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Tax Office Change Program and the Henry Review

by Annabelle Milosavljevic •
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In the 2008-09 Annual Report, Commissioner of Tax, Michael D’Ascenzo, signalled that the Australian Tax Office’s (ATO) Change Program should be close to over by the end of this year, however the current IT difficulties may require a revision to this estimate.

According to the ATO website, the last phases of Release 3 will start July 2010.  The Commissioner stated in his Overview that the ATO would continue to monitor the extra costs of the IT and Change Program “associated with any need to fit in new legislative measures or to reduce delivery risks”.

The reality of those new legislative measures just became one step closer with the Government’s release of the much awaited ‘Henry Review’, the Australia's Future Tax System Review.  

The timing of the Review announcement may not just have been about releasing it before the 11 May Budget, but also to do with the ability of the ATO’s new platforms to cope with whatever legislative changes were coming its way as a result of accepting recommendations in the Review. 

Mr D’Ascenzo said in the Annual Report that it was important to get to the final stage of implementation as quickly as possible for the ATO’s IT systems and processes suitable for “the demands of the modern world”.  The Annual Report acknowledged that “this endeavour is not without significant risks,” as well as adding that “we have minimal contingency remaining in our current plan and every progressive release has a risk profile of moderate to severe.”

Initial examination of the Henry Review would suggest that a major project would be required to support the proposed new resource tax of 40% to replace state royalties on mining projects.

The other accepted recommendations are likely to have a lesser impact on the ATO, in theory requiring ‘programmatic’ changes to existing systems:

  • Tax rate change on tobacco;
  • Tax rate change on company tax; and
  • Immediate write-offs for depreciation purposes on assets costing less than $1000.

Nonetheless, such changes will require a stable core processing system if they are to be implemented smoothly when required.

The Australian Tax Office’s Change Program, launched in 2003, was designed to relieve the agency’s legacy and largely mainframe based IT systems and to equip the ATO with the flexibility to respond to new government initiatives and other future pressures.  The project has seen one large scope increase in terms of the superannuation simplification addition into ‘Release 3’, a number of delays, and now a level of concern about the implementation of the first phases of Release 3 sufficient to launch an independent enquiry. 

Assistant Treasurer, Senator Nick Sherry, announced in an interview with 3AW’s Neil Mitchell on 16 April 2010 that the Inspector-General of Tax, Mr Ali Noroozi, would launch an inquiry into the shortcomings of the ATO’s Change Program, in particular the final stage, Release 3.

How this review will be conducted is an interesting question, given that the Inspector-General of Taxation is a professionally qualified accountant who specialises in taxation law, not information technology systems design and implementation.   To date, the majority of the reviews undertaken by the Inspector-General of Taxation have been related to administrative decision making, not the operation of ATO administrative systems.  No terms of reference for the enquiry have been published as yet.

The ATO recognised early that the Change Program would be complex and have high risks.  It sought to help manage those risks by engaging CapGemini in 2004 as independent assurer of the Change Program.  

While there was concern about managing the early Releases, it was always Release 3, which sees ‘the gradual replacement of many of our existing computer systems with a new integrated core processing system and deliver new tax agent and business portals.  It will bring together accounts information in one structure, with a new statement of account providing assessment, penalty and interest information in a single statement’ that was going to be of most concern to the ATO.  Cutover to Release 3 commenced in March 2008, and February 2010 saw the implementation of the Income Tax component. 

According to the Tax Office’s web site at this time:

  • Income tax for individuals, trusts, partnerships, companies, funds, self-managed superannuation funds and higher education loan accounts (HELA) will be deployed onto the integrated core processing platform.
  • A new, easier to understand notice of assessment will be issued to taxpayers.
  • A new statement of account for income tax will be introduced which uses a period-based format and includes assessment, penalty and interest information in a single statement.

February was chosen as the implementation month because it is traditionally the income tax processing ‘low season’ – the back has been broken of the lodgement deluge and the next year’s lodgements are still 4 months away.  However problems have resulted in a backlog of 210,000 tax returns which the ATO is now trying to clear.

 

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Jurisdiction
  • Federal
Tags
  • ATO
  • Australia's Future Tax System Review
  • Australian Taxation Office (ATO)
  • Change Program
  • Commissioner of Tax
  • Ken Henry
  • Michael D’Ascenzo
  • Treasurer