Background
Tony Sullivan - Acting Assistant Deputy Commissioner for Closely Held and Private Entities within the Small and Medium Enterprises (S&ME) business line introduced the session and thanked the members for the opportunity to address the forum to promote dialogue between SME tax practitioners and senior Tax Office staff. Tony advised the members that the Small and Medium Enterprises business line is currently responsible for income tax issues for the middle market comprising taxpayers within the $2 million to $250 million turnover range. Predominantly the S&ME Business line caters for the:
- high wealth individual (HWI) market sector comprising taxpayers who control net assets in excess of $30 million
- general active compliance for the SME market, and
- practice management encompassing policy, procedures and workforce planning.
Tony advised the members of a number of initiatives within the Small and Medium Enterprises business line leading on from the Tax Office Income Tax Expansion Project that will impact future directions for the S&ME business line.
Members were advised that the initiatives are aligned with the Tax Office strategic objectives to optimise taxpayer voluntary compliance through advising taxpayers of the obligations in an efficient, cost effective and more personalised manner. Initiatives under the strategic banner include:
- the recalibration of the SME market from $2 million to $100 million to $2 million to $250 million turnover range, and
- recent government funding will allow the Tax Office to redirect focus on the upper end of the SME market, HWI and large business sectors.
Tony Sullivan advised the meeting that the Tax Office understands that a comprehensive end to end strategy approach is more effective in achieving voluntary compliance and securing community revenue than adopting a unilateral audit approach. This approach has been adopted in a number of compliance risk areas including Division 7A, Service Trusts and Business Exit Strategies. Reference to this approach has been published in the Tax Office Compliance Program 2008.
Members were advised that with the increase in focus on the HWI and SME markets the Tax Office will be investing resources and capabilities to ensure a more tailored and targeted intervention. The Tax Office will be seeking voluntary compliance from taxpayers through effective engagement and credible compliance activity. The HWI booklet is an example of this approach. Members were advised that the HWI booklet product has been developed to provide an opportunity for practitioners and clients to discuss appropriate governance and due diligence in regards to taxation obligations. For instance the product provides practitioners and taxpayers information including potential Tax Office compliance risk concerns, transparency regarding audit, review processes, as well as a checklist to ensure taxpayers know what they need to do to comply with their tax obligations.
In relation to future project work the Tax Office has identified similarities between the large market and the middle market for demergers, consolidations, CGT and exit strategies risks. As a consequence there maybe some joint projects between the Large Business and the Small & Medium Enterprises business lines.
Discussion
Forum members were in general agreement and acknowledged the Tax Office multi faceted approach to encourage voluntary compliance through effective engagement strategies and credible compliance activities. Members were of the view that the Tax Office is deploying resources appropriately. They confirmed that education and awareness strategies for intermediaries are important to the extent that compliance risk issues can be identified early. If these issues are raised with practitioners early on then this will enable practitioners to educate their clients in a timely manner and therefore encourage and assist in voluntary compliance.
Greg Williams advised the meeting that a unilateral audit approach has a diminishing return and that subsequently the Tax Office's preferred approach is now centred on active engagement, consultation and co-design strategies to promote voluntary compliance.
Members expressed a view that they are seeing an increase in exit strategy practices and that this appears to be part of the aged workforce demographic. In response, Tony Sullivan advised that it is important that the Tax Office continue to work on this issue with tax practitioners in a collaborative manner so that taxpayers can receive the right information. It was also highlighted that exit strategies is viewed as an important compliance risk given the combination of income tax issues involved in this area.
In relation to Tax Office workforce capability members expressed the view that it is important that Tax Office compliance staff receive appropriate training. An example was provided where an auditor did not accept a practitioner's explanation that a transfer involving two trusts did not constitute a Division 7A risk. Members further informed that the Tax Office may consider instigating a 'buddy' system whereby less experienced staff can be mentored by more senior Tax Office staff. Members requested that the Tax Office consider aligning audit staff capability to include an appreciation of relevant issues that is necessary for understanding commercial rationale and business practices in the SME market.
Members were advised that given the rapid increase in staffing levels the Tax Office is aware of this issue and has implemented strategies to address this issue. These strategies include ensuring that cases go before a case panel so that audit recommendations can be assured prior to being actioned. There has also been an introduction of small case teams which has seen a reduction in single officer audit cases.
Members were informed that the S&ME business line is considering additional methodologies for profiling taxpayers and informing them how they rate against compliance risks. Such methodologies will assist the Tax Office target its compliance interventions more appropriately.
Members were also informed that upcoming projects may consider a greater focus on international dealings and the level of tax remitted within the SME market sector from these transactions.
Outcome
Greg Williams thanked Tony Sullivan for his presentation and forum members for their contribution. Greg further advised that further practitioner consultation around S&ME issues projects will be required and that practitioners will be advised of this accordingly.
Sections within Agenda items
Last Modified: Friday, 7 May 2010