The combined assurance review (CAR) program was introduced in 2020 and built on our previous assurance engagements that commenced in 2016. In this time, we've observed trends in tax compliance and population behaviours, including more taxpayers achieving and maintaining both stage 2 governance and overall high assurance ratings. We've also seen an increase in the number of economic groups that are currently within scope of the Top 1,000 program.
Based on these observations and feedback, we've designed some program improvements that will allow us to better tailor our engagement with these taxpayers. Going forward, we will:
- Recalibrate the metrics used to determine whether an economic group is in scope of the Top 1,000 assurance program to ensure we focus on the largest 1,000 taxpayers from the largest economic groups.
- Differentiate our assurance approach and tailor our engagement regarding our understanding of those taxpayers from prior engagements and the assurance already attained.
Assistant Commissioner Megan Croaker explains, ‘the Justified Trust program has been effective at improving the level of compliance across the Top 1,000 population. We've developed a deeper understanding of this population since starting the program in 2016 that has enabled us to further refine it. These refinements mean that our focus will be better directed at what's needed to maintain the high levels of assurance on the one hand, while continuing to detect and treat areas of low assurance.
To achieve this, we'll adopt a differentiated approach based on size and current assurance rating. Taxpayers will see a more tailored approach to our requests for information, and it may affect how many years we assure in our review.
This differentiated approach means we can better focus our assurance on the most important issues,’ said Ms Croaker, ‘It reflects the maturity of our Justified Trust program as we continue to see more taxpayers achieve high levels of assurance, implement effective governance frameworks and importantly, maintain these high levels’.
Top 1,000 population
Previously all entities with Total Business Income (TBI) over $250 million were within scope of the Top 1,000 assurance program. However, since setting the threshold in 2016 we've seen high growth in the number of businesses exceeding the $250 million turnover, such that the population was far greater than 1,000. We've recalibrated our metrics to ensure the assurance program is focused on the Top 1,000 taxpayers.
The Top 1,000 program has identified the largest 1,000 entities from approximately 850 economic groups. These entities generally have a TBI over $350 million at their latest lodgment though other factors will also be relevant, such as the industry of a taxpayer, and whether any significant transactions or risks have come to our attention that are best reviewed in a CAR.
Entities outside of the largest 1,000 entities will be considered by our risk treatment approaches, including the Medium and Emerging Strategy, and may be selected for a specific review of identified tax issues and risks.
We'll undertake an annual review to ensure our assurance program maintains focus on the largest 1,000 taxpayers. We expect the largest 1,000 taxpayers to be reasonably stable, however, economic conditions and events such as mergers and acquisitions may affect which entities are covered by the assurance program.
Differentiated approach
We'll differentiate our approach to taxpayers covered by the Top 1000 assurance program. Taxpayers will be divided into two categories: significant taxpayers and general pool taxpayers. Our assurance approach will differ depending on the pool that the taxpayer is in and other factors such as their previous assurance rating.
Significant taxpayers will be those that have TBI over $1 billion. This is around 30% of the largest Top 1,000 entities. The remaining taxpayers will be part of the general pool. We'll notify taxpayers at the commencement of the CAR whether they are a significant or general pool taxpayer.
While our assurance approach may differ, we'll continue to focus on any recommendations that were made in an earlier review, and the actions that have been taken to address those for all taxpayers in all reviews.
Significant taxpayers
Around 300 of the taxpayers identified as the largest 1,000 have a TBI over $1 billion. Given the economic significance of these taxpayers, we want to assure that these taxpayers have good governance in place, and that we understand the tax positions that they've adopted for all economic activity. We'll therefore continue our current approach of assuring all 4 years of the review period during our reviews.
Where a significant taxpayer has achieved an overall high or medium assurance rating and has achieved a stage 2 governance rating, we'll tailor our assurance approach to reflect this. This means we'll generally leverage from our previous assurance by only seeking objective evidence from the last year of the review period, as well as objective evidence in respect to any significant transactions, events or risks flagged to market in other years in the review period.
For significant taxpayers that have not obtained a stage 2 governance rating or have a low assurance rating, we'll continue with our current approach of requesting objective evidence across all years of the review period to assure all 4 pillars in all 4 years.
General pool taxpayers
For taxpayers that are in the general pool, we will adopt a differentiated approach.
When reviewing taxpayers new to the assurance program, we'll look to assure the economic activity in the last year of the review period, as well as any significant / atypical or new transactions or tax risks that arise in the 4-year review period.
We'll take the same approach for taxpayers who were previously reviewed and unable to achieve Stage 2 for governance or have a low overall assurance rating. We will also follow up on recommendations made in our last review.
Where a taxpayer had an earlier review and achieved a governance rating of Stage 2 or 3 and the overall assurance rating was medium or high, we'll undertake a lighter touch review to refresh our assurance, continuing to provide an assurance rating covering the last year of the review period plus any significant / atypical or new transactions or tax risks that are also assured in the intervening years.
GST approach
We'll also adopt a differentiated approach for GST where we already have a level of assurance for a taxpayer through an earlier review. For taxpayers that have attained a stage 2 or 3 governance rating, and have a medium or high overall assurance rating, our subsequent reviews will initially focus on:
- any GST governance improvements made by the taxpayer since our earlier review
- understanding variances between accounting and GST reporting through the use of the GST Analytical Tool (GAT) or similar process (other than for taxpayers making predominantly input taxed supplies, where we will continue our e-audit approach), and
- what the taxpayer has done to address the concerns that were raised in the earlier review.
From there, we'll consider any areas that require further analysis and the objective evidence required to be assured in the CAR. This will also be informed by the previous assurance ratings the taxpayer attains in relation to these issues. We'll work with the taxpayer to consider the timing of this further analysis, having regard to the level of intensity of the income tax assurance component of the CAR.
How to prepare
To prepare for a review, you can make yourself familiar with our approach, what we look for to obtain assurance and what attracts our attention.
To help you understand our assurance approaches, refer to the ATO Tax risk management and governance review guide, the Guidance for Top 1,000 taxpayers preparing for a combined assurance review, and the GST Governance, Data Testing and Transaction Testing Guide. You should also consider and apply any public guidance relevant to your circumstances.