The Tax Office has fallen short of budget revenue targets by $4.2 billion, its 2017 annual report shows.
The 20,435-strong organisation also reported it continued to cut deals with the top end of down, rather than heading to court.
Over the past financial year the ATO initially issued 36 large companies with tax bills amounting to $2.8 billion, but after wheeling and dealing it collected only half that amount - $1.4 billion.
Net tax collections in 2016-17 were $359.3 billion, up $16.7 billion (4.9 per cent) over the previous year, but $4.2 billion (1.2 per cent) below the amount expected at the time of the budget 2016-17. The shortfall was under the amount recorded a year earlier (2015-16) of $14.5 billion.
Low wage growth
"Subdued wage growth" continued to have an impact on individual's tax collections in 2016-17, the ATO's annual report said, which were up $6.8 billion (3.6 per cent) over the previous year, but below budget expectations by $3.1 billion.
GST collections were $2.5 billion (4.3 per cent) higher than the previous year, but $0.9 billion (1.5 per cent) below the budget 2016-17 expectations, "reflecting softer consumption growth and lower consumer price inflation than anticipated".
Company tax receipts were $5.8 billion (9.2 per cent) higher than the previous year. "This reflected higher commodity prices flowing on to stronger growth in company profits," the ATO said.
Australians claim about $23 billion in tax deductions for work-related expenses each year. Photo: Erin Jonasson
Tax refunds hit $42 billion
In 2016-17, the agency issued income tax refunds with a total value of $42.4 billion. It also issued activity statement refunds with a total value of $56.7 billion. Total refunds were $99.1 billion, up 2 per cent from 2015-16.
The ATO completed 3.1 million compliance activities across all taxpayer segments this year, raising $15.6 billion in total liabilities and collecting $10.2 billion in cash, although it said that some related to liabilities raised in previous years.
Work-related expenses accounted for about 76 per cent of deductions for individuals (about $23 billion), but individuals commonly over-claimed rental and work-related expenses, it said.
To deal with this, the agency undertook 762,000 compliance activities and raised tax liabilities of $893.8 million.
Cutting deals with big bosses
The ATO recently came under criticism for cutting deals with big companies.
In 2016-17, there were about 650 settlements, with 89 per cent occurring in the pre-litigation stage. This compares with about 1350 settlements, or 96 per cent, occurring at the pre-litigation stage in 2015-16. Most of these matters related to the 2014 tax amnesty known as, Project DO IT, and the agency's offshore voluntary disclosures.
While most settlements, in percentage terms occur with micro-businesses (50 per cent with 326 micro-businesses in 2016-17), the value of settlements in dollar terms is highest at the top-end of town (in 2015-16 it settled on $1.36 billion of revenue with 36 large companies)
In the high-weallth individuals market it also settled big - they got hit with $237 million worth of tax bills but in the end paid $95.5 million.
The ATO is changing the way it reports settlements in its annual reports. It now wants to measure settlements by "client groups".
It reported that in the "public and multinational businesses" segment there were 61 taxpayers that initially got served tax bills of $3.7 billion but in the ATO got $2.3 billion (a variance of $1.4 billion).
The ATO said it was "settling cases earlier" with taxpayers and "continues to be aware of community concerns that we are settling the right cases in the right way". That's why it had engaged three retired Federal Court judges to conduct "independent assurance" of large settlements.
In the "public and multinational businesses" segment there were 61 taxpayers that initially got served tax bills of $3.7 billion but in the ATO got $2.3 billion Photo: Louie Douvis
Collectible debt
Collectable tax debt was $20.9 billion, up from $19.2 billion in 2015-16. The majority was owed by small business. Small businesses owed nearly $13.9 billion in collectable tax debt, an increase of 7 per cent from last year.
The 12-month rolling average of the ratio of total collectable debt to net tax collections was 5.6 per cent, "not quite achieving the target of 'below 5.5 per cent'", the ATO said.
These were "reasonable results", it said, given a year-on-year increase of $1.8 billion in audit-raised liabilities, including liabilities flowing from the Tax Avoidance Taskforce, the Serious Financial Crime Taskforce, Operation Elbrus and Operation Nosean.
???The decrease in debt collection activities was due to the lead-up to an ATO system upgrade in November 2016 and IT outages late last year and early this year.
Complaints up
The ATO received 25,073 complaints - inclusive of 1274 complaints to the office of the Inspector-General of Taxation Ali Noroozi.
The ATO received 25,073 complaints - inclusive of 1274 complaints to the office of the Inspector-General of Taxation Ali Noroozi. Photo: Louie Douvis
Community complaints represent 0.1 per cent of the total tax returns lodged in 2016-17, and its complaint processing time was improving.
At the end of 2016-17, 88 per cent of liabilities had been paid on time, down 1.4 percentage points from last year, and 96 per cent of liabilities had been paid within 90 days of becoming due, consistent with 2015-16.
The ATO registered 190 and finalised 192 compensation claims, with 79 resulting in compensation being offered.
The total amount of compensation payments made in 2016-17 was $801,305. The median payment was $500 and the average was $8,435.
Fraud investigations
Fraud prevention and internal investigations across the year - which in some cases included collaborating with the Australian Federal Police - resulted in 404 allegations or reports, of which: 122 were substantiated, 134 were unsubstantiated, 35 were not able to be determined and 113 remain open at the end of the year.
"Unauthorised access continues to be the largest category of substantiated allegations, and is identified through proactive monitoring and integrity scanning," the agency said, which "predominantly involves access to the employees own records or those of their family members or other people to whom they are connected".
At Senate Estimates last week, Tax Commissioner Chris Jordan revealed that ATO staff that were the subject of Operation Elbrus investigations breached the agency's code of conduct but are now back at work.
Former ATO deputy commissioner Michael Cranston stepped down from the agency in June. Photo: Peter Rae
Mr Jordan told estimates that while one of the ATO's highest-ranking officers, Michael Cranston, stood down in June following allegations that he abused his position, other staff members involved in breaches of the code have returned to work with sanctions.
Multinational focus
The ATO was performing one-on-one reviews of the largest 100 public and multinational groups.
Engagement with taxpayers under the Top 1,000 program resulted in 12 voluntary disclosures, with a tax impact of over $24 million.
At the end of June, the ATO had 98 audits under way covering 81 public and multinational businesses. There were 33 audits finalised at 30 June 2017, with total income tax liabilities raised in excess of $4 billion.
The agency in 2016-17 collected $1.7 billion in income tax from public and multinational businesses.
More was coming with 18 companies - such as Google and Facebook - restructuring under the federal government's Multinational Anti-Avoidance Law (MAAL), meaning $6.5 billion in sales was now being counted as part of the Australian tax base.
18 companies - such as Google and Facebook - are restructuring under the government's Multinational Anti-Avoidance Law (MAAL) Photo: Phil Carrick
The Diverted Profits Tax (also informally known as the 'Google Tax') applying from July this would see more money (estimated at about $100 million) coming in.
Move to lock in deals
More multinationals were coming to the ATO to lock-in deals ahead of time to avoid getting hit with big tax bills later. This in ATO-speak is known as "Advance Pricing Arrangements (APAs)".
In 2016-17, the agency completed 16 APAs (6 bilateral and 10 unilateral). This was down compared to the 41 APAs it completed in 2015-16, when it processed a larger than average number of APAs on a project basis.
At 30 June 2017, there were 114 applications in place and another 106 in progress, including 31 in the early engagement stage.
Taxpayers continued to make voluntarily disclosures of underpaid or unpaid tax, which resulted in $776 million in liabilities (this included about $193 million in GST liabilities, with cash collections of $187 million as a result of voluntary disclosures from large businesses in 2016-17).
