Consultation Steering Group key messages 29 October 2020

Key highlights

• Members discussed:
  • the consultation and approval processes for Taxpayer Alerts following the amendments to Law Administration Practice Statement PS LA 2008/15 Taxpayer Alerts
  • the implementation of the legislation regarding the Disclosure of business tax debts.
   
• Members identified the need for consultation on the new Budget measures for Insolvency and changes to FBT rules.
• Insights from the external Co-chairs Stewardship Groups meeting on 1 September 2020 and the ATO Co-chairs Stewardship Group meeting on 19 October 2020.
• Members noted the key outcomes of the Consultation Steering Group (CSG) for 2020.

Introduction and opening comments

Kirsten Fish, Acting Second Commissioner, Law Design and Practice, ATO; Michelle de Niese, Corporate Tax Association

Co-chair Kirsten Fish opened the meeting and welcomed members to the final meeting for 2020. Kirsten Fish welcomed Julie Abdalla as the representative for The Tax Institute to her first meeting and thanked former Tax Institute representative Stephanie Caredes for her contribution to the CSG.

Co-chair Michelle de Niese noted that she has established a more structured process for setting the CSG agenda and thanked members for their input. Michelle de Niese stated that consultation is crucial to the operation of the taxation and superannuation systems with the CSG critical to ensuring the consultation processes are meaningful and undertaken when required.

ATO Consultation matters

Law Administration Practice Statement PS LA 2008/15 Taxpayer Alerts

Jeya Somasekaran, Assistant Commissioner, Private Wealth, ATO; Sharon Murray, Assistant Commissioner, Public Groups International, ATO

Members requested a discussion on how the consultation and approval processes for Taxpayer Alerts has changed following the most recent update to Law Administration Practice Statement PS LA 2008/15 Taxpayer Alerts.

The Practice statement was updated in January 2019 with several key changes.

• A revised process for Taxpayer Alerts including:
  • Tax Counsel Network approval at the Assistant Commissioner level
  • consultation with a Deputy Chief Tax Counsel or the Chief Tax Counsel to assure the alert is strategically appropriate
  • endorsements from the Second Commissioner, Law Design and Practice and the Second Commissioner, Client Engagement Group (previously endorsement was only required from the Second Commissioner, Client Engagement Group).
   
• Clearer approach to external consultation
  • The ATO will consult externally in all but exceptional circumstances, with a decision not to consult being made by the Deputy Commissioner of the relevant business line.
  • The aim of external consultation is to assist in ensuring the scope of the arrangements, and the ATO’s concerns, are clearly articulated and properly targeted.
  • External consultation will generally be on a confidential basis.
   
• Established a new governance framework, including a panel of Assistant Commissioners representing the business lines within the Client Engagement Group and the Tax Counsel Network meeting regularly to assure that:
  • follow-up activities, including relevant public advice or guidance, are being progressed where appropriate
  • appropriate evaluation activities occur for individual alerts and the program more broadly.
   

In response to several questions from members, the ATO provided the following additional information.

• External consultation was undertaken for all Taxpayer Alerts issued in 2020.
• The selection of participants for external consultation varies across the business lines and depends on the particular Taxpayer Alert topic. In respect of Taxpayer Alerts 2020/2, 2020/3 and 2020/4, external consultation was undertaken with participants including practitioners from law firms and certain members of the ATO’s General Anti-Avoidance Rules Panel.
• The ATO would rarely provide follow-up public advice or guidance to further explain when the general anti-avoidance rules would apply to an arrangement given the fact dependent nature of Part IVA.
• The Taxpayer Alert Governance Panel generally conducts its review of a Taxpayer Alert at least six months after the Alert is issued.
• Each business line is responsible for maintaining the currency of its Taxpayer Alerts and regular reviews are undertaken. There is scope to withdraw or archive an Alert (see PS LA 2008/15, section 10).
• The changes to Taxpayer Alert processes were considered positive and were improving the quality of the Alerts.

Members noted that:

• none of the Alerts issued in 2020 made any reference to follow-up PAG products
• Taxpayers Alerts have evolved to have a broad reach where previously they applied in very narrow situations – this is particularly evident in Taxpayer Alert TA 2020/2 Mischaracterised arrangements and schemes connected with foreign investment into Australian entities
• the increasing volume of Alerts and their importance in corporate processes needs to be considered.

Disclosure of business tax debts

Les de Wind, Assistant Commissioner, Debt and Lodgment, ATO; Julie Gifford, Consultation lead, Acting Director, Debt and Lodgment, ATO

The members requested an update on open consultation matter Disclosure of business tax debts that is due to be completed in December 2020 and noted under the ‘Advice under Development’ program.

In October 2019, the Government passed the Treasury Laws Amendment (2019 Tax Integrity and Other Measures No. 1) Act 2019 No. 95, 2019External Link and the Taxation Administration (Tax Debt Information Disclosure) Declaration 2019External Link that allow the ATO to disclose the tax debt information of businesses to registered credit reporting bureaus (CRBs).

Under the law, the ATO can only disclose tax debt information of a business where certain criteria are met. The criteria are set out in the Legislative Instrument that was registered on 23 December 2019 with a commencement date of 21 February 2020.

The Commissioner is not obligated to disclose tax debt information and will apply administrative safeguards above and beyond the legislative safeguards in the Act and Legislative Instrument, before reporting the tax debt information of a business.

Businesses which are engaging with the ATO to manage their tax debts will not have their tax debt information reported to CRBs.

The ATO will only disclose tax debt information of a business to a CRB if the business meets all the following criteria:

• it has an Australian business number (ABN), and is not an excluded entity
• it has one or more tax debts, of which at least $100,000 is overdue by more than 90 days
• it is not effectively engaging with the ATO to manage its tax debt, and
• the Inspector-General of Taxation and Taxation Ombudsman is not considering an ongoing complaint about the proposed reporting of the entity's tax debt information.

In the current environment, the ATO’s focus is on administering the Government’s stimulus measures and supporting businesses and the community during the COVID-19 outbreak. Therefore, the ATO has not yet disclosed business tax debt information to any CRB.

Implementation of this measure will be gradual to ensure the ATO processes are robust.

Proposed consultations

Treasury

Paul McCullough, Division Head, Corporate and International Tax Division, Revenue Group, Treasury

A summary of Treasury consultations completed since July 2020 was circulated to members for their information.

Members noted a Treasury paper written in 2013, Tax Policy formulation in AustraliaExternal Link, that contains a consultation characterisation matrix and gives an indication of when Treasury will consult on policy and to what degree. Members questioned if this process is still adhered to. Paul McCullough noted that Treasury recommends the appropriate consultation process to the Minister, but it requires approval by the Minister before it can proceed.

Members also noted that they are expecting a large volume of consultation to commence due to previous processes being placed on hold and this will be an additional workload that needs to be managed. Treasury noted that some measures may not proceed due to the different economic situation that now exists.

Board of Taxation

Lynn Kelly, Interim CEO, Board of Taxation

Lynn Kelly noted that the recent Federal Budget reflected recommendations that the Board of Taxation (the Board) had made to government on corporate residency and granny flat arrangements and welcomed the announcements on FBT which aligned with the Board’s findings on compliance pain points. The Board thanked members for their contributions to consultation on these topics. Members congratulated the Board for their efforts.

The current focus of the Board is their review of CGT rollovers, as part of this process they have been asked to consider the reorganisation and simplification of the business restructure and demerger rollovers. Early engagement has identified that these provisions are difficult to apply and administer. A principle the Board is exploring is around consistency in outcomes under rollovers.

The aim is to consult again prior to submitting an interim report in early 2021, with the final report due in the second half of 2021.

ATO

Andrew Orme, Deputy Chief Tax Counsel, Public Advice and Guidance, ATO

Andrew Orme noted that attention has returned to those products that were placed on hold due to the need to focus on the Government’s economic stimulus measures. The Public and Advice (PAG) products which are currently progressing include:

• [3929] Research and development – expenditure not at risk
• [3756] Deduction for work-related travel expenses
• [4005] Expenses associated with vacant land
• [3942] Section 100A reimbursement agreements
• [3986] Income tax exempt sporting clubs
• [3863] Fringe benefits tax – car parking fringe benefits.

The PAG for the JobMaker Hiring Credit measure will be subject to public consultation once the rules are released.

Potential new matters for consultation

All members

Members raised the recent changes announced in the 2020 Federal Budget for Insolvency and FBT as matters that would require consultation.

• Insolvency rules – The ATO advised that it will not be leading this topic but will be watchful and responsive. Members noted that this will impact several agencies and it is not clear the best approach to engage to contribute to any discussion on the changes. The ATO advised that Assistant Commissioner Jill Kitto, Debt and Lodgement has a specific focus on this, and members could engage with her.
• FBT changes – The ATO agreed to provide an outline of the proposed consultation for the FBT matters prior to the next CSG meeting.

The members also noted concerns regarding possible different approaches to the verification process on different platforms for online services. The ATO noted it is very cognisant of this and will endeavour to get consistent outcomes.

ATO Stewardship Group External Co-chairs meeting – 1 September 2020

Michelle de Niese, Corporate Tax Association

Michelle de Niese provided an update on the 1 September 2020 External Stewardship Groups Co-chairs meeting. The minutes from this meeting were circulated as part of the meeting papers. The meeting continues to provide valuable networking opportunities for the external co-chairs.

Key points noted by Michelle:

• Confidentiality of Stewardship Group discussions was a significant part of the discussion
• Stewardship Groups with a lot of ATO support run well
• Briefing notes are valuable for members
• Presentation by Robyn Theacos on the CSG and the role of the Consultation Hub
• More interaction between the ATO co-chairs and the external co-chairs would be valuable with the suggestion that an external co-chair attend the ATO Co-chairs meeting to give their perspective of their Stewardship Group.

Members who are members of various Stewardship Groups noted the excellent support provided by the ATO secretariats.

ATO Stewardship Group ATO Co-chairs meeting – 19 October 2020

Kirsten Fish, Acting Second Commissioner, Law Design and Practice

Kirsten Fish provided an update on the 19 October 2020 ATO Stewardship Groups Co-chairs meeting. Confidentiality of information discussed in Stewardship Groups meetings was the main topic of discussion with the outcome that the ATO will aim to have consistency across Stewardship Groups.

Other topics included:

• processes for distribution of internal key messages will be changed
• common themes from recent Stewardship Group meetings include
  • increased number of meetings to cover the stimulus measures
  • use of digital technology for meetings and its advantages and disadvantages
  • consideration of approach to meetings in 2021 will occur in November
  • some membership changes have occurred or are under way
  • standardised charter has been implemented in the majority of groups.
   

Reflections on the role of the CSG for 2020 and key outcomes achieved

All members

Members were asked to share their reflections on the role of the CSG in 2020 and the key outcomes that have been achieved.

Key outcomes achieved include:

• updated CSG Charter endorsed which provided a refreshed role and scope for the CSG
• updated Charter aligns with the standardised charter for all Stewardship Groups
• greater focus on the discussion of consultation processes
• members' adaptation to the use of different technology for the CSG meetings in a challenging year and environment
• increased awareness of the role and value of the CSG.

Other business

All members

The following reports were tabled at the meeting for members’ information:

• ATO consultation activities – July 2020 to September 2020
• Feedback received on consultation activities – July 2020 to September 2020
• Snapshots of the Stakeholder Relationship and Special Purpose working groups as at 30 September 2020.

Members were asked for their views on the approach (format, frequency and channel) for CSG meetings to be held in 2021. Members generally agreed that for the foreseeable future the group will continue to hold shorter meetings via digital technology. The next step, dependent on government restrictions, would be to use hubs so members located in one city would meet in the local ATO office with each location being connected by the ATO’s telepresence facility. Members want to return to face-to-face meetings when this is possible.

Action items update

Robyn Theacos, Director, Consultation Hub; Andrew Orme, Deputy Chief Tax Counsel, Public Advice and Guidance, ATO

A status update was provided on the six open CSG action items.

CSG 1907/01 – Confidentiality of Consultation activities

The issue of the confidentiality of consultation activities has been raised at several CSG meetings. The most recent issue was about the ongoing challenges of the confidential process where a participant may nominate a member who is a subject matter expert to represent their association. However, the participant is constrained in reporting back to the association on the consultation. Members noted that there are instances where additional expertise or discussion within the association would assist in providing feedback to the ATO.

The concern has been discussed within the ATO. The ATO considers that there are differences between consultations that should lead to a different approach depending on the circumstances.

In some cases, it is important to the ATO that the information is held tightly and is not communicated beyond the limited consultation group. Also, in many cases, what the ATO needs is to explore an issue with individuals (who may be nominated by associations) who have deep knowledge in a field – in such cases, it is consultation with those individuals that is important and we may not see value in allowing information to be reported back to the association.

Nevertheless, if the ATO wants to ensure that it has the point of view of an association, rather than that of an individual member, the ATO recognises there may be benefit in consultation being established in a way that allows reporting back to one or more people within, say, a central technical committee within that organisation. In such cases it would be necessary to ensure that the ATO and individuals concerned are clear about their mutual expectations concerning the confidentiality of information, and where relevant it is likely that confidentiality deeds will need to be signed not just by the direct participant, but a person or persons within the organisation that they will report back to.

In the context of the preparation of public advice, targeted consultation is often followed by public consultation on a draft, which provides the opportunity for the association to consider the issue more broadly and make a submission. The ATO recognises that where an association provides a representative for targeted consultation, this does not hold the association to the same views when providing submissions on a public draft. The public draft process exposes a product to a broader range of perspectives, and it is natural in this context that some shift in thinking may occur.

The ATO will undertake some updates to its internal guidance to staff to address these points.

Members noted a concern that the ATO should try to avoid the perception that those invited to consult on confidential matters are mainly from the Big 4 accounting firms. The use of law firms in appropriate circumstances would be beneficial.

CSG 2007/01 – Draft Practical Compliance Guidance on Professional firms – allocation of profit guidelines and Everett assignment

It is anticipated that the draft Practical Compliance Guidance on Professional Firms will be released to the relevant targeted consultation group next week.

CSG 2007/02 – Communications regarding the move of COVID-19 Frequently Asked Questions from ATO website to Legal Database

A series of communications were conducted to advise professionals and the community. This included business bulletins articles, stewardship group communications, information in the Tax Professionals newsroom, and articles in the Small Business newsletter and the SMSF and Super Newsletters.

CSG 2007/03 – Consideration of consultation on the Lodgment Program

Deputy Commissioners Deborah Jenkins and Hoa Wood discussed the Lodgment Program which has been discussed at the Tax Practitioner Stewardship Group meetings on 22 May 2020 and 28 August 2020. It is likely that it will be on the agenda for the November meeting as well.

CSG 2007/04 – Consultation on ATO’s debt collection framework

The ATO’s approach to debt collection was discussed at the 8 September 2020 NTLG meeting. It was noted that the ATO encourages taxpayers facing difficulty meeting their obligations to come forward and discuss this with the ATO so assistance can be provided in a timely manner.

CSG 2007/05 – Employment related working group

The ATO has no plans to expand the focus of the FBT Working Group to include broader employment related matters.

Members agreed to close action items: CSG 1907/01, CSG 2007/02, CSG 2007/03, CSG 2007/04 and CSG 2007/05 with CSG 2007/01 to remain in progress.

Attendees

Apologies