Venue:
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Stamford Plaza Hotel
111 Little Collins Street
Melbourne
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Time:
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10.00am - 1.00pm
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Attendees:
Grant Cathro
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LCA
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Peter Murray
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TIA
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Frank Drenth
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CTA
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Ali Naroozi
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ICAA
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Anne Edwards
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CPAA
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Mark Northeast
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CPAA
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Matt Hayes
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TIA
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Mark Pizzacalla
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ICAA
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Steve Klimczak
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CTA/APPEA
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David Romans
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PWC
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Brian Lane
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E&Y
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Ken Spence
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TIA
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Geoff Lehman
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TIA
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Tony Stolarek
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ICAA
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Cathy McBride
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ABA
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Miquel Timmers
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CTA
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Mark O'Connor
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The Treasury
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Martin Jacobs
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The Treasury
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Des Maloney
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Tax Office
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Jim Killaly
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Tax Office
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Murray Hawkins
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Tax Office
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Scott Burrows
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Tax Office
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Geoff Sheehan
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Tax Office
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Peter Coakley
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Tax Office
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Debbie Boyd
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Tax Office
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Mark Lyburn
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Tax Office
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Apologies:
Tony Baxter
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ICAA
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Karen Hunter
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ICAA
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Annamaria Carey
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LCA
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Andrew Jackson
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ABA
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Ray Conwell
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LCA
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Paul Krakauer
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GE Capital
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Lance Cunningham
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NIA
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Janet Lucas
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PWC
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Michael Dirkis
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TIA
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Rod Marshall
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Telstra
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Paul Drum
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CPAA
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Stephen Olvet
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ICAA
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John Gonsalves
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ICAA
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Gordon Thring
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CPAA
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Don Hammon
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AMP
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Sandra Peacock
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Tax Office
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Richard Hendriks
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LCA
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Barbara Sikorksi
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Tax Office
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Secretariat:
Raffaella Recipero
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Tax Office
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Please note: NTLG Consolidation sub-committee agendas, minutes and related papers are not binding on the Tax Office or any of the other bodies referred to in these papers. While every effort is made to accurately record views expressed, the wording necessarily represents a summary of statements of general position only, and care should be taken in interpreting those statements. These papers reflect the position at the date of release (unless otherwise noted) and readers should note that the position any issue may subsequently change
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1
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Introduction
1.1 Providing technical advice on Consolidation matters
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2
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Dealing with Consolidation within the ATO: now and into the future
2.1 Reconstituting working groups
2.2 New working groups
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3
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Specific updates on Consolidation Public Rulings and Tax Determinations
3.1 Expectations
3.2 Outcomes
3.3 Timeframes
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4
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Administrative and other issues
4.1 Confirmation of minutes and action items of 6 April 2004 meeting
4.2 Report back on matters raised at Administrative Joint Design Working Group
4.3 Income tax returns and lodgement for 2004-05
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5
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Other issues and wrap-up for next meeting
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The Chair, Second Commissioner Michael D'Ascenzo opened the meeting at 10.30am.
The conversation during the meeting at times deviated from the set meeting agenda. The items were discussed in the most appropriate order and the Minutes reflect the order in which items were discussed
In welcoming members of the NTLG Consolidation sub-committee members, Second Commissioner D'Ascenzo introduced himself as a first attendee and expressed his commitment to getting to the business end of Consolidation.
It was recognised that professional bodies and affected taxpayers are seeking more advice and guidance in the implementation phase, and the Tax Office is committed to working with the business community to provide practical guidance on all the major aspects.
Murray Hawkins reinforced these sentiments and referred members to the recent speech by Second Commissioner D'Ascenzo to the Corporate Tax Association Convention and the Tax Institute of Australia 2004 conventions.
Before addressing the set agenda items, members were invited to add further items or issues for discussion to the agenda.
It was noted that among the various topics addressed by the forthcoming Consolidation tax rulings and determinations program, consistency in technical guidance is of utmost importance. Second Commissioner D'Ascenzo highlighted that congruency of advice is dependant on the interactions of the various topics and related legislative provisions. However, the approach taken to providing technical advice on Consolidation matters will be as consistent and seamless as possible.
In planning for provision of technical advice on Consolidation matters, the Tax Office recognises two focus areas: the taxation rulings and determinations program and managing priority issues in the Issues Register, and providing a higher level of assurance on key issues covered in the Consolidation Reference Manual.
Action item: The Tax Office is committed to providing members with a forward work plan of 2004-05 arrangements.
Some members expressed their concerns regarding the Tax Office processes for accepting new technical issues and related escalation points. Members were reminded that the normal entry point in the past has been the Consolidation Centre of Expertise. However, since the Consolidation Project Team (headed by Murray Hawkins) is responsible for providing secretariat services to this sub-committee, and is also accountable for the ongoing maintenance of the Issues Register, Murray Hawkins would ideally be the first point of call for submitting a technical issue query.
Some discussion surrounded the suggestion to divide the Register between technical issues and administrative issues. The Tax Office will consider this further. Nevertheless, members emphasised the importance of the Register being reviewed and ensuring all issues, including those raised through working groups, are recorded.
Action item: The sub-committee secretariat will ensure the Issues Register is frequently reviewed and updated, to also include issues raised through working groups.
Jim Killaly commenced the discussion in relation to the need to reconstitute sub-committee working groups by reiterating the Tax Office's commitment to working with industry groups to develop administrative solutions. In light of the recent letter of 5 May 2004 from some members of the NTLG, outlining concerns about the management of technical issues and provision of technical advice, it would be an appropriate time to do an implementation stock-take.
Members expressed their keenness for working groups to continue, especially in light of the tax rulings and determinations program. It was suggested that the working groups could be used as a vehicle to present and consult on rulings and determinations as they are drafted, and to also pick up other residual issues. This is further justified by the fact that there is a logical connection between the working groups and the topics expected to be covered by the rulings and determinations program.
The current capacity of the Tax Office to deal with residual issues and the extent of the coverage of working groups were questioned. Second Commissioner D'Ascenzo reaffirmed the Tax Office's intention to have relevant public rulings and determination available by September 2004, but also reminded members of the private rulings processes, and suggested that externals refer issues to the Tax Office for resolution. He also recommended that members offer a proposed solution for any new technical issues in order to expedite and simplify the process.
Furthermore, it is anticipated that the rulings and determinations program will generate some 'flow-on' work. It was highlighted that members would be called on to consult on issues covered by the rulings and determinations program.
Action item: The Tax Office agreed to further meetings within 2 weeks of the release of draft rulings and determinations to help expedite their finalisation.
Jim Killaly noted that presently there is no working group to focus on cost setting (ACA) issues and questioned whether there is merit in establishing one. Members suggested that the Assets, Liabilities, and Accrued Profits & Losses working groups could be rolled up into the ACA working group. The general consensus was that there is significant merit in establishing this working group.
Further working groups identified relate to:
- Single Entity Rule
- Losses
- MECs
- Market Valuation, and
- Leaving.
Action items:
1. The Tax Office will establish and organise to convene an ACA working group as soon as practicable after the release of relevant rulings and determinations.
2. The Tax Office will publish a meetings schedule for all working groups, including an overview of the process and protocols to be followed, and a comprehensive list of action items for each working group.
3. The Tax Office will publish updated minutes of all working groups on the Consolidation NTLG sub-committee website.
4. The Tax Office will ensure that monthly updates, journals, short-cuts, tips and FAQs are published on the Consolidation website.
It was noted that the 'Demystifying Consolidation' workshops have now ended. They were well attended and the overall response by practitioners was positive. A series of presentation slides which were used for the workshops have been uploaded to the Tax Office website and DVD production is underway. As an effective source of providing information, the Consolidation Reference Manual recognises the SB/SME market. In order to sustain education of the SB/SME market, the Tax Office is aiming to publish more material on the website.
The general consensus for members was that there are specific yet varied issues which impact of the SB/SME market and there is concern that these issues will go unaddressed. The Tax Office needs to carefully consider a set of products specifically tailored to this market.
Action item: As a well-targeted set of guidance material, the Tax Office will identify and 'carve-out' suitable components of the Consolidation Reference Manual, fact sheets, shortcuts, etc which are particularly useful to the SB/SME market.
The Tax Office advised that it will include Consolidation in the premium telephone enquiry service to help ease some of the pressure on tax practitioners.
The Chair stressed the importance of the Tax Office and externals working closely and not in isolation. To overcome some inevitable tensions, the Chair suggested that a 'whole-picture' of Consolidation be constructed.
Action item: The Tax Office agreed to identify and publish the overall strategy and administrative arrangements for Consolidation in 2004-05.
The expectations and outcomes of the rulings and determinations program were reaffirmed.
The Tax Office highlighted that internal processes will aim to identify issues, scope them with the input of externals, and release draft rulings and determinations for external consultation. The Chair noted that time pressures mean that normal cycle times for public consultation may need to be shortened.
The Tax Office proposes to issue rulings on the following topics:
- single entity rule
- definition of an asset
- definition of a liability
- CGT event L7
- capital injections
The last published Issues Register gives further direction on how the issues are expected to be addressed by the rulings and determinations program.
It was noted that the forthcoming tax determinations will be more straightforward than the rulings, and should therefore be easier to deal with. For example, the CGT event L7 issues will be addressed by 3 separate tax determinations concerning discrete areas, while 12 tax determinations will deal with specific interaction issues between Consolidation and capital gains tax - these tax determinations will issue as a package in the near future.
Also, external member highlighted the usefulness of including practical worked examples in tax rulings and determinations to support the application of high level principles.
The abovementioned rulings are already in draft form and will be submitted to the Rulings Panel on 24-25 June 2004. Other rulings are expected to issue in early July.
It was suggested that some working groups convene in early July to review and comment on the draft rulings and draft tax determinations issued.
Action item: The Tax Office will arrange a meeting with members in early July to discuss key draft rulings and draft determinations.
Members were invited to comment on the minutes of the sub-committee meeting of 6 April 2004. The Minutes were accepted with the following corrections:
- Cathy McBride attended
- Grant Cathro and Anne Edwards were not present.
In relation to paragraph 7 of the Minutes concerning extensions of time to lodge income tax returns and submissions for general interest charge (GIC) remission, members questioned how this works in practice. Members also requested an update of the Commissioner's 4 December 2003 media release to reflect the current state of play.
It was noted that the NTLG Administrative Working Group had also raised similar issues in respect of lodgment and penalties. The common thread is that professional bodies and taxpayers would like a definitive statement concerning matters such as income tax return lodgment, amendment requests, application and remission of the GIC. Another question which requires an authoritative view is the definition of a 'reasonable' period.
In respect of the administration of penalties during the transitional period, the Tax Office advised that a statement will issue as soon as possible clarifying the application of GIC and other penalties. Generally the outcome for taxpayers will be no culpability penalties and nil GIC (up to the date of enactment); and a reasonable time for taxpayers to put their affairs in order if necessary (without GIC) post enactment. However, if the taxpayer anticipates the proposed law in situations where:
a) taxpayers (and the ATO) do not have sufficient public guidance as to how returns might be lodged if the proposed change were to be anticipated; or
b) where the ATO advises taxpayers to comply with the existing law;
then GIC at the base interest rates may apply.
For example in some situations taxpayers may be advised to lodge on the basis of the existing law. If taxpayers follow this advice they will not be subject to culpability penalties or to the GIC (up to the date of enactment of the proposed legislative measure), whether or not the proposed measure is later enacted. In addition, taxpayers will be given a reasonable period to get their affairs in order, post enactment of the measure, without incurring any GIC.
However, there may be cases where the ATO may not be able to advise what course of action a taxpayer may take because there is limited information available. Alternatively there may be cases where the ATO will advise taxpayers to comply with the existing law, but taxpayers nevertheless 'anticipate' the proposed law. For example, the ATO may be precluded by the Financial Management Accountability Act 1997 or other legislation from providing a specific refund to an identifiable taxpayer. In these cases, a taxpayer may be liable to GIC at base interest rates if the proposed measure is not enacted, or if the law is enacted and the taxpayer's assessment underestimates their liability under the measure. In this latter case, if the taxpayer overestimates their liability, they would generally be entitled to a credit amendment and interest on overpayment.
As an example, members are advised that following passage of the relevant legislation, if an amended assessment decreases the taxpayer's liability they would be entitled to interest on overpayment. On the other hand, where an amended assessment increases their liability, the taxpayer would be entitled to a remission of GIC to the base interest rate component only.
Members also asked whether Tax Office press releases (especially 4 December 2003) and certain speeches are the ruling authority for this particular matter. The Tax Office advised that it would be necessary to formalise those views as authoritative guidance in a product, such as a Practice Statement.
Action item: The Tax Office will formalise the views expressed in the Commissioner's press release of 4 December 2003 concerning the Tax Office's administrative approach to Consolidation, especially in regard to lodging returns on the basis of announced changes not yet enacted, and the application of penalties and interest [note the preferred product to formalise this view is a Practice Statement].
It is reported that at the last meeting of the Administrative Working Group three main issues were raised, being:
1. how the Tax Office will manage "multiple amendments" and whether any consideration has been given to the proposal by externals of a "one shot amendment";
2. shortcuts for allocable cost amount (ACA) calculations to help reduce compliance costs; and
3. the Tax Office approach to formation case reviews for commercial certainty.
Action item: The Tax Office will publish the draft Minutes of the Administrative Working Group meeting held on 17 May 2004.
In respect of formation case reviews, all members agreed that it is critical to gain assurances on the formation case calculations as soon as possible. Within that process, business would like to ensure that the Tax Office is performing necessary risk assessments.
The Tax Office advised that the practicalities of risk assessments for the entire population of 4,000 - 5,000 groups need to be realistically considered. The extent of scrutiny needed would depend on the cases and calculations concerned and the Tax Office has an obligation to satisfy itself that there are no material risks. Coverage of the whole population within 12-18 months is not feasible. The Tax Office said it would work with taxpayers who are prepared to be transparent. Members expressed concern that corporates would not feel comfortable having their formation cases scrutinised many years after completion, although they would take a 'cooperative and transparent' approach.
The Tax Office referred to the risk matrix guidelines already published on the web and encouraged members who wanted greater certainty to seek specific assurances from the Tax Office.
A member requested that the arrangements for aggregating financial data for 2005 be published as soon as possible.
On a separate note, the Tax Office informed members that the issues concerning FBT/GST grouping arrangements, and record keeping and access powers, are not issues for the Tax Office to address, but rather for Treasury to consider as a matter of policy.
In light of the recent meeting with externals on tax sharing agreements (TSAs) the Tax Office has committed to updating Chapter 35 of the Receivables Policy and the Consolidation Reference Manual to provide further guidance on TSAs.
Action item: The Tax Office will publish further guidance on TSAs.
The focus of the meeting turned to clarifying income tax return labels. Members were invited to express their views on the 'C' form and more importantly on the highlighted areas corresponding to Consolidation. Although the general consensus was positive, members raised specific issues concerning the aggregation of data in consolidated returns, record keeping requirements and their ability to answer yes/no type questions contained in schedules.
Other issues raised at the Administrative Working Group meeting include:
- how the Tax Office deals with part year returns;
- what numbers are included in tax returns where group membership changes;
- 25A and Thin Cap problems; and
- better guidance for 15 July lodgers.
Some members expressed the need for the Tax Office to clarify the approach to lodgment extension requests. The Tax Office confirmed that a case-by-case approach continues to apply, and that lodgment extension requests should be directed to Suzanne Woods and Denise Howell of the Tax Office.
Action Item: The Tax Office agreed to convene a separate meeting to discuss issues relevant to the preparation of consolidated returns and will report back to the next sub-committee meeting.
Exit scenario covered in Tax Laws Amendment (2004 Measures No.2) Bill 2004
A member referred to a change proposed in Tax Laws Amendment (2004 Measures No.2) Bill 2004 (TLAB 2) concerning the Consolidation 'exit scenario'. It was noted that this change was proposed to ensure protection for the exited entity. However, it applies to group liabilities in respect of clean exits. The reality is that the clean exit rule applies only to liabilities straddling exiting years. In fact, the operation of the new rule does not seem to help the exited entity.
Action Item: Treasury agreed to investigate the matter further subject to a more detailed explanation being provided.
Record keeping and Commissioner's powers of access
A member expressed concerns in relation to record keeping requirements and the lack of statutory authority for accessing records of exited entities. The Tax Office responded by advising that while the Commissioner has access to records, the purpose of those powers does not extend to assisting the head company of a consolidated group to access the records of an exited entity.
The meaning of 'reasonable'
A member observed that Tax Office guidance concerning the meaning of 'reasonable' is still outstanding. Apparently, Stephanie Martin is the contact for this publication.
Action item: The Tax Office will progress the publication of 'what is reasonable' and report back to members.
Next meeting
Members requested that the next meeting be scheduled for some time at the end of August; this will especially allow for a stock-take of the resolution of technical issues and the progressive outcome of the rulings and determinations program. It was agreed that the sub-committee will reconvene in late August, additional to meeting with relevant groups in the interim to review draft rulings and determinations.
Last Modified: Tuesday, 24 August 2004