What’s emerging? Increasing ATO reviews and audits focused on employer obligations
9 February 2023
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In the last couple of months, PwC has observed an increase in Australian Taxation Office (ATO) reviews and audits focused on contractors, PAYG Withholding (PAYG), Superannuation Guarantee (SG) and Fringe Benefits Tax (FBT). We are experiencing the increased activity from the ATO through specific PAYG & SG audits on identified issues (for example, through data-matching and analytics), and through a ‘Random Enquiry’ program. In relation to the former, we have also sighted targeted queries and information requests arise under Justified Trust programs (for example, streamlined assurance reviews).
PAYG & SG audits
Broadly, with respect to the PAYG & SG audits (and targeted queries within Justified Trust programs), a key driver appears to be data-integrity checks comparing data within Single Touch Payroll (STP) reporting, financial statements, income tax returns, activity statements and even employee PAYG credits claimed through personal income tax returns.
Whilst the compliance activities described above have been experienced more recently, perhaps they should not come as a surprise. In her keynote address at PwC's Payroll Leaders' and Employment Taxes Forum in November 2022, Ms Emma Rosenzweig, the ATO Deputy Commissioner for Superannuation & Employer Obligations, observed that the regulator had “found errors that showed inadequate payroll governance procedures and failures to undertake reconciliations and verification checks”.1
Importantly, Ms Rosenzweig observed that there would be an ongoing focus by the ATO on the quality of reporting and that STP data would form a critical component of tax and super systems through its ability to provide real time insight into employer compliance and areas warranting attention.
‘Random Enquiry’ reviews
Ms Rosenzweig’s comments perhaps frame the advent of the employer obligations focus under the ‘Random Enquiry’ program. Whilst the program itself is not new, the employer obligations emphasis highlights the regulator’s drive to understand, on a more fulsome basis, taxpayer governance and ensuing compliance. In this regard, often, under such reviews (even prior to receipt of the information requested), the regulator seeks to meet with key taxpayer personnel to understand the processes and controls in place to manage compliance and mitigate (and escalate, where required) risk.
Unlike the PAYG & SG audits, the ‘Random Enquiry’ reviews do not appear, at face-value, to have been triggered by a specific ‘red flag’. However, compared to the PAYG & SG audits, we have observed that the data requested is more wide-ranging, covering the whole spectrum of employer obligations administered by the ATO (including contractors and FBT, in addition to PAYG and SG).
Key takeaways for employers
As noted above, it should not come as a surprise that the ATO is turning its mind to employer obligations. Ms. Rosenzweig’s comments about identified governance deficiencies, coupled with the enhanced ability to cross-reference STP lodgments to other data sources, have provided a necessary impetus. Further, recent developments, including STP Phase 2 and refreshed regulator guidance on worker classification, have elevated the importance of employer obligations in taxpayers’ tax governance frameworks.
With the emergence of increased ATO activity focused on employer obligations, it is recommended that employers:
- Create awareness about the heightened employer obligations focus by the ATO, across all relevant stakeholders within the organisation including HR, payroll, procurement, tax and finance.
- Critically review governance and control mechanisms in place, including (but not limited to) the process for data-reconciliations to STP reporting (e.g. PAYG/SG remittance, SuperStream, Activity Statements, Corporate Tax Return, Financial Statements, etc.). If relevant, this may also require historical comparatives to confirm accuracy and, where required, proactive engagement and disclosure to the ATO.
- Examine (or re-examine) the organisation’s structures and processes in place to ensure compliance with recent developments such as STP Phase 2 reporting and contractor assessment. With respect to STP Phase 2, in her keynote address, Ms. Rosenzweig recommended, at a minimum, robust testing across payroll system mapping, STP Phase 2 labelling, and non-payroll data access.
In short, the key takeaway for employers should be that the ATO has increased its proactivity in identifying non-compliance and, for audits in particular, a key lever is data matching to STP. It is, therefore, more important than ever that organisations ensure that compliance and governance processes are up to date, and that their historical robustness and application can be demonstrated.
Should you wish to understand more about the ATO’s recent reviews and audits, or if you are currently undergoing a regulator examination of historical compliance, please reach out to your PwC Employment Taxes specialist for assistance.
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