Waiting for a tax refund can almost be akin to childhood Christmas memories. The excitement, the thrill, the sheer impalpable exhilaration of sleepless nights waiting for that day to arrive when Santa or in this case, the Tax Man processes your refund and you can finally pay off your credit card bill or book your next holiday is something that is anticipated by most. However, a tax refund is never guaranteed; it depends entirely on one’s particular circumstances and how the numbers fall when a person’s tax return is compiled.
However, when refunds are due, taxpayers are always keen to receive them and any delays are not welcomed.
The Australian Tax Office has stated that within the tax system, there is a prevalent risk of taxpayers and tax return preparers lodging incorrect or fraudulent returns. If this is left untreated, the ATO considers that such risks may result in reduced community confidence, an erosion of voluntary compliance and significant revenue leakage.
In order to avoid this risk, the ATO runs what it calls an "income tax refund integrity program" whereby it uses a series of analytical models designed to detect instances of overclaimed tax deductions, offsets or other credits in income tax returns.
If any returns are flagged by this system, the ATO will stop these returns and access them on a manual basis before any refunds are issued to the taxpayer. The ATO takes the view that certain risks should be addressed prior to issuing the notice of assessment and before any refunds are paid to the taxpayer.
This all seems fair in the grand scheme of things; however, there have in recent years been complaints about the length of time tax refunds have been delayed. A review has been recently released on this refund review program and it was found that a significant number of taxpayers experienced extended delays, sometimes of many months following lodgement. Significant complaints were raised with the Commonwealth Ombudsman, the ATO’s Complaints section and the IGT (Inspector General of Taxation) in 2011-12 when higher than expected numbers of tax returns were held leading to extended delays in the processing of those returns. Some 109,000 returns were held when only 33,000 had been expected.
It didn’t help matters either that the people waiting for their refunds were unable to find our why these delays occurred or when they could expect to receive their refund, leaving them feeling like the ATO considered these taxpayers to be dishonest or fraudulent.
Following the experience in 2011-12, the ATO embarked on a significant program of work to refine the models and processes it used to stop fewer tax returns and reduce timeframes. The ATO thus placed less emphasis on potential fraud as a reason for returns being held to alleviate taxpayer’s angst and alarms.
Additionally, there were initial concerns that the ATO review program only stopped and adjusted tax returns with small refund amounts; however the IGT found that statistics over a 3-year period indicated that of the stopped returns, 5.29% cent in 2010–11, 1.85% in 2011–12 and 2.87% in 2012–13 contained refunds of $1,000 or less.
Further recommendations have been made that are aimed at enhancing the ATO’s communication and engagement with taxpayers and tax agents including better differentiation of potentially fraudulent taxpayers from those who may have merely overstated refund claims by mistake. The effective implementation of these recommendations should ensure that the ATO program is further improved for taxpayers.