Tax agents who continue to base their value and business model around the traditional tax return will struggle as the tax system gets increasingly digital, says ATO second commissioner Jeremy Hirschhorn.
Value behind traditional lodgements is diminishing, says the ATO
Speaking at the Chartered Accountants Australia and New Zealand Practice Power Up Conference in conversation with ChangeGPS CEO David Boyar, Mr Hirschhorn said tax practitioners would need to find a way to reposition their value to clients as compliance gets increasingly automated.
He noted that the tax system was built in a “pre-data world” that required the lodgement of tax returns, but advancements in technology now meant that the ATO could access data accurately from the source.
“This is from the cheap seats, because you know, my days of charging for services are seven years ago, but I think in the old days, there was a whole lot of skill and value provided by agents which was manifested in the lodgement of a form,” Mr Hirschhorn said.
“It was actually moving data from different places, aggregating data, and shifting it into a form, knowing where to put it in the form, applying tax sorting rules and tax analysis to work out which numbers needed to go into which box or not.
“But fundamentally, as a tax adviser, I didn’t just sell tax advice, I sold confidence and reassurance — people are worried about getting their tax right or wrong — as well as the value of tax planning and making sure that people’s taxes are optimally following their business.”
He continued: “Over time, because the bill was linked to the form, in the minds of a lot of clients, it was the form that was the thing that they’re paying for, but in fact, they were really paying for all those other things; they’re all bundled together.
“I think one of the challenges is that, particularly as the tax system gets designed more around data, but indeed just as computers and programs get better, that Data Sherpa of carrying data from one place to another, computers do that really well and don’t make mistakes.
“There are some business models, or some businesses, which are really going to struggle [because], maybe, the value that they provided can be mostly delivered through computers. But then, equally, for most businesses in the industry, it’s really unlocking and isolating that value, being clear about the value and working out how to charge for it.”
An automated tax return
Mr Hirschhorn also said it is highly likely that the tax return of the future would be different as the ATO looks to design it around automatic, verifiable data — citing the ATO’s success in delivering the cash flow boost and JobKeeper schemes based around the data source.
“Where I think data and the tax system is really going and some of the lessons of COVID is actually in a world where data is a real thing and verifiable data is a real thing, can you design more of your tax system around verifiable data?” Mr Hirschhorn said.
“I can certainly see an environment where the tax return of the future looks very different, and may indeed be a data feed, almost an automatic data feed which is periodically vouched by a tax agent, but it’s not the same.
“A lot of the data, which is in with the current tax return forms, is data that the ATO can probably get just as accurately from somewhere else. So, do we need it?”
Mr Hirschhorn’s comments come after Commissioner of Taxation Chris Jordan flagged last year that the ATO could soon be automating business activity statements (BAS) by tapping into a business’s natural systems, including its bank accounts.