When your ‘nearest neighbour’ turns out to be Big Brother.
Although the transition to Standard Business Reporting (SBR) might be getting a lot of attention, there are several other strategic digitally-based analytics projects underway at the ATO.
For example, its Smarter Data Program, which the ATO pre-empted through its document Blueprint for Change that was released in 2015. The aim of this program is to leverage the latest digital technology to make the job of everyone working in the taxation sector not only faster and more efficient but more thorough.
With so much taxpayer data now existing online, not only is the ATO (or other institutions) able to pre-fill information, it is working steadily towards being able to, for example, identify anomalies in tax returns through data analytics.
This side of the Smarter Data initiative, termed “nearest neighbour”, aims to have the capacity to set parameters for various profiles of individual and business clients. The data from millions of tax returns, activity statements, payroll records and other information from third party sources will be accessed and used.
Similar sorting and matching of data would take up to two weeks under current circumstances, but the “nearest neighbour” analytics has been trialled to run to less than 20 minutes. Ultimately, such comparisons could even run in real time. Such capabilities are already in use overseas, with HM Revenue & Customs (the British tax office) displaying screen pop-ups to accounting program users that show the taxpayer, or their professional adviser, how the tax outcome compares in real time to other similar taxpaying clients.
But there is a warning for tax practitioners in these technological developments as well — as the digital records analysis tools are being turned towards the tax practitioner sector as well. In minutes from a recent ATPAG consultative forum (“ATO tax practitioner advisory group”) the ATO stated that it can look at the work-related expense profile of a tax practitioner’s client base using a tool that rates the business based on how much these differ from their peer group for work-related expense claims.
“The difference between the agent’s and peer group value is indicated by a deviation score. The greater the deviation score, the higher the risk rating,” the ATO said. “The ATO has undertaken a program of visits to tax practitioners whose risk rating is of concern. The average total work related expenses claim per client for agents visited dropped by 20% from 2012 to 2014.”
(You can read the relevant section of the advisory group’s minutes here.)