The role of accountants in a digitalised tax system
A digital revolution is occurring at the Australian Tax Office and New Zealand’s Inland Revenue
- Both the Australian and New Zealand tax offices are moving to digitalise revenue collection
- Accountants may align with financial planners, liquidators etc. to incorporate value-added products
- Agents who depend on transactional operations, such as paper-based invoices, are under threat
By Ben Power
A raft of industries are being radically disrupted and dragged into the digital era. Australia’s and New Zealand’s tax administration systems are being similarly overhauled, modernised and moved to a 100 per cent digital footing.
Both the Australian Tax Office (ATO) and New Zealand’s Inland Revenue (IR) have begun rolling out modernisation programmes to simplify and streamline revenue collection and interaction with taxpayers.
In this new world, a major change is taking place: computers are talking to computers and tax agencies are increasingly getting data directly from taxpayers and other third parties.
That move is starting to accelerate with the introduction of new technology and software.
So what does that mean for the accounting profession? What will chartered accountants’ roles be in this new digital era?
The changes are a threat to those few accountants stuck in the legacy paper-based world. And the changes will continue to drive the evolution of accounting services from increasingly irrelevant transactional services to value-added services.
But the modernisation also creates new business opportunities for accounting firms to help clients navigate, and ensure compliance in, a new digital system.
“We see accountants as key partners in the future,” says the IR Deputy Commissioner of Information, Intelligence and Communications Mike Cunnington.
“The relationship is going to go deeper and become more engaged as we go forward.”
ATO’s 2020 vision
Governments around the world are eyeing the digital revolution as an important opportunity to overhaul old systems and to design a new, better public service. Tax authorities are at the vanguard of this change.
ATO Assistant Commissioner Colin Walker says that only a small proportion of tax agents now interact with the ATO entirely on paper. Just 1,700 tax agents are lodging entirely on paper out of the approximately 27,000 active in Australia.
Walker says that small number are usually older and possibly nearing retirement. Some still have internet issues and are resistant to, or afraid of, the digital world.
“We’re working to assist them to move to a digital world and to encourage them to utilise practice software,” he says.
But the big change is the growing ability of tax agencies like the ATO to collect data from third-party sources such as employers, banks and government agencies and pre-fill forms.
The ATO’s e-Tax and more modern myTax systems allow people to lodge online with some information pre-filled.
By tax time 2016, the ATO plans to have a single myTax product for everyone. That prompted a conciliatory message from the ATO’s Second Commissioner, Andrew Mills in a speech last year: “Now let me make one thing very clear. All this does not mean we are shutting out tax agents and intermediaries. That’s not our intention at all. You are very much a part of the picture.”
But the move to digital is being accelerated under the Reinventing the ATO programme, which is designed to shift the ATO to integrated digital solutions as outlined in its Reinvention Blueprint that was launched in March last year.
As part of the programme, through its Future of the Tax Profession working group, the ATO is also working closely with the accounting profession and software providers to provide a roadmap for change in the short and medium term. That has produced a “Roadmap of change for tax professionals” that has outlined changes to tax professional services, support and training.
There have been changes and improvements already, with more to be rolled out this year. The ATO has introduced client access to ATO mail via its myGov Inbox. In March 2015, after urging from CA ANZ and others, it introduced new functionality to the Tax Agent Portal which gives agents access to individual client correspondence. There has also been a focus on changes to practice management software, and an upgrade to the 2016 Tax Time software.
But the ATO is also looking further out to 2020 which is expected to see new methods of taxpayer authentication, including cloud-based methods, increased sharing of information between government agencies, and single-touch payroll.
We are very much of the opinion there is a very important role for agents and accountants. We believe it’s very important we’re able to partner with them so that we jointly work towards good client engagement and good client compliance.
IR’s 2020 vision
Across the Tasman, New Zealand’s Inland Revenue is also driving a major modernisation process. Called Business Transformation, it is a multi-year, multi-stage change programme to modernise the country’s tax system. The goal is to have all the administration of tax and social policy products moved to new software and all relevant legislative changes completed by 2020 or 2021.
Cunnington says New Zealand’s IR is on a similar, but also different journey, to the ATO. He says a lot of fundamentals driving the changes are similar, particularly the focus on “helping the customer get it right from the start”.
“Our job is to make it as easy as possible for customers to get it right up front,” he says. “We both want to help people get their tax right upfront rather than waiting for it to go wrong then having to take remedial action.”
But Cunnington notes that New Zealand’s tax system is different to Australia’s. New Zealand, for example, doesn’t have State and Territory taxes.
The Business Transformation programme also has a clear goal: to save money for customers and New Zealand as a whole. Cunnington says it is not good enough that the digital transformation shifts costs from the IR to banks and employers without cutting overall costs.
“It’s got to be able to demonstrate it costs ‘NZ Inc’ less to meet their tax compliance measures,” he says.
One the IR’s major current initiatives is a trial of digital filing of GST returns. IR is working with MYOB and Xero on a new service where GST returns are filed directly through accounting software to IR.
A sample of MYOB and Xero customers began trialling the new service in December last year. From March this year, it will be available to all MYOB and Xero customers, including tax agents and bookkeepers, and to other software providers.
Another key decision has been IR’s move to partner with Fast Enterprises to design and supply the software platform for its new tax system.
As with the ATO, IR has been moving to pre-fill data. Currently, the IR obtains PAYE data from employers and information on tax deducted from payments of interest (from banks and other financial institutions) and dividends from companies. The PAYE data is allocated to individual employees and is visible online in their MyIR accounts.
Standard business reporting
Amid a raft of short-term changes, the ATO’s and IR’s digitisation is expected to accelerate the ability to get data directly.
This is exemplified in the ATO’s push to move from the Electronic Lodgement Service (ELS) to Standard Business Reporting (SBR) technology. SBR basically means computers can talk to other computers. It brings in all third party data from the likes of governments and banks. That means a single lodgement can be shared across multiple government agencies. For example, an ATO lodgement can be shared with the likes of ASIC and APRA.
“With SBR the world opens up,” Walker says. “There are some pretty amazing opportunities.”
It’s a very major change for agents,” Walker adds, noting it will make their environment “near real time”.
Under the existing system, the ATO can pull out different pieces of information from third-party sources, but it still relies heavily on accountants inputting information for clients. But SBR removes the need for accountants to input data into forms.
The ATO says SBR benefits accountants because they will spend less time on gathering, analysing and assembling data for clients. And it reduces potential input errors from manual entry because information comes from business systems and government records.
A Deloitte Digital pilot found an 82 per cent saving in time for the preparation of financial statements from SBR.
SBR has been available since 2010. The big change will be mandated use. The ATO had wanted to turn off the old electronic lodgement system this year and move to mandated use of SBR, but that has been put back to the end of March 2017.
SBR is underpinned by eXtensible Business Reporting Language, better known as XBRL. Tony O’Reilly, tax director at KPMG, says that XBRL is a proven technology in the UK, where it was mandated in 2011.
But SBR won’t necessarily mean changes as radical for accountants in Australia as it has in the UK, at least in the short term. In the UK and other countries, O’Reilly says, with the use of this new technology tax authorities are tagging numbers in companies’ financials which go straight into the tax authorities’ system. That means no intermediary.
“At this stage, the ATO is not going to that extent,” O’Reilly says.
“ATO is using SBR as a new way of receiving tax returns, enabling pre-fill and sharing information between agencies.”
But eventually the ATO may move down a similar path to the UK.
The future accountant
If clients send data and returns directly to the ATO and IR, where is the place for accountants? Both the ATO and IR say accountants will still have a vital role.
IR’s Cunnington says he doesn’t believe accountants will become obsolete. While tax will become simpler it is still complex.
“You need a good partner who understands tax alongside any individual business,” Cunnington emphasises.
He says that while data will be exchanged seamlessly from companies to tax authorities, “it’s got to be the right data”. There will be an opportunity to ensure a client is providing the right information in the right way that “sets you up to be compliant right upfront”.
O’Reilly says mandating the equivalent of SBR in the UK has actually created new revenue streams for KPMG in helping companies transmit information directly to HM Revenue & Customs. KPMG’s UK practice has created a new business based on tagging financial statements.
“There will always be a role for accountants,” he says, “It’s just a question of what that role is.”
Even if data is transmitted directly to tax offices, accountants will still have to help clients. “We will still have to hold our clients’ hands,” O’Reilly says.
That said, he agrees that accountants focusing on helping individuals lodge tax returns are under threat, particularly with the advent of myTax and the increase of pre-fill data.
“That will have a big impact,” he says.
The ATO’s Walker says the digital environment is a very interesting world for accountants and a fantastic opportunity. But he warns that agents who depend on transactional operations, such as paper-based invoices, recording transactions into software, and inputting basic information are under threat.
“That type of operation is slowly going to disappear,” he says.
Walker says accountants need to discover what value-added services they can provide to their clients, such as good tax advice and managerial and business-related services.
“That’s the future for agents and accountants,” he says.
He notes a clear trend for accountants to align or partner with other providers such as financial planners, liquidators and business management experts to create a broader suite of value-added products.
Indeed, Walker sees an expanded role for accountants working with the ATO — based on a trusted relationship with the profession. He says, for example, that if an agent meets certain requirements such as qualifications and the way they operate, the ATO may trust the accountant to have seen the records and claimed appropriately. That would save the ATO checking themselves.
Accountants, on behalf of the ATO, could also look at certain deductions claimed and verify they are suitable and in accordance with the law.
“There are a broad range of things we can move into,” Walker says, noting there will still be a place for accountants.
“We are very much of the opinion there is a very important role for agents and accountants,” he says. “We believe it’s very important we’re able to partner with them so that we jointly work towards good client engagement and good client compliance.”
Ben Power is a freelance journalist.
This article was first published in the April 2016 issue of Acuity magazine.