It is noted that the most recent meeting of the NTLG Division 7A Working Party in late January 2009 discussed a proposed practice statement dealing with the future exercise of the Commissioner's discretion under section 109RB and also an update on Tax Office compliance activities in this area. This is against the background of the Tax Office’s current approach of moving more into a compliance phase now and looking at targeting questionnaires to potential higher risk taxpayers and transactions to determine compliance at both a client and agent level.
In light however of the implications for taxpayers of the Tax Office’s current administrative practices in respect to honest mistakes or inadvertent omissions, the external members believe that the current focus of the Tax Office should be on the preparation of a public ruling to clarify the operation of the law in this area in addition to a practice statement.
This request for a public ruling in respect to what constitutes an honest mistake or inadvertent omission is a threshold requirement for the exercise of the Commissioner’s discretion. Thus it would be more appropriate in our view for a Practice Statement to issue in respect of how the Commissioner’s discretion will be exercised and a public ruling to issue on what amounts to an honest mistake or inadvertent omission.
If the Tax Office’s view of the law as to what constitutes an honest mistake or inadvertent omission is unduly narrow then the discretion is effectively rendered useless and thus would clearly defeat the purpose for which it was introduced. We are not seeking carte blanche here but rather just a reasonable approach where mistakes have been made. Blatant cases should not necessarily be afforded protection.
Response
This issue was raised at the Division 7A Working Group of the Small to Medium Enterprises (SME) ATPF Sub-committee and it was agreed there, that a letter detailing industry concerns about the issue would be provided and that the Tax Office would review its position upon receipt of this letter.
A joint submission on draft practice statement PS LA 2843: ‘honest mistake or inadvertent omission’ was received on 16 March 2009.
Meeting discussion
Deputy Commissioner, Mark Konza advised members that the joint submission on the draft practice statement PS LA 2843 is being considered and advised members that a meeting with representatives was likely to occur within the next month to consider the way forward. That is after Easter. A Tax Office meeting is expected to occur in approximately two weeks, followed by a meeting with external stakeholders approximately a fortnight later.
The need for a public ruling was discussed, and it was considered that as the law was relatively straightforward, a public ruling was not required and that factual examples may provide the guidance sought. Of 33 applications for the exercise of discretion, approximately 20 have been allowed, and they have related to the same topic area. A significant number of the examples included in the draft PS LA have been derived from scenarios that the Tax Office has seen. The majority of the applications where discretion has been allowed relate to tax agent confusion as to whether the business to business loan is subject to Division 7A.
Members were advised that a précis of the applications for discretion received would be provided for the meeting, and that the Tax Office would be happy to consider other examples if necessary.
The Tax Office will continue to determine what guidance can be issued on 'honest mistake'.
Action item
NTLG0903/02
A workshop is to be arranged to progress the draft PS LA or appropriate guidance product in respect of Division 7A issues.
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