Top 100 GST assurance program

The top 100 population is a significant contributor to total GST collections. In 2021–22 the top 100 population contributed about $10.2 billion in GST collections, which was about 14% of total GST collections.

The top 100 population is not only a significant contributor to GST. These large companies can have a direct impact on the supply chains across Australia by setting the GST treatment for others down the chain. In addition, community perceptions of compliance at the ‘top end of town’ sends a clear signal to other taxpayer groups about fairness and directly influences the willingness of other taxpayers to voluntarily participate in the tax system.

In 2019 we expanded the top 100 assurance program to include GST. The top 100 GST assurance program seeks greater assurance that top 100 taxpayers are reporting the right amount of GST. This supports and expands on existing compliance approaches, including justified trust reviews for income tax. The program has a strong focus on tax control frameworks for GST purposes.

Under the top 100 GST assurance program, we planned to complete a GST assurance review for each top 100 taxpayer by 30 June 2023. We have completed an assurance review for one or more GST reporters for 75% of the top 100 economic groups. The remainder have a GST assurance review underway or commencing this year including recent entrants not included in the initial program.

GST and income tax teams are working collaboratively to deliver justified trust assurance reviews and we continue to work towards implementing the justified trust work program from a whole-of-client and multiple tax perspective where appropriate.

We have seen the majority, 70% of top 100 taxpayers, attain overall medium assurance, and 93% attain an overall high or medium assurance rating.

In 2022, we published the future engagement approach for GST once an initial review has been completed. Under this engagement approach, taxpayers who obtained overall high assurance or medium assurance in their initial review can expect a tailored engagement but will be reviewed at least once every 4 years. Most of the top 100 taxpayers are now moving into this phase of engagement for GST.

Taxpayers are also expected to continually review their GST control frameworks and undertake robust and regular data and transaction testings to ensure their business systems are creating, capturing and correctly reporting GST on an ongoing basis. They are also expected to make real-time disclosures of a range of matters, including new or significant transactions, material business changes and changes in GST positions taken.

We expect there will be some taxpayers whose tailored engagement with us will require some form of targeted review. This can be due to the complexity of the application of the GST law to the taxpayer or the number of new significant transactions or issues arising.

Overall levels of assurance

The overall level of assurance is based on an objective view (having regard to objective evidence) of whether the taxpayer is considered to have reported the right amount of GST.

Ratings

We apply consistent rating categories when considering our overall level of assurance.

Rating categories

Colour indicator	Rating	Category description
	High	We obtained assurance that the taxpayer reported the right amount of Australian GST for the period reviewed. You can therefore rely on a high assurance rating to mean we will not initiate any review (including assurance) or audit activity for the period reviewed on relevant issues in the activity statement reviewed, other than any issues listed as requiring further review in the future assurance plan or similar work plan. Only in exceptional circumstances will we initiate any review.
	Medium	We obtained assurance for some but not all areas reviewed. For those areas not yet assured, further evidence or analysis will be required before we obtain assurance that the taxpayer reported the right amount of Australian GST.
	Low	We have specific concerns around the taxpayer’s compliance with the Australian GST law and the amount of Australian GST paid and GST refunds claimed for the period reviewed.

The GST assurance reviews completed to the end of June 2022 resulted in the following ratings.

Graph 7 – Overall assurance ratings for the most recent GST reviews completed as of 30 June 2023

 

Note: GST findings in this report reflect outcomes based on the last completed review for the GST reporter. This could include outcomes from a standard GST assurance review (including refresh reviews) or where the GST reporter has already achieved overall medium or high assurance, outcomes that can be attributed following completion of a review pursuant to the Annual Compliance Arrangement (ACA) framework, or tailored engagement under our top 100 GST program future engagement approach.

'Not rated' is applied to GST reporters that have not completed a full justified trust review across all 4 focus areas.

Graph 8 – Overall assurance ratings for the most recent GST reviews completed by industry as of 30 June 2023

 

Note:

• These groupings align with the industry segments used by us as part of the Corporate Tax Transparency Reporting except where we have amalgamated the Banking, Finance and Investment (BFI), Insurance (ISR) and Superannuation (SUP) segments into a Financial Services (FS) segment. The groupings are:  
  • Banking, Finance and Investment, Superfunds and Insurance (FS)
  • Manufacturing, Construction and Agriculture (MCA)
  • Mining, Energy and Water (MEW)
  • Wholesale, Retail and Services (WRS).
   
• Graph 8 depicts all current top 100 GST reporters that have had a completed GST assurance review (this does not include GST reporters that have exited the top 100 population).
• To ensure we have sufficient coverage of each taxpayer, we consider a range of factors including:
  • coverage of at least 75% of GST throughput
  • additional criteria based on our knowledge of the taxpayer's business operations and industry (as outlined in section 4 of the GST Governance Data Testing and Transaction Testing Guide including unique or complex transactions, input taxed supplies and GST-free supplies).
   

For this reason, multiple GST reporters within a GST economic group may be reviewed. Taxpayers in the MEW industry segment have more GST reporters subject to a review, as these taxpayers (GST economic groups) typically comprise of multiple GST reporters that make GST-free supplies and have lower GST throughput.

Observations

Overall high assurance was attained by 23% of GST reporters reviewed, meaning we have assurance these GST reporters have reported the right amount of GST for the period reviewed. These GST reporters typically have:

• overall Stage 2 or provisional Stage 2 rating for governance
• high assurance for correct reporting
• no identified concerns or issues with GST risks flagged to market or treatment of significant transactions.

We also have a good understanding of and can explain, the various streams of economic activity and how they are treated for GST. Most taxpayers who have had a GST assurance review finalised have attained an overall medium level of assurance (70%). This means we obtained assurance in relation to most areas reviewed but not all areas.

There are several reasons why taxpayers did not attain an overall high assurance rating and include the following:

• In most cases, the inability to attain an overall Stage 2 rating for governance due to insufficient objective evidence to demonstrate that a tax control framework exists and has been designed effectively with respect to GST.
• The inability to attain assurance for other focus areas, including the presence of GST risks flagged to market, issues with correct reporting and insufficient evidence to assure significant transactions.
• The inability to attain an overall Stage 2 rating when applying the GAT. Applying the GST analytical tool (GAT) to understand the alignment between accounting figures for the various streams of economic activity and how they are treated for GST.

Where a taxpayer is unable to attain an overall Stage 2 rating for governance in the initial review but has nevertheless attained an overall medium assurance rating, we will address the GST governance gaps either through the annual income tax PCR product or in a targeted review in accordance with our future engagement approach.

We have 2% of taxpayers who have attained an overall low assurance rating. This means we have specific concerns around the taxpayer’s compliance with the Australian GST law and the amount of Australian GST paid and GST refunds claimed for the period reviewed. These taxpayers typically have Stage 1 governance, attained low assurance over multiple focus areas (including tax risks flagged to market, specific GST issues or correct reporting) and the variances between accounting figures and the amounts reported on the BAS are not understood or explained. We will comprehensively and intensively review these taxpayers through an annual comprehensive justified trust assurance review to improve their assurance rating.

There are also 5% of taxpayers who have had an interim review that only focused on 2 of the 4 justified trust focus areas with no overall GST assurance rating assigned. These taxpayers will have a review on the remaining focus areas at which point they will be assigned an overall GST assurance rating.

Our reviews are encouraging improvements in correct reporting. 76% of GST corrections for the top 100 population in 2023 were made while a top 100 GST assurance review was in progress (with some of these reviews still underway). A further 24% came from taxpayers after an initial review, where they attained overall medium assurance. Importantly, these taxpayers have implemented, or have plans to implement, improvements to their controls, processes and procedures to prevent the reoccurrence of these errors. Some taxpayers have further undertaken to continue to review their activity statements in relation to periods outside of the review periods to ensure compliance and to correct any GST errors identified.

Tax risk management and governance

Tax governance is a key focus area under the justified trust methodology. As outlined previously, we review governance by requesting objective evidence of the design of tax controls. We review the design of controls based on documentation given to us and look for evidence in the form of approved policies and procedures demonstrating the existence and design of a tax control framework (for example, work instructions, templates and process maps).

The GST Governance, Data Testing and Transaction Testing Guide outlines how we apply the justified trust methodology in our top 100 GST assurance reviews when reviewing the existence, design and operation of a taxpayer’s GST controls as part of an effective tax control framework.

We consider the 8 controls outlined previously. There are 3 controls that are fundamental because the design of these controls directly influence the way GST is reported. These fundamental controls are:

• Board-level control 4: Periodic internal control testing
• Managerial-level control 4: Controls in place for data
• Managerial-level control 6: Documented control frameworks.

We also consider the other 5 controls as these are common controls and the design is equally as critical for both income tax and GST. There are common features in the way these controls are evidenced for both taxes.

Ratings

We apply the same standard ratings system as outlined previously for income tax when considering the existence, design and operation of a tax control framework for GST purposes.

The GST assurance reviews completed to 30 June 2023 resulted in the following ratings.

Graph 9 – Overall GST governance ratings for the most recent GST reviews completed as of 30 June 2023

 

Graph 10 – Overall GST governance ratings for the last GST reviews completed by industry as of 30 June 2023

 

Observations

The governance ratings for the GST assurance reviews to date show that just under half of the top 100 GST reporters have obtained a Stage 2 or Stage 3 rating (45% in 2023) with the remaining GST reporters at Stage 1 or not rated (55% in 2023).

Poor governance that includes gaps in procedures or controls often leads to incorrect reporting of GST obligations. Taxpayers may inadvertently underpay GST or over-claim input tax credits due to a breakdown in a part of their processes or systems that capture, collate, report and reconcile the data that determines their GST liability. For instance:

• systems issues can arise due to coding errors and issues with the flow of information through the business system
• controls issues can arise due to the failure to undertake reconciliations and testings of controls
• process issues can arise due to deficiencies in documented procedures and having unstructured manual interventions or workarounds.

Where errors are identified (through voluntary disclosures or the assurance review), we have focused on understanding how these errors have occurred and reviewing the taxpayer’s processes and procedures to ensure that they are designed effectively to prevent the same errors from re-occurring when assigning ratings to GST controls. Through improved governance, we expect to see fewer system type errors resulting in amendments lodged or corrections made in subsequent periods.

We have also identified links between GST errors made in applying the GST special rules and the design of GST controls. Some examples include the application of the reverse charge provisions, financial acquisitions threshold (FAT) and input tax credit (ITC) estimators where we have observed inadequate system controls and missing detailed steps in BAS preparation procedures.

Periodic independent governance control testing continues to be a control that top 100 taxpayers find most challenging for GST. Some taxpayers and their advisors are designing GST testing plans which cover only the 3 fundamental controls and not the common controls. Controls in place for data is another fundamental control for GST with limited formal documentation.

We strongly encourage taxpayers to develop procedures to explain significant differences between BAS reporting and financial statements. We are increasingly using the GAT or similar top-down methods to determine whether reported GST outcomes are plausible. We continue to observe in practice that GST errors occur because there are no natural systems to check outcomes as taxpayers continue to rely on bottom-up systems. We are of the view that procedures to explain significant differences should be part of taxpayers’ governance systems.

Systems and BAS walkthroughs performed in top 100 assurance reviews help inform us of aspects of our governance review, however, we also require source documents to evidence the tax control framework. Teams will leverage from the walkthroughs to identify systems and BAS controls and request evidence during these meetings, to help to generate overall efficiencies with our governance reviews.

Based on the number of reviews completed to date, the overall GST governance ratings generally align with the overall income tax governance ratings assigned to top 100 taxpayers. In the few instances where the overall assurance ratings did not align, the taxpayers did not achieve Stage 2 ratings for all the 3 fundamental GST controls - relating to controls in place for data for GST purposes, documented GST control frameworks, and periodic controls testing program covering the testing of GST controls.

We continue to consult with stakeholders where appropriate and refine our approach when rating GST controls to ensure that the better practices set out in the guides are practicably achievable and able to be sustained in light of current business practices. This includes providing a page turn walkthrough of the GST Governance, Data Testing and Transaction Testing Guide and workshops to discuss design gaps identified during the reviews.

Stage 1

A Stage 1 rating recognises that a tax control framework for GST exists but reflects that further work is needed to demonstrate that it is designed effectively. We continue to work with taxpayers to improve their tax governance framework for GST as part of our future engagement approach.

Stage 2

A Stage 2 rating is required to achieve overall high assurance or justified trust for GST. This means taxpayers have provided objective evidence to demonstrate that a tax control framework exists and has been designed effectively.

We have observed that some top 100 taxpayers are highly committed to investing in GST governance, to obtain a Stage 2 rating at the conclusion of their initial GST assurance review. We expect that taxpayers with a well-designed and effective tax governance framework will result in less incorrect reporting of GST in future periods.

We are currently working with a group of top 100 taxpayers to support their efforts to obtain a Stage 3 rating. Some taxpayers choose to maintain a Stage 2 rating, which is satisfactory.

Stage 3

To obtain a Stage 3 rating for GST, we look for evidence that the documented GST control framework is both designed and operating effectively in practice.

This stage requires evidence in the form of a detailed report of findings, where taxpayers have independently tested the operation of their GST control framework in practice and concluded that their GST controls are operating effectively.

In 2023 8% of top 100 GST reporters have provided us with their testing results which demonstrate that their GST control frameworks are operating effectively to achieve a Stage 3 rating. We anticipate a further increase in the number of taxpayers obtaining a Stage 3 rating over the coming years.

Not rated

This rating is only applied in the top 100 program in a small number of cases for GST governance (1% in 2023). The reasons for this vary but include large scale mergers and acquisitions resulting in changes to the GST reporter, where only some of the 3 fundamental controls were included in the review. In these circumstances, we typically review the remaining fundamental controls in the following review.

GST risks flagged to market/Significant or new transactions/Specific tax risks

We seek to understand that the GST outcomes of atypical, new or large transactions are appropriate. We also review GST risks or concerns we communicated to the market and determine whether these risks may be present.

Ratings

We apply a consistent rating system when reviewing and assessing the GST reporting and GST treatment of a taxpayer’s business activities, particularly significant and new transactions, and GST risks or concerns communicated to the market.

Staged rating system

Colour indicator	Rating	System description
	High	With respect to this issue, we obtained a high level of assurance that the right Australian GST outcomes were reported in your Business Activity Statements. You can therefore rely on a high assurance rating to mean that we will not initiate any review (including assurance) or audit activity for the period reviewed in relation to this issue in the activity statement reviewed (other than any issues listed in the future assurance plan or similar work plan, as requiring further review) unless in exceptional circumstances.
	Medium	More evidence and/or analysis is required to establish a reasonable basis to obtain a high level of assurance.
	Low	More evidence and/or analysis is required to determine whether a tax risk is present.
	Red flag	We have concerns there is non-compliance with the GST law.
–	Out of scope	We have not evaluated this item and not expressed a rating.

Observations

The following sections outline areas of concern and items that attract our attention. We do not see these in all cases.

Incorrect reporting

The risk of top 100 taxpayers incorrectly reporting their GST obligations continues to be a key focus area.

As of 30 June 2023, 42% of the completed reviews had issues or concerns with correct reporting of GST obligations.

Governance and systems-related issues are significant drivers for errors in GST reporting. Other common drivers include:

• the implementation of, or migration to, new business systems
• new or one-off transactions where internal controls are not in place to handle events outside of the core business activities
• personnel issues (such as staff turnover or leave) leading to resourcing and capability gaps
• incorrect interpretation of the law through lack of knowledge or capability.

GST corrections, including those amount that were voluntary disclosures are typically not material in dollar terms.

Our assurance reviews ensure that top 100 taxpayers who have made voluntary disclosures implement improvements or safeguards in their controls, processes and procedures to prevent or mitigate the risk of the same or similar errors occurring in the future.

Data and transaction testings are used to assess correct reporting in the top 100 GST assurance program. Data testing involves running a range of pre-determined tests against a defined data set to identify reporting errors and exceptions for further investigation and/or correction. Transaction testing involves tracing an identified transaction from its source documentation through to the financial reports to confirm the accuracy of the GST treatment, calculation and reporting of the transaction. Where errors and exceptions are identified, further investigation will be necessary and/or correction may be required.

In assessing the correct reporting of a taxpayer’s GST obligations, we expect that taxpayers undertake robust and regular assurance and verification procedures that align with their business and that are tailored to their own operating environment. We are increasingly seeing taxpayers embedding the data and transaction testings or aspects of the testings into their own systems. Our expectations on data and transaction testings are set out in the GST Governance, Data Testing and Transaction Testing Guide.

We continue to refine our data testing methods, including focusing on specific or bespoke data tests based on the attributes of the taxpayer and industry specific risks. As we continue to refine and enhance the GAT or book-to-tax analysis, we expect to rely on that analysis (where applicable) to provide an informed basis to drive the work program across the assurance review.

We have seen an increasing number of top 100 taxpayers engaging the services of a third-party advisor to undertake independent data testing with respect to a notified top 100 GST assurance review. As of 30 June 2023, 28% of completed reviews involved data testing by a third-party advisor. Of these completed reviews, we have observed that about 69% resulted in the making of voluntary disclosures and consequential improvements to taxpayers’ controls, processes and procedures.

In some cases involving third-party advisor data testing, we have seen quite significant delays, including:

• the time taken to setting the scope
• instances of misalignment between the agreed scope and the findings report
• requests for extension of time to complete the testing and finalise the report
• the need to address information gaps in the findings report.

We are continuing to work closely with taxpayers and their advisors on the data testing to ensure that the outcomes are sufficiently robust to provide relevant stakeholders with the intended degree of confidence with respect to correct reporting. We have published the Guide to Independent Data Testing by Third Party Advisors to assist taxpayers. This guide assists taxpayers and their advisors by providing practical guidance on our expectations and the conditions that must be met for a taxpayer’s third-party advisor to undertake the independent data testing, relied on in a GST assurance review.

Other critical GST risks

We have observed some key GST risks in the reviews completed and existing reviews in progress that can be grouped broadly as follows.

• GST food classification – The review of entities’ product master lists has identified GST misclassification of products extending beyond food (for example, health products).
  • We continue to identify that GST classification issues are attributable to the following risk drivers:
    • gaps in governance controls around onboarding of new products
    • taxpayers not undertaking regular reviews of their product master data
    • taxpayers’ reliance on a supplier’s classification without undertaking due diligence to determine the correct GST classification of the products being supplied.
     
  • The GST product classification cluster led by Public Groups addresses this risk holistically through a cross client experience lens, ensuring that clarity, certainty, and consistency is achieved across supply chains contemporaneously.
   
• Recipient created tax invoices
  • In reviews across a range of industries, we continue to observe errors with recipient created tax invoices (RCTI), including:
    • the use of incorrect ABNs and entity names
    • RCTIs issued where written agreements are not in place between the parties
    • instances where a ‘set and forget’ approach has occurred where the recipient has continued to issue RCTIs and it has not been identified that the supplier is no longer GST-registered
     
  • We encourage taxpayers to review their approach to issuing RCTIs to ensure that controls are in place that are robust and fit for purpose. Generally, we would expect taxpayers to undertake a check before issuing their first RCTI to a supplier to ensure they are GST-registered.
  • When RCTIs are issued to a supplier on an ongoing basis, we would expect taxpayers to undertake periodic checks (for instance, monthly, or at a minimum, annually) to ensure the supplier remains GST-registered. Some taxpayers use automated validation checks at the time of issuing RCTIs, which we consider best practice from a governance perspective. ABN Lookup has a variety of relevant tools and resources which can assist taxpayers in checking whether an entity is registered for GST, including ABN Lookup web services which allow entities to integrate ABN Lookup validation and data into their own software.
  • The Commissioner has recently combined the relevant requirements into one legislative instrument - an RCTI will only be valid if all the requirements are met, including that both the supplier and recipient are registered for GST at the time the invoice is issued.
   
• Financial services and investment – We have observed ongoing issues relating to the following:  
  • Where businesses which are not in the financial services sector engage in securities transactions such as IPOs, mergers, demergers, company acquisitions or other similar activities, these activities may give rise to input taxed financial supplies. As such, there is a need for these entities to consider restricting input tax recovery on attributable costs where the financial acquisitions threshold is exceeded and if so, to also consider whether any reduced input tax credits (RITCs) are available.
  • A key focus of our reviews of financial services entities is that they correctly deny input tax credits on costs to the extent they relate to making input taxed financial supplies and have adopted positions in line with ATO public guidance. Another key area is the application of the reverse charge provisions to cross-border transactions. In particular, where domestic branches of overseas banks are provided with support services by their overseas head office or other overseas branches.
   
• International GST risk – This risk is associated with GST treatment of goods or services that cross Australia’s border.  
  • We continue to observe that top 100 taxpayers in the digital economy have related offshore entities which are liable to remit GST because of:
    • making sales of digital products and services or low value imported goods
    • facilitating supplies by offshore merchants through platforms they operate.
     
  • The issue we have previously observed for these businesses is that the correct application of the business-to-business exemption for inbound digital products or services continue to arise. Over the past year we have been focusing on whether 'reasonable steps' have been taken to obtain the necessary evidence to apply this exemption.
   
• Real property, accommodation and retirement villages
  • We have a continued focus on assuring the correct treatment of property transactions and supplies of accommodation. For instance, that the margin scheme is applied correctly and ensuring that supplies are correctly classified in arrangements for the provision of short-term accommodation, respectfully.
  • We will focus on understanding the treatment adopted in key areas - including emerging business models such as build-to-rent developments, and the GST positions adopted by retirement village operators. Key focus areas are the characterisation of supplies and apportionment of related costs for relevant taxpayers.
   
• Other governance and system related errors - a range of errors caused by deficiencies in governance and systems continue to be observed. Examples include incorrectly claiming input tax credits on purchases which were not taxable supplies (for instance, services imported from offshore suppliers, or acquisitions from unregistered suppliers) and systems errors leading to the incorrect GST treatment being applied.

Understanding the alignment between accounting and GST

We seek to understand and explain the various streams of economic activity and how they are treated for GST, which may include applying the GAT.

Ratings

We apply a consistent rating system when reviewing and assessing the alignment of accounting figures to amounts reported on the BAS. This includes also understanding the reasons for any variances.

	Stage 3	We understand and can explain the variance between accounting figures and the amounts reported on the BAS. As a result of applying the GAT, we understand why accounting and GST results vary and this understanding is sufficiently supported by objective evidence.
	Stage 2	Further analysis and explanation are required to understand the variances between accounting figures and the amounts reported on the BAS. As a result of applying the GAT, we do not fully understand why accounting and GST results vary and/or this understanding is not sufficiently supported by objective evidence.
	Stage 1	We do not understand and cannot explain the variances between accounting figures and the amounts reported on the BAS.
	Red flag	We identified concerns from our analysis of the variances between accounting figures and the amounts reported on the BAS.
NR	Not rated	We have not assessed the various streams of economic activity and/or why accounting and GST results vary using the GST analytical tool.

Observations

The GAT is applied under this focus area. We apply the GAT in each top 100 GST assurance review except in relation to taxpayers who are predominately input taxed.

The GAT uses a standard method statement applying a ‘top down’ approach to identify and understand key variances between accounting figures reported in audited financial statements and GST reported on BAS’. The GAT is a useful tool for taxpayers to check how their various streams of economic activity are treated for GST purposes.

The application of the GAT is an important component in respect of assuring the GST outcomes of taxpayers in the top 100 GST assurance reviews. As we continue to refine and enhance the GAT analysis, it is helping to provide an informed basis to drive the work program and areas of focus across the assurance review. This is because identifying the key variances between accounting and tax is helping the ATO understand the various streams of economic activity of a taxpayer and how they are treated for tax purposes. This helps us identify and target our reviews to the most important or critical GST risks.

The GST Analytical tool (GAT) FAQ, top 100 and top 1,000 support taxpayers and their advisors with their GST assurance reviews. There is an expectation as part of good GST governance that a taxpayer has a process in place to explain BAS reporting of GST payable and receivable compared to business outcomes, as well as to explain the key variances in comparison to financial statements.

Graph 11 – GAT ratings for the most recent GST review completed where the GAT has been applied as of 30 June 2023

 

We have observed that 22% of taxpayers who have had the GAT applied in their assurance review attained the highest rating for this focus area (Stage 3). This means that there is sufficient objective evidence to support our understanding why accounting and GST results vary. In most of these cases, the GAT was completed by the taxpayer where calculations provided have been supported by objective evidence and explanations.

Most of the taxpayers (58%) who have had the GAT applied attained a Stage 2 rating. This means that we do not have sufficient objective evidence to fully understand why accounting and GST results vary. In most cases with Stage 2 rating, we observed that there was a lack of evidence provided for some key adjustments. If these adjustments were to be evidenced correctly, Stage 3 ratings could have been achieved. For many taxpayers, a Stage 2 rating will be a satisfactory rating for the alignment between accounting and GST focus area.

The remainder of the taxpayers (20%) attained a Stage 1 rating. We will continue to work with these taxpayers to see how they can develop an approach to be able to practically explain the key variance between their accounting and GST results.

One of the early challenges associated with the application of the GAT related to reconciling complex grouping variances. We have since developed solutions which have resulted in greater ease when adjusting for grouping variances.

We have observed that most GAT calculations have resulted in small overall variances when comparing the adjusted revenue and expenses to the 1A and 1B labels. The key difference between a Stage 3 and a Stage 2 rating comes down to how well those adjustments can be explained and the extent to which they can be supported by objective evidence. We note however that whilst in some cases the overall variances may be low, there can also be significant unexplained variances between adjustments, particularly for exports and the G2 (export sales) label disclosures and for capital acquisitions and the G10 (capital purchases) label disclosures.

While seeking to understand the basis of adjustments by relying on financial statements and its supporting data (i.e. detailed trial balances), additional taxpayer input can significantly enhance our understanding, resulting in a higher rating.

We continue to work closely with taxpayers to apply the GAT to demonstrate how understanding the variances between accounting and tax can be practically achieved. This involved meeting with taxpayers to explain the key adjustments through the rationale of this focus area, specifically the methodology and the type of information that can be used to conduct the GAT analysis. This approach was welcomed by many top 100 taxpayers and has resulted in an increasing number of taxpayers performing their own GAT analysis and most taxpayers who have the GAT applied achieving either a Stage 3 or Stage 2 rating.

A very small number of top 100 GST reporters have so far prepared documents detailing their procedures in place to perform the BAS to financial statement reconciliation (including where applicable, GAT preparation or similar methodology) as part of their MLC 7 controls within their governance framework. However, we have received feedback from top 100 taxpayers who see the GAT as an important and useful tool to incorporate into their own governance systems. We consider this to be best practice and encourage all taxpayers to embed the GAT into their governance systems.

During 2023, we successfully carried out a review of a GAT calculation of a GST reporter in the general insurance industry. We worked closely with the GST reporter to understand their accounting and GST reporting systems and accordingly gained comfort of the GAT reconciliation results obtained. This GST reporter also developed a procedure to undertake its accounting and GST reporting system reconciliation in future periods.

During the year we also revised our approach on preparing GAT calculations for joint venture entities. The new approach is to apply the GAT methodology to incorporated joint ventures just as it would have to any other corporate GST group, but the GAT methodology will not be applied to unincorporated joint ventures. In the absence of GAT for unincorporated joint ventures, we will need to conduct up to 12 month data testing for the unincorporated joint venture GST groups included in the scope of the overall GST assurance review.

Future GST engagement after initial GST assurance review

Our engagement approach for GST once an initial GST assurance review has been completed.

What a high assurance rating means for GST

An overall high assurance rating means that we obtained assurance that you paid or reported the right amount of GST for the period reviewed.

Where you have high assurance for a significant or new transaction, a transaction with respect to a tax risk flagged to market, or a specific tax risk, this means that with respect to this issue, we obtained assurance that you reported the right amount of GST in your activity statement.

You can therefore rely on a high assurance rating to mean we will not initiate any review (including assurance) or audit activity for the period reviewed on relevant issues in the activity statement reviewed, other than any issues listed as requiring further review in the future assurance plan or similar work plan. Only in exceptional circumstances will we initiate any review.

Similar work plan includes a taxpayer specific justified trust maintenance plan, issues register or annual review plan. It also extends to our general issues registers available on our website.

It will only be in exceptional circumstances that we will apply compliance resources to review any of the relevant issues in the period reviewed. The following circumstances are likely to constitute exceptional circumstances:

• legislation is enacted, a final decision of the court or tribunal is made, or there is a precedential ATO view that applies retrospectively to the period reviewed
• where a review is required to complement compliance activity or give effect to a determination, of another government agency or regulator
• there is a self-amendment/objection to the activity statement for the period reviewed (we will review the statement in relation to the issue covered by the self-amendment/objection and related issue) or the issue is impacted by you correcting an error in relation to that issue in a later tax period
• you have subsequently notified us of a disclosure issue or error that should be corrected. Relevant factors for consideration include materiality, potential risk to revenue and likely proliferation in the market or consistency with the policy intent
• there is a change of tax treatment or position by you or a party to a supply in which are you are a participant in that period or in subsequent periods (other than due to a retrospective change in law or a precedential ATO view). Specifically, where it means that no GST is ever payable on a supply, there is a double input tax credit benefit (such as 2 entities claiming the same input tax credit on a supply), or that an input tax credit is available for one entity with no GST being payable by the other
• it becomes apparent to us that full and true disclosure was not made
• there is potential application of the anti-avoidance provisions
• fraud or evasion becomes evident to us.

Tailored engagement

Our guidance document, the Future GST engagement after initial GST assurance review outlines how we will engage with top 100 taxpayers after they have had an initial GST assurance review. Once a taxpayer has completed their initial review, it is intended that the program will provide a tailored assurance approach that seeks to leverage, as far as possible, from previous assurance activities.

Under this engagement approach, taxpayers who obtained overall high or medium assurance in their initial review can expect a tailored engagement where they will be reviewed at least once every 4 years. Taxpayers are also expected to continually review their GST control frameworks and undertake robust and regular data and transaction testings to ensure their business systems are creating, capturing and correctly reporting GST on an ongoing basis. They are also expected to make real-time disclosures of a range of matters, including new or significant transactions, material business changes and changes in GST positions taken.

We will also actively monitor taxpayers to safeguard against non-disclosure or non-compliance and conduct targeted follow up and assurance activities as considered appropriate to address areas of concern identified in the review, including any governance gaps.

We expect that there will be some overall high and medium assurance taxpayers whose tailored engagement with us will still require some form of a targeted review during the 3 years following the initial review period.

We have or will conduct targeted follow up and assurance activities for 15% of GST reporters who have had a completed GST assurance review. We will include our findings in the next report.

Taxpayers with an overall low assurance rating will be subject to an annual comprehensive justified trust review.

Taxpayers will generally have a refresh year review for the fourth year after the initial review period unless there are efficiencies to conduct the refresh review earlier.

The primary objective of the refresh review is to refresh our understanding and evidence base to reaffirm our confidence that the GST reporter continues to report and pay the right amount of GST. The refresh review experience will differ for each GST reporter. In ordinary circumstances, it is expected that the refresh review will require less resource investment by both taxpayers and the ATO as existing information, evidence and knowledge are able to be leveraged. We have commenced a small number of GST refresh reviews in 2023 and will include our findings in the next report.

Key findings from the Top 100 income tax and GST assurance programs for the income year ended 30 June 2022.