The GST system contributed $73.6 billion in revenue in 2021–22. While the majority of GST is paid voluntarily, the ATO has an important role in ensuring that under-reported GST is effectively and efficiently managed. GST compliance risk is the risk of clients’ attitudes, behaviour and choices impacting on their ability to correctly meet their GST obligations. The failure of clients to meet their obligations leads to:
- reduced collection of budgeted revenues
- reduced voluntary compliance
- erosion of community confidence (in the ATO)
- negative implications for a level playing field.
We see taxpayer behaviour range from those who do the right thing, those who are unsure of what to do, those who are facing challenges, to those who deliberately avoid their obligations. The ATO manages work programs to mitigate the risk of not meeting the 4 pillars of tax compliance – registration, lodgment, payment (often referred to as debt) and correct reporting. Addressing these risks in the system maintains community confidence, which in turn supports voluntary compliance.
Registration
We assist clients to correctly register for GST which enables them to enter and exit the GST system when required.
There were 3.3 million businesses registered for GST on 30 June 2022, compared to 3.1 million on 30 June 2021. Small businesses are the largest sector, comprising 77% of GST registrants, followed by privately owned and wealthy groups at 14%.
Figure 7: Total registered client base by client experience – 30 June 2022
During 2021–22:
- Approximately 496,000 new GST registration requests were received. This represents a 21% growth from the previous year and was driven by increases in the administrative and support services, transport, postal and warehousing, and construction sectors.
- Approximately 294,000 GST registration cancellations were processed. This represents a 16% increase from the previous year with the administrative and support services, healthcare and social assistance, and construction sectors being the main contributors. Of the 294,000 registrations
- 205,000 were client-initiated
- 56,000 were cancelled by the ABR
- 33,000 were a mix that included ATO-initiated cancellations.
Lodge and pay
During COVID-19, the ATO has taken a relatively accommodative stance towards outstanding tax obligations. We shifted our focus to maintaining voluntary lodgment and payment as well as keeping taxpayers engaged with the tax system. The ATO’s firmer and stronger actions for disengaged taxpayers was largely paused, only recommencing in November 2021.
While a necessary response, this approach has contributed to the increase in GST collectable debt, along with ongoing economic challenges impacting taxpayers’ ability to pay their GST debt. This has been particularly evident in the small business sector that represents the majority (approximately 73%) of GST collectable debt.
Lodgment
There were an additional 439,000 BAS lodgments in 2021–22. While the number of BAS lodged has increased, the number of BAS dispatched and due has increased at a faster rate, leading to a decline in on-time lodgment performance.
- Monthly BAS – On-time performance for 2021–22 was 76.1%, 2.4 percentage points below the 2020–21 result. There were approximately 2 million on-time monthly lodgments, an 88,000 increase on 2020–21. Overall, there was also an increase of 148,000 in monthly lodgments.
- Quarterly BAS – On-time performance for 2021–22 was 67.9%, 0.6 percentage points above the 2020–21 result. There were approximately 4.7 million on-time quarterly lodgments, an increase of 340,000 from 2020–21. Overall, there were over 291,000 more quarterly lodgments in 2021–22.
|
2017–18 % |
2018–19 % |
2019–20 % |
2020–21 % |
2021–22 % |
|---|---|---|---|---|---|
Lodged (monthly) |
93.4 |
93.0 |
90.8 |
89.9 |
88.9 |
Lodged (quarterly) |
85.4 |
85.6 |
82.3 |
81.9 |
80.9 |
Total BAS lodged (including annual BAS) |
87.7 |
87.7 |
84.6 |
84.1 |
83.1 |
Lodged on time (monthly) |
83.7 |
83.4 |
81.8 |
78.5 |
76.1 |
Lodged on time (quarterly) |
73.9 |
73.1 |
71.0 |
67.3 |
67.9 |
Total lodged on time (including annual BAS) |
76.6 |
76.0 |
74.0 |
70.3 |
70.1 |
Analysis indicates a significant number of BAS have been dispatched to doubtfully registered entities (DREs). These are entities identified as having a high likelihood of no longer requiring GST registration. Small businesses account for almost 85% of the DREs identified.
The ABRS is taking steps to progressively de-register DREs. This program will remove these taxpayers from the system and stop BAS from being despatched, which will drive improvements in the ratio of on-time lodgment for BAS.
Pay
As the economy recovers, one of our key priorities is to address the level of debt that has accrued over the past 3 years. Total GST debt increased from $5.7 billion at 30 June 2019 to $12.3 billion at 30 June 2022. GST collectable debt increased from $4.3 billion to $10.4 billion over the same period. The increased debt is a result of disrupted economic activity due to lockdowns and cashflow, predominately impacting small businesses.
The 18.4% increase in GST collectable debt from 2020–21 is within the pattern of the collectable debt increase across all revenue products (16.4%). Small businesses represent 77% of total GST registrants and hold the majority of GST collectable debt at 73% ($7.6 billion). This represents a significant growth from $6.3 billion in 2020–21.
While most GST payments are made on time, there has been an increase in the value of debt in the ‘90 days to one year’ and ‘greater than one year’ categories. This reflects taxpayers continuing to experience challenges and the prolonged nature of a disrupted economic environment. The longer businesses stay in debt and do not engage with the ATO, the more problematic collection of debt becomes. Therefore, as enforcement actions recommenced our focus has been on higher-value aged GST debts.
|
2017–18 |
2018–19 |
2019–20 |
2020–21 |
2021–22 |
|---|---|---|---|---|---|
Total GST debt outstanding ($b) |
5.5 |
5.7 |
10.2 |
10.7 |
12.3 |
GST Collectable debt ($b) |
4.0 |
4.3 |
7.9 |
8.8 |
10.4 |
Insolvent debt ($b) |
- |
- |
- |
1.6 |
1.8 |
Disputed debt ($b) |
- |
- |
- |
0.3 |
0.1 |
Debt collection rate – TLM accrual (%) |
6.2 |
6.4 |
11.8 |
12.1 |
13.6 |
Debt collection rate – cash (%) |
6.3 |
6.6 |
13.1 |
12.0 |
14.1 |
Figure 8: Ageing of GST debt by value
During the period affected by COVID-19, insolvency actions initiated by both the ATO and other creditors decreased significantly. With the recommencement of ATO enforcement actions during the second half of 2021–22, we have seen an increase in insolvencies including those self-initiated by taxpayers.
Correct reporting
We support and educate taxpayers to encourage them to willingly meet their GST obligations while detecting and dealing with those who deliberately avoid them. Our treatment strategies to mitigate risk are differentiated based on client behaviours and include prevention, correction, leverage and identification/support activities.
We are reducing the burden on businesses by making it easier for all taxpayers to manage and report their GST obligations. By utilising analytical techniques to deliver tailored nudge messaging and automation at the time the taxpayer is interacting digitally with the ATO, we are helping them to identify and correct genuine errors before they lodge.
In 2021–22 we provided over 250,000 real-time prompts to taxpayers to check amounts they entered in their BAS, protecting approximately $57 million in incorrect lodgments. We also implemented an auto- adjustment approach to ensure clients lodging out of time are satisfying the legislated rules – protecting approximately $48 million in incorrect lodgments.
Compliance engagement liabilities
In 2021–22, GST liabilities raised through client engagement activities (including the GST Compliance Program) were $5,407 million (excluding penalties and interest). This is a significant increase from 2020–21 and is predominantly due to Operation Protego (detailed below).
|
2017–18 $m |
2018–19 $m |
2019–20 $m |
2020–21 $m |
2021–22 $m |
|---|---|---|---|---|---|
GST liabilities raised |
3,014 |
3,173 |
2,645 |
2,339 |
3,181 |
Operation Protego |
- |
- |
- |
- |
2,226 |
Total GST liabilities raised |
3,014 |
3,173 |
2,645 |
2,339 |
5,407 |
Refund integrity
We continue to focus our efforts on improving GST refund integrity. Where possible we want to move as much of the work to ‘pre-issue’ (before the refund issues), and to understand and address the behaviours that are causing refund fraud.
We have redesigned strategies using improved data and contemporary risk models to allow us to do this more accurately. Enhancements to our risk models improved our ability to detect suspect refund activity and increased our refund integrity strike rate, from 94% in 2020–21 to 97% in 2021–22.
These factors contributed to us achieving significant liability adjustment results from the increased volume of high-risk refund cases.
|
2017–18 |
2018–19 |
2019–20 |
2020–21 |
2021–22 |
|---|---|---|---|---|---|
Refund checks pre-issue – total cases (number) |
21,000 |
14,130 |
12,509 |
17,182 |
66,494 |
Refund checks pre-issue (GST revisions $m) |
269 |
460 |
273 |
464 |
2,762 |
Refund checks post-issue – total cases (number) |
16,000 |
19,433 |
13,749 |
6,913 |
22,635* |
Refund checks post-issue (GST revisions $m) |
84 |
46 |
33 |
19 |
436 |
Operation Protego
In early 2022, our new risk models delivered an improved risk detection capability for high-risk GST refunds. These sophisticated risk models, coupled with intelligence received from the banking and finance sector, identified a significant increase in attempts to obtain false GST refunds. Operation Protego, a multi-agency operation led by the ATO, was established in April 2022 to prevent further fraud and protect the Australian tax system from brazen and opportunistic GST refund fraud.
The attempted fraud involved individuals applying for an ABN for a business that didn’t exist, many in their own names, registering for GST and then submitting fictitious BAS to attempt to gain false GST refunds. The individuals involved were not genuine small businesses but individuals seeking to exploit the tax system.
Our response under Operation Protego is focused on disrupting the mischief, addressing behaviours, and strengthening the system.
Between mid-April 2022 and 30 June 2022, when a range of interventions and system-strengthening activities took full effect, we reviewed and stopped around $1.7 billion in further suspect GST refunds prior to payment. At 31 August 2022, approximately $66 million had already been recovered through a range of strategies. Broader and stronger compliance and debt recovery actions will continue in 2022–23.
However, in many cases recovery of refunds already issued will not be routine due to the fraudulent nature of activities and the financial position of many of the perpetrators.
In terms of revenue impacts on the 2021–22 year, our investigations led to liabilities raised of approximately $1.2 billion. Most of this amount relates to fraudulent claims made prior to mid-April 2022, with approximately $500 million of the liabilities raised prior to 30 June 2022 and the remainder raised in the 2022–23 year (up to 31 August 2022).
Our actions since mid-April 2022 have also resulted in ABNs not being granted for applicants unable to provide evidence of enterprise. We have also cancelled ABNs and GST roles for those who continue to lodge BAS with suspected fraudulent GST refund claims.
We alerted the public to the significant GST fraud in May 2022, to warn of the consequences of being involved and prevent further instances. We outlined the strong action we were taking and urged those involved to come forward through a dedicated hotline. We have continued to warn the public through multiple media channels about this form of GST fraud, and we have worked with social media platforms to identify and shut down any promotion of it.
We worked closely with government agencies and the banking and financial sector to share intelligence and information. We have also taken firmer action and through the ATO-led Serious Financial Crime Taskforce, and with the assistance of other Commonwealth and state law enforcement agencies, brought criminal action against those who claimed fraudulent refunds.
We continue to strengthen the integrity of the system as individuals try various ways to attack it. The issue is more complex than just GST refund integrity – it is also about incorrect business registration and, at times, identity theft. In response to the behaviours, we saw as part of Operation Protego, we have implemented changes that strike a different balance between making it easy for people to get into the business tax system (and comply) and harder to get in for those who should not be there.
Prosecutions and investigations
In 2021–22, deliberate and widescale GST refund fraud was identified, and opportunistic and recidivist behaviours observed.
Eight criminal briefs were referred to the Commonwealth Director of Public Prosecutions (CDPP) and 9 cases were finalised with all resulting in custodial sentences. A suite of media communications were released outlining the outcomes of these cases. As part of Operation Protego, at 31 August 2022, 44 individuals were subject to a criminal investigation.
Prosecution cases of note completed by the CDPP
- A former swimming teacher was sentenced to 3 years jail for claiming fraudulent GST refunds. Several original and amended BAS were lodged. In each instance, purchase amounts were deliberately overstated to obtain a financial advantage. In total, $97,114 of fraudulent GST refunds were paid to the swimming teacher. An attempt to obtain an additional $181,947 was made but these refunds were stopped. The defendant will be released from jail after 15 months, upon entering into a $1,000 recognisance on the requirement of good behaviour for 2 years. An order to repay the full $97,114 was made.
- An individual who obtained more than $171,000 in fraudulent GST refunds was sentenced to 2 years and 8 months jail. The defendant claimed their business had made more than $4.7 million in sales, claiming corresponding acquisitions and input tax credits. An audit investigation revealed the claims were false. In addition to the jail term, an order was made to repay the full amount.
- An individual who pretended to be running a business to obtain fraudulent GST refunds was sentenced to 3 years jail. The defendant falsely claimed the business had made more than $300,000 in sales, claiming $256,955 in GST credits. In total, $189,270 was obtained in fraudulent GST refunds. An attempt to obtain an additional $39,778 was stopped prior to release. The defendant pleaded guilty to 13 counts of obtaining a financial advantage by deception and one count of attempting to obtain a financial advantage by deception.
- A group of 3 defendants were each charged and convicted with one count of conspiracy to defraud the Commonwealth. The defendants set up 6 labour hire companies with sham directors. They operated the companies for a time and wound them up. The customers and workers were subsequently transferred to the next company in a deliberate attempt to avoid detection. The trio were sentenced to 8 years, 5 years, and 4 years jail, respectively. A reparation order was made in favour of the Commissioner of Taxation in relation to each of the defendants for the total amount of the fraud. They were jointly and severally liable for $4,632,355.
- A director was prosecuted for falsely claiming more than $200,000 in GST refunds. As the sole director of a property development firm, the director claimed to be involved in constructing a high-rise apartment building. Further investigation proved the director did not own the land and had not submitted any development applications for the site. A range of non-capital expenses were falsely claimed. The defendant was sentenced to 3 years jail to be immediately released on a recognisance release order, and a 3-year good behaviour bond of $5,000. An order was made to repay the full amount.
Prosecution cases of note completed by the ATO
- A concreter was convicted for failing to comply with a court order to lodge 30 BAS and 9 income tax returns. The person was sentenced to 6 months jail (suspended immediately), and to be of good behaviour for a period of 2 years.
- An internet provider was convicted for failing to comply with court orders pursuant to the Taxation Administration Act 1953 to lodge 38 BAS and 12 income tax returns. The person was sentenced to 7 months jail (suspended immediately). A recognisance amount of $2,000 was fixed with a 2-year good behaviour bond. A further order to lodge the outstanding returns was made for 12 months.