.

Key taxpayer

A key taxpayer generally has a lower risk level relative to other clients in the top 100 population and no significant history of adjustments from the ATO. This does not mean they have no risks and that the ATO would not have any disputes or differences of opinion on the tax outcomes intended by law.

Compared to higher-risk clients, a key taxpayer would be proactive in advising us of issues, allowing us to work with them on a resolution. They would not seek to conceal issues, instead providing full and true disclosure of significant and potentially controversial tax positions and engage cooperatively in seeking a resolution, keeping us informed of their decisions and actions.

As a key taxpayer, the ATO take a particularly close interest in your risk management and governance frameworks to mitigate tax compliance risks.

If a potentially contestable matter is identified, the ATO will work with you to resolve it and evaluate your compliance with the law.

The ATO are less likely to use their formal powers to obtain additional information, although the ATO may do so if the ATO are unable to obtain the information and evidence needed to form a view in a timely manner.

Key taxpayer

XYZ Ltd have always taken an open, transparent and cooperative approach to their tax obligations. They are also conservative in their tax planning.

Their tax team purposefully engages with us during their income tax pre-lodgment compliance reviews (PCR) and GST and excise engagements.

This includes giving us a business update, walkthrough of their lodged returns and GST integrity of business systems (IBS) issues annually.

Key taxpayer with significant concerns

Key taxpayers with significant concerns may have multiple identified risks and/or have economic outcomes that don't appear to be reflected in their tax outcomes.

Clients in this category will have more complex risks with larger amounts of tax at risk than clients in the key taxpayer category. However, the ATO would generally still expect the relationship with the client to be positive.

The ATO work closely with clients in this category to improve their future risk categorisation. For example, the ATO would meet with the client to discuss a treatment plan to lower their risk rating.

Key taxpayer with significant concerns

ABC Ltd has been involved in complex arrangements resulting in income tax risks on which the ATO have issued taxpayer alerts and public guidance. They also have a tendency to litigate matters and are not willing to settle tax disputes.

Higher risk taxpayer

A higher risk taxpayer may have multiple complex and structural risks across different parts of the tax law. They typically exhibit behaviours including poor or inconsistent engagement with the ATO, not meeting deadlines for information requests, and are sometimes late in meeting their tax obligations.

Governance of tax risk is often poor and tax is a dominant factor in making business decisions for higher risk taxpayers. They do not consistently seek ATO advice on major transactions with significant tax implications.

A higher risk taxpayer may have a structure that appears unnecessarily complex or may enter into arrangements that objectively make little sense other than for the tax benefit.

The ATO continuously review higher risk taxpayers. Their activities may include comprehensive audit and other intensive risk assessment approaches. The ATO aim to identify and understand risks and communicate their concerns as early as possible. This allows the client to make informed choices about their compliance approach.

For higher risk taxpayers that are not open and transparent with us, the ATO are more likely to use their formal powers of information gathering.

Higher risk taxpayer

AusCo takes an aggressive position on an established tax scheme that operates in conflict to an ATO published position.

AusCo does not engage with us and is not transparent in its dealings. They have insufficient corporate governance processes to prevent aggressive tax positions being taken.

Given AusCo's general behaviour and the nature of the arrangement the ATO would undertake a full audit of their tax affairs to fully understand the tax risks.

  • 19th October, 2018