Townsville RTPF minutes for meeting 5 April 2005

Cost of compliance - consolidations

A number of tax agents, particularly small practitioners, are having difficulty fully understanding the consolidation tax regime complexities. It is very time consuming, and one agent has advised that for a company of a turnover of $90 million the quotes of using external consultants varied between $15 million to $100 million. The quotations were obtained from training organisations to capital city legal firms, accounting firms.

Comments please.

Response:

Consolidation was introduced as part of the business tax reform package that was commonly known as the Ralph Review. The legislation and administrative principles of the measure were designed in consultation with industry representatives and there was extensive consultation prior to the release of the legislation in 2002.

In the final report of the Ralph Review, A Tax System Redesigned page 517, it was noted that introducing a consolidation regime would involve significant change. The motivation for embarking on such significant change stems from the high compliance costs and high tax revenue costs (and concomitant complex anti-avoidance procedures) associated with the current treatment of company groups - in particular, the company grouping provisions, the section 46 rebate for inter-corporate dividends and the various provisions that attempt to deal with the dual tax values for capitol gains tax (CGT) purposes of company assets and the equity in the company itself.

Consolidation and the associated removal of the current grouping provisions, are essential, for example, to address in a comprehensive and structural way the costs and complexities associated with the multiplication of tax losses through the company chain based on one economic loss. In the absence of a consolidation regime, the current costs and complexities of company group taxation would be superimposed on trusts under the consistent entity tax regime.

The review sees consolidation offering major tax advantages to entity groups - in terms of both reduced complexity and increased flexibility in commercial operations (driven by intra-group transactions being ignored for tax purposes). Associated short term transitional costs are well worth the long term benefits from this reform.

Entry into consolidation is optional and there is a definite choice that is required to be made by the head company in order to be treated as a consolidated group. To date about 3,000 groups have lodged consolidated returns in respect of approximately 30,000 corporate entities.

Various measures were incorporated into the introduction of consolidation to reduce the cost of entry. The most significant of these was the inclusion of a period of two years of transitional measures which allowed corporate groups to form using their book values rather than having to obtain market valuations. The Tax Office has also issued various practice statements concerning shortcut methods for valuations where the ‘spread’ method is chosen, outlined simplified procedures for the calculation of Division 40 values upon entry to consolidation, as well as allowed concessions related to shortfall penalties and GIC where the application of consolidation rules may be uncertain. Numerous informational products have also been issued by the Tax Office to assist with entry into consolidation plus training materials including workbooks are available through the consolidation our web site. The most significant product that is available to assist taxpayers and their representatives with entry to the regime is the Consolidation Reference Manual and this is regularly updated to reflect new law and administrative arrangements.

Costs associated with entry to consolidation are generally deductible for tax purposes.

The Tax Office also regularly provides speakers for conferences and meetings of tax professional groups. If the Tax Office can assist in this way or offer further advice on the products that are available to assist taxpayers and their representatives please contact Geoff Sheehan on (02) 6216 2803 or by email.

Meeting discussion Geoff Sheehan, LB&I, Consolidation Project, joined the forum via telephone hook-up to provide further information. Representatives asked whether any commercial packages might be available. Members were advised that although not officially endorsed by the Tax Office, commercial software packages on consolidations were available for practitioners. As part of the Tax Office’s information sessions titled ‘Demystifying Consolidations’ held between May and June 2004, some commercial packages were identified for practitioners, including: Tax Technology Pty Ltd (Gerry Jaworski) - Cost Setting Rules for Consolidations – email at: helpdesk@taxtechnology.com.au or phone: 0500 855 655 AJ Baxter & Associates (Tony Baxter) - Tax Sharing Arrangements made under Consolidations - email: ajbaxter@cornwalls.com.au or phone:(03) 9608 2000. The Demystifying Consolidations DVD is available on the Tax Office website, by ordering the product via PODS (Product Ordering Distribution Service). The NAT number of the product is 11324.

Telephone communication - debts - special arrangements

An agent has had dealings with the Tax Office regarding special payment arrangement offers for payment of income tax and integrated client account balances.

It seems this issue is dealt with in Penrith and the contact phone number is 1800 085 458. It is frustrating trying to get to talk to anyone on that number, as there are long delays and if attempting to access the section through 137 286 FKC 12, are redirected to ring the 1800 number.

A case in point – an agent arranged for a client to access the special arrangement and organised direct debits to come from his bank account, due to commence on 1 February. In late January he lodged his 2004 tax return which resulted in a refund sufficient to pay the outstanding debts - the Tax Office offset the refund against the debt. When this happened, the agent tried to contact the Tax Office to ensure the direct debit would be cancelled and was told to call on Monday 31 January - the 1800 number. On 31 January the agent tried on a number of occasions to get through. The agent then rang 137 286 and spoke to an officer who said they would email the special arrangements section, and ask for an appropriate officer to contact the agent. This did not happen, so on Tuesday 1 February I rang the 1800 number and waited in queue for 28 minutes before finally speaking to an officer who was able to assist. On 3 February, the agent received a call in response to the email.

Is there a staffing issue in this area, or would it be possible for an agent to have a direct number for this service?

Comment’s please.

Response:

On the dates in question, Tax Office call centre areas responsible for receiving and dealing with telephone enquiries regarding the Small Business Debt Initiative received higher than anticipated call volumes. This resulted in lengthy delays in call answering.

The Tax Office actively monitors and responds to delays of this type in an effort to ensure service standards are met into the future. Since February 2005, we have allocated additional resources to ensure that similar decreases in performance do not reoccur.

Please note, these one-off service issues can be directed to the Relationship Manager Program on 137 286 FKC 32 for resolution in a more timely manner.

Meeting discussion In addition, the secretariat explained that the Relationship Manager Program was established by the Commissioner to assist agents in these one-off service issues, and situations which are not resolved after following normal processes.

Reports available from Tax Agent Portal

Agents continue to comment on the success of the Tax Agent Portal and the time saving benefits to agents.

However, some agents have indicated the new reports available for up-to-date client listings are totally out of date. Examples include:

• the reports include clients that are no longer clients of the tax agent, and have not been so for at least seven years
• deceased estates that have been totally wound up
• partnerships that have be wound up and final returns lodged
• returns are not necessary, and
• showing returns are not lodged. In some instances the last returned lodged were in the early 1990’s, including 1991, 1993, 1994 and 1995.

Comments please.

Response:

To remove the client permanently, and stop the client appearing on portal lodgment status reports and the client directory, agents need to either:

• lodge an ELS CU (client update) deletion transaction, or
• remove the client through the Tax Agent Portal (your clients, authorisation summary, (and ‘tick’ all boxes) remove client).

The Tax Office has received considerable feedback from tax agents concerning the new income tax lodgment status report available on the Tax Agent Portal (TAP). Generally, the reports have been well received and usage has been very high. However, the issue of inactive clients appearing on the reports has been raised on several occasions. As a result the Tax Office issued an article in the weekly email bulletin ATO eLink 03/05 dated 17 February 2005 (Portal income tax lodgment status report is different to other client lists) and also included information on the issue in an article about the lodgment status report on the Tax Office website titled Lodgment status reports – Tax Agent Portal. The Tax Office also intends to include a similar article in the next edition of the TAXAGENT newsletter. A similar issue arose last year regarding inactive clients appearing on the portal client directory. At the time a similar article was included in eLink and an article was published on the website.

The income tax lodgment status report was developed in response to feedback from tax agents that they wanted a list of clients similar to the ELS client lists but with greater flexibility to manipulate the data using common spreadsheet software such as MS excel. Feedback and user testing with tax agents during development of the report also indicated that for income tax purposes agents wanted not just a list of expected future lodgments, but also information about clients’ prior year lodgment status including whether those years’ returns were lodged, not lodged or not necessary. As a result, the income tax lodgment status report lists all clients for whom the agent’s tax agent number appears on Tax Office systems and shows the current year plus three prior years’ lodgment status. It will include clients for whom an agent has notified us that the client does not need to lodge for a particular year (return not necessary) or is unlikely to need to lodge future returns at all (further return not necessary). This notification does not automatically remove the TAN from the client’s record. It appears that because these clients are not included on ELS client lists which are simply a list of clients expected future lodgment obligations, some agents had assumed these inactive or former clients were no longer on their lists.

Meeting discussion The secretariat advised the forum that Relationship Managers were contacting all agents with the offer to visit the practice, and train staff on the Tax Agent Portal and the recent updates. In particular, the advantages of using the ‘remove a client’ functionality within the Tax Agent Portal. A member expressed concern about the accuracy of the income tax lodgment report from the Tax Agents Portal. Action item 050405/02: A member to check the income tax lodgment status report, and contact the secretariat with any discrepancies.

Choice of superannuation

It is understood the final rules and explanations for the choice of superannuation legislation are to be imminently approved. Could the Tax Office provide some indication of what education program is to be given to employers or to tax agents to guide employers in complying with this legislation? By the time of the RTPF meeting (5 April 2005) it will be less then three months to the implementation date of choice of superannuation legislation.

Comments please

Response:

The Tax Office and Australian Securities and Investment Commission (ASIC) will jointly launch an education campaign in April 2005.

The campaign will comprise television, press and radio advertising, a mailout to all employers and a range of seminars will also be conducted. This will be supported by a dedicated whole-of-government telephone enquiry line together with a supporting website.

This should put employers and employees in a position to understand the requirements of the choice of superannuation measure.

Meeting discussion Action item 050405/03: The Tax Office to clarify availability of superannuation choice packages. Outcome: The mailout package will be sent to tax agents, super funds and employers commencing in the week 11 April 2005. Tax agents will be the first to receive their packs followed by super funds and then employers. The package will consist of: covering letter from the Commissioner of Taxation employers guide to choice of superannuation fund, and standard choice forms. All packs will be issued by 22 April 2005 More information and additional copies of the mailout package can be obtained by visiting www.superchoice.gov.au or phoning our information line on 13 28 64 between 8.00am and 6.00pm, Monday to Friday. A website has also been established at www.superchoice.gov.au .

BAS design

A representative of the forum would like further information about the format and design of the BAS.

Response:

The original BAS design was based on a government commitment that the reporting form not exceed two pages and drew on international experience and best practice for the information necessary to administer the (then) new GST revenue system.

Elements of the business activity statement (BAS) were revisited in 2001 with the effort to further simplify parts of the reporting obligation (for example, allowing payment of GST by instalments and annual reporting). A tax practitioner advisory group was used to assist with forms design.

The BAS has become embedded in community systems. The Tax Office has received significant feedback from the practitioner and business community that changes to the BAS come at the cost of changes to their systems and processes. That feedback is clearly suggesting that the form not be altered unless there is a clear mandate and that significant lead times would be required for the community to adapt.

The BAS is not a single form. There are 15 versions of the activity statement to enable the tailoring of the form to meet the roles and obligations of different businesses and individuals.

Meeting discussion A member queried BAS design, and stated that although from the Tax Office’s perspective, the BAS might be a good processing input document, it did not serve well as an informative document, as most clients possess little or no understanding of a BAS and it’s role, and the overall effect of the BAS on their tax affairs. Representatives stated that the current BAS does not assist clients in understanding their tax affairs and cash-flow, and that most clients do not understand what amounts or items to enter into which labels on the BAS. Members were asked for suggestions/expectations of a BAS. Members responded with the following: format of BAS should be ‘user friendly’ and in ‘plain English’ style a BAS should facilitate understanding of taxation system and obligations, and ‘tick a box’ format is not clear for clients. The Tax Office reiterated that changing the current BAS to provide more information for clients (rather than simply fulfil the role of a processing input document) would bring with it a huge educational project, with changes and re-education affecting the whole community and tax systems (both for agent and the Tax Office). Including more information into the BAS would also see the form become more complicated and larger. Action item 050405/04 The secretariat to escalate the BAS feedback received, to appropriate areas in the Tax Office, with the aim of seeking other forum feedback on this issue.

Role of RTPF

A representative of the forum would like more information of the scope/parameters of the regional RTPF’s, and how the regional forums interact with the national ATPF?

Response:

There is a long history of the Tax Office and tax practitioners, through representatives from their professional associations, getting together in consultation forums to discuss the tax system. In a clear sense, these consultation forums have potentially been part of the ‘real-time’ customer feedback for the Tax Office about the way the tax office is working.

Regional forums provide an opportunity for local Tax Office management to gain a direct insight into how the tax system is working. They also provide a standing opportunity to build productive business relationships between representatives of local tax practitioners and the Tax Office. Ideally the regional forum will seek ways to improve tax administration in a forum which promotes constructive dialogue and exploits opportunities for improving the way the tax system is administered.

Regional forums help the Tax Office understand regional differences in the community and provide a variable source of feedback for it. Difficulties have arisen when forum members are not clear (or agreed) in the view they have about a forum’s scope, authority and direction. There is also unavoidable disappointment when members consider their expectations are not met, particularly after devoting considerable amounts of their own time and energy to preparing for and attending forums. Forums should therefore have considerable clarity about what it is they are trying to achieve.

A purpose statement was developed as follows:

The regional tax practitioner forum (RTPF) is a place for communication between the Tax Office and tax practitioners about how the tax system is working.

With this in mind the RTPF will:

• focus on tax administration
• provide an opportunity to identify, discuss and jointly resolve significant tax administration issues that could not be handled by tax agent relationship management service areas or other Tax Office problem resolution mechanisms, and
• exchange information about future issues and events relating to respective responsibilities in the administration of the Australian taxation system.

The aim of the forum is to provide an environment for communication so both Tax Office and practitioner representatives can work together to overcome administrative difficulties being encountered. It is not a venue for one side to knock the other. The forum, if it is to be productive, must be predominantly future focussed.

Role of practitioner members includes

Practitioner members of the RTPFs will represent the interests of the members of their respective professional body or other tax practitioners.

The RTPF provides an opportunity to work collaboratively with senior local Tax Office staff to achieve joint outcomes to issues raised. Members are invited and expected to regularly contribute to the forum agenda and discussion at the meetings.

Members will consult within their representative groups for the views of their colleagues on agenda items.

Members will report back to their constituency about the outcomes of the meeting. Issues of relevance are to be disseminated by members to other members of their association. For example, this could occur through discussion at local meetings of the association.

Members will keep their respective associations informed of issues of wider interest.

Practitioner members will attend meetings on a regular basis. Where it is impractical for a member to attend they should attempt to arrange a substitute representative. In situations where a member is unable to regularly attend the forum, the member should contact their association to seek a replacement representative.

Responsibilities of Tax Office members

As members of the forum, Tax Office staff are expected to abide by the forum purpose statement and the operational guidelines for the forum.

Specific responsibility includes:

• resolving nominated agenda items and action items within the forum meeting wherever practical
• communicating issues of significance to senior staff in their business line through direct contact, and emailing a summary of the major issues raised at the forum, and
• communicating the relevant issues raised at the forum to their regional staff in a timely manner.

RTPF – ATPF links

RTPF meetings are generally held four to six weeks prior to the ATPF so that any unresolved or other identified issues can be escalated to the ATPF for further discussion or for referral to other areas/forums within the Tax Office.

A recent trend across the majority of regional forums is the lack of member input into the agendas which may lead to postponement or cancellation of meetings. The Tax Office is looking for ways to energise and extend its use of RTPFs, such as including them as part of the Change Program consultative process, or for other workshop activities in the future.

The Tax Office is seeking a commitment from the professional associations to assist in making the regional forums better discussion groups and more worthwhile for all members.

The aim of the RTPF is to provide a healthy environment for discussion of systemic issues, particularly those affecting practitioners in the region and strong two-way communication.

Regional forum members generally agree the RTPFs are an effective tool for consultation, are valuable as a communication tool and they appreciate the opportunity to be involved in decision making processes. Some of the activities members have been involved with include: compliance toolkit development, strategic framework consultations, industry ratio questionnaires feedback, identification of products and services for not-for-profit segment, generic processing design, lodgment reference card and review of superannuation letters.

Meeting discussion Further discussion ensued during the meeting, including the purpose of the RTPFs, and the need for some ‘corporate’ items (especially those which seek feedback/input).

Other business

Upcoming Tax Office speakers and seminar (TESS) sessions

Meeting discussion Shaun Edmonds, ARL, Tax Education and Seminars, advised the following sessions would soon be conducted by Tax Education, Speakers and Seminars (TESS): super choice co-contribution changes employer obligations regional rollout of home-based business seminars margin scheme changes

Association conferences

Meeting discussion Representatives advised the following up coming professional association conferences: TIA – May 05 Winter Tax School – June 05

Review of Self Assessment (ROSA) update

Meeting discussion Tony Goddard, Assistant Commissioner, PTax, Provision of Advice, provided a brief update on the RoSA project, and advised that information on the 52 recommendations was now available on the Treasury website. Mention was made that this project was moving ahead well, with many changes, education and marketing coming through in the next few months. More information will be available in upcoming RTPFs.

Next meeting

The next meeting is on Tuesday 12 July 2005.

Agenda items should be submitted to the secretariat, Alice Taylor, by 30 May 2005 - preferably via email.