Show download pdf controls
  • Australian Banking Association Steering Group key messages 28 November 2019


    ABA/ATO Liaison Group agendas, minutes and related papers are not binding on the ATO 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 on any issue may subsequently change. It is strongly recommended that where a formal ATO view does not exist for an issue contained in these Minutes that, for the abundance of clarity and certainty, Private Rulings be sought.

    Welcome and introductions

    The Chairperson welcomed attendees and noted a record of the meeting would be made available on the ATO website.

    Session 1 - Income Tax

    Hybrid mismatch rules – section 207-158 deductible / frankable AT1 arrangements

    An exposure draft to amend the hybrid mismatch rules is expected imminently. As such, the ATO will not be issuing any class rulings for new Additional Tier 1 (AT1) instruments given the expectation of an announcement in the near future.

    Once a Government announcement is made on the matter, the ATO intends to release public web based guidance on an interim administrative approach for deductible/frankable AT1 arrangements after consultation with industry pending the enactment of any law.

    ATO is starting to look at the circumstances when foreign income tax deductions can arise from AT1 distributions and is open to developing further guidance if the industry believes there is still uncertainty. It was noted that the hybrid mismatch rules are not triggered / limited by a materiality threshold, and therefore can apply to arrangements of low materiality.

    ABA members noted that they would be making a submission to Treasury subsequent to the release of the exposure draft.

    Major Bank Levy (MBL) securitisation arrangements

    In relation to the MBL, the ATO is responsible for administering specific anti-avoidance rules which are intended to deal with any arrangements that may involve restructures or movements to a bank’s balance sheet with the sole or dominant purpose of lowering their MBL.

    There may be uncertainty as to how certain securitisation arrangements are treated under the MBL, for example, arrangements involving the movement of liabilities from the balance sheet of the Authorised Deposit-taking Institution to wholly owned subsidiaries within the tax consolidated group.

    Scoping has been undertaken with banks subject to the MBL to ascertain how they are reporting the levy in respect of securitisation arrangements. The ATO has also had discussions with Australian Prudential Regulation Authority (APRA) on the interaction of the accounting standards and application of the MBL in respect to particular securitisation arrangements. It was noted that securitisation arrangements are treated differently under the APRA MBL reporting standard compared to other APRA standards due to the fact that data is collected on a different consolidation basis.

    The ATO and APRA intend to meet with Australian Securities and Investments Commission to confirm their view on how the accounting standards operate in respect to particular securitisation arrangements. The aim of this discussion is to ensure consistent application of the MBL to all MBL affected taxpayers.

    Affected ABA members are encouraged to contact APRA if they would like clarification on correct reporting requirements in respect of particular securitisation fact patterns under the MBL Reporting Standard.

    Hybrid buy-backs – market value substitution rule

    Hybrid buy-back arrangements have raised issues associated with the operation of the market value substitution rule for redemption and or reinvestment offers.

    A discussion paper has been developed by the ATO which proposes a market valuation methodology in respect to the application of the market value substitution rule in section 116-30 of the Income Tax Assessment Act 1997 upon the redemption and/or reinvestment of hybrid instruments. The paper has been distributed to ABA members for discussion at the meeting.

    The ATO provided a brief overview of the proposed methodology as outlined in the discussion paper. The ABA raised concerns that the proposed methodology may not provide investor certainty in certain circumstances (e.g. where instruments are bought back or redeemed on two different dates), and result in a deemed capital gain.

    The ATO will finalise the discussion paper and publish on the ATO’s website for public consultation.

    Discussion was also had on other possible mechanisms to provide certainty, including the possibility for a joint ATO-ABA submission to Treasury to modify the operation of tax law, or an administrative solution to shift any tax liability that may arise from a hybrid redemption / buy-back to the issuer in certain circumstances. It was noted that use of the Commissioner’s Remedial Power (CRP) was likely unsuitable to this issue as it would be difficult to conclude that any modifications made to the law using the CRP would have a negligible budget impact.

    Other business

    Discussion was had on the tax implications of the discontinuance / replacement of the London Interbank Offered Rate (LIBOR) as the benchmark for financial transactions worldwide. The ATO noted that it has started to consider potential tax consequences and has been in discussions with Treasury as to the anticipated tax impact from LIBOR’s discontinuation / replacement.

    Session 2 - GST and Income Tax

    ATO Identity Security Strategy

    The ATO Identity Security (IDS) Strategy team discussed the ATO’s IDS Strategy for 2019–22, and the Work Program sitting under the Strategy. The Strategy describes the ATO approach to preventing, detecting and responding to identity security related threats. The ATO IDS Strategy was developed in response to the identification of a growing amount of cyber enabled crime on identity security. The main aim of the strategy is to prevent, detect and respond to identity security threats, not just to revenue, but within the financial ecosystem.

    By understanding, detecting and discovering ID security risks and threats as early as possible, the ATO can consider what mitigations to put in place.

    The ATO IDS Strategy nine key priorities are as follows:

    • Build effective relationships: to date the IDS team has met with internal stakeholders and key partners across the public and private sectors including the superannuation industry, Fintel Alliance, Interbank Fraud Forum, Department of Human Services (DHS) and Department of Home Affairs.
    • Build community resilience: the ATO will deliver IDS related education and awareness messaging and resources to internal and external audiences. In this regard, the IDS team is currently working with Australian Competition and Consumer Commission scamwatch.
    • Prove and maintain identity: to prevent the creation of fraudulent entities or misuse of personal identifying information, the team is currently working with DHS and the Digital Transformation Agency on the possibility of having a single digital identity for individuals to interact across the public service.
    • Disrupt criminal syndicates: the IDS team is currently working with the banking industry in relation to onshore and offshore syndicates that are disrupting the tax and financial systems.
    • Robust security controls: to better identify breaches, the ATO is building identity crime models, using operational analytics, and devising ways to be able to retrieve funds after a fraud is perpetrated.
    • Robust intelligence and risk management: the ATO will invest in integrated intelligence and information sharing functions across industries and government agencies.
    • Respond to identity security breaches: the ATO is collaborating with partners to stop funds that are subject to fraud, and is reviewing the integrity and effectiveness of IDS controls against new identity crime typologies.
    • Legislative and policy review and reform: the ATO is advocating for changes to legislation and policy to benefit IDS and financial crime. For example, as part of the Tax Practitioners Board review by Treasury proposals have been included to require tax agents to strengthen their cybersecurity as part of the registration process, and report breaches to the ATO.
    • Placing IDS at the centre of tax and super design: this involves ensuring that identity protection and security is prioritised and designed in to the system whilst balancing usability.

    The ATO IDS Strategy team lead is keen to share information and intelligence and is also open to receiving intelligence from the industry to build knowledge that allows entities to take a more proactive stance in this area.

    Justified trust update

    Pathway to high Assurance in our Tax Assurance Report (TAR) and Streamline Tax Assurance Report products, including Tax Governance and ETB

    Discussion was had around the Interim Findings Report Top 100 Program (income tax) published on 22 November 2019:

    • The report details the ATO’s key findings from income tax assurance reviews completed to 30 June 2019. Currently 80% of taxpayers reviewed have obtained a medium assurance or above, with 6% of taxpayers obtaining an overall high assurance rating. The number of taxpayers obtaining an overall high assurance rating is expected to increase to approximately 20% in the coming months as further tax assurance reviews are finalised. The results for the top 100 banks forms part of the Banking, Finance and Investment, Superfunds and Insurance industry grouping.
    • The ATO has not identified any systemic 'red flag' risks in the banking and finance sector, however further work is required around evidence and documentation in particular in relation to transfer pricing, branch attribution, tax governance and uniform capital allowances. It was noted that a medium assurance rating in relation to these specific tax issues does not of itself not prevent a taxpayer from obtaining high assurance. The ATO expects a majority of taxpayers to reach high assurance in 2020.
    • It was noted that the justified trust concept has expanded to GST for the Top 100 population; however there has been a change in resourcing and intensity in relation to GST justified trust as the ATO focuses on resolving GST legacy issues. The next round of TARs will continue to cover income tax issues only, with the longer term aim for income tax and GST issues to be reviewed together as part of an integrated assurance product. Teams will reach out to individual taxpayers to determine the best way to transition to justified trust once legacy issues are resolved.

    Update on book-to-tax reconciliation standardised approach

    An Expectations Statement outlining the minimum standard of quality and detail the ATO expects in the book-to-tax reconciliation information provided as part of future Annual Compliance Arrangement / Pre-lodgment Compliance Review processes will be circulated shortly. The Expectations Statement is a high-level set of principles which aims to make the tax return review process more efficient and streamlined to assist in the move to a light touch due diligence environment.

    Implications of the Royal Commission – Remediation / compensation payments

    Consultation has commenced with industry on scenarios of uncertainty in relation to the GST and income tax consequences of compensation payments where industry would like guidance from the ATO.

    The ABA will shortly provide the ATO with a matrix of remediation / compensation payment scenarios affecting the banking and finance industry as well as extent of guidance sought. It was noted that further scoping information may be required from industry to enable the ATO to determine the scenarios requiring guidance as a matter of priority.

    Going forward it was proposed that future engagement on this matter will be held in conjunction with other affected stakeholders e.g. the Financial Services Council

    Session 3 - GST

    Update on credit card apportionment

    The ATO made the following comments:

    • The ATO is aiming for public advice and guidance (PAG) products on credit cards to be issued in mid-December. These products will have an effective date of 1 January 2020. This meets the proposed timelines advised during the targeted consultations and the technical workshop held earlier this year.
    • These products include the technical product issued in December last year as a draft GST Determination. As previously advised, it was decided that this product would be more suitable as a Ruling due to the complexity and coverage of issues. Complementing this Ruling is the Practical Compliance Guideline (PCG) and its first accompanying schedule on credit cards. These were issued as drafts on 2 October 2019 for public consultation. As outlined in the draft, there is a transition period for the PCG. Taxpayers anticipating taking advantage of that transition period are encouraged to engage with the ATO as soon as possible. The ATO will also be finalising the addendum to GSTR 2006/3, which clarifies the ATO view as set out in that Ruling.
    • To ensure consistency with the above, the ATO has also been reviewing private rulings on apportionment in a credit card issuing business, and as previously advised, we will be removing protection under those rulings for methodologies that are not considered fair and reasonable. That protection will be removed from 1 January 2020 to align with the commencement date of the Ruling and the PCG, ensuring there will be one date from which the shift will occur.
    • The ATO will work with individual taxpayers to revise private rulings, in particular where there is an end to end ruling. The extent to which a private ruling is revised will depend on the facts and circumstances of each particular case. In some situations only parts of a ruling may need to be revised, for example, where a ruling covers multiple methodologies relating to a credit card issuing business and only some of these methodologies are considered to be not fair and reasonable. Alternatively, in situations where a private ruling covers only one methodology relating to a credit card issuing business and this methodology does not accord to the position set out in our PAG products, the private ruling would be revised to say that the method is not fair and reasonable.
    • The ATO confirmed that there is no intention to review all private rulings.

    Discussion was also had on the working draft of Schedule 2 of the PCG on transaction accounts:

    • The ATO noted that it is commencing targeted consultation on the working draft of Schedule 2 of the PCG on transaction accounts, with a workshop to occur on 12 December. Like its credit card counterpart, it will provide practical guidance on how GSTR 2019/D1 applies in the transaction account context, and the risk framework for applying those technical principles. The ATO is working towards a date of effect for both the technical ruling and Schedule 2 of 1 April 2020.
    • The ATO is also considering whether to issue guidance on the extent to which the supply of a transaction account is GST-free as part of this tranche of guidance products for transaction accounts.
    • Members indicated that the confidentiality of transaction and savings accounts rates may be an issue.

    Feedback on ABA submissions

    The ATO advised that the technical position on the creditable purpose of specific acquisitions in the final guidance products has not changed, however, feedback from the submissions has been used to clarify or add further explanation to the final products. For example, the final ruling includes a reference to the Visa case providing a description of the payment system. In the PCG, several minor amendments have been made to provide increased certainty to industry - for example to clarify our approach and expectations in relation to the transitional period. Similarly, there are only minor changes to the addendum to GSTR 2006/3.

    Together with the products themselves, very detailed compendiums have been prepared to address concerns raised, and to provide a technical response to arguments put forward in submissions received, regarding the products during the consultation process. Once finalised, a copy of these documents will be provided to the banks prior to publication.

    The ATO made the following specific comments in response to submissions from ABA members in relation to on-us transactions:

    • In an on-us transaction, there is no supply of interchange services. For this reason, GSTD 2018/D1 did not consider on-us transactions, and the final ruling expressly states that it does not address “acquisitions in a credit card acquiring business, or the extent to which acquisitions relate to supplies made in that business.
    • Instead, as the entity is both the issuer and the acquirer in an on-us transaction, it will provide both credit under the supply of the credit card facility and supply merchant services. It was argued in submissions and consultations that no adjustment was required for on-us transactions as acquisitions in the issuing business could be said to relate to the taxable supply of merchant services made through the acquiring business.
    • We agree that the mere fact that an acquisition and a supply are made in different business units is not of itself a sufficient basis for concluding that apportionment is not appropriate.
    • However, the ATO does not accept that an acquisition that has a relevant connection with the supply of interchange services in an off-us transaction will necessarily have an equivalent connection to the supply of merchant services in the on-us context. Interchange services and merchant services are not the same and the supplies made by the entity are factually and functionally different. The ATO therefore does not accept as fair and reasonable a methodology that simply treats the supply of merchant services as being broadly equivalent to the supply of interchange services.
    • Rather, what is required is an objective analysis of the facts to determine whether the relevant connection can be established between an acquisition made in the issuing business and the supply of merchant services in the acquiring business. Furthermore, given on-us transactions involve both the issuing and acquiring businesses, a similar analysis would be required to determine whether any of the acquisitions in the acquiring business have the relevant connection to the supply of the credit card facility by the entity, resulting in a requirement to apportion credits in the acquiring business.
    • Given the different factual matrix and relationships in the on-us context, we consider that most of the acquisitions in the issuing business identified in the ruling as having a relevant connection to interchange services do not have a relevant connection to the supply of merchant services in an on-us transaction. We consider that any connection to the supply of merchant services in an on-us transaction is too remote.
    • That said, one area where we consider that a relevant connection might potentially be found to exist is in relation to those processing costs necessary for authorising credit card transactions. However, in the event it can be shown that some acquisitions relating to the authorising of transactions by the issuing business have a relevant connection to the supply of merchant services, we consider that some of the processing acquisitions in the acquiring business would have a corresponding relevant connection with the supply of the credit card facility, as absent that processing, the entity would not be able to provide credit to the cardholder or update the cardholder’s credit account balance.
    • Whether the relevant connection is established for any given acquisition will depend on the particular facts and circumstances applicable to on-us transactions.

    In response to the above:

    • The ABA queried whether the same analysis would apply for transaction accounts. The ATO stated that further analysis is required for transaction accounts, and will be considered in due course.
    • ABA members raised concerns and frustration around the lack of transparency and due process associated with the consultation process to date, in particular, the lack of technical explanation provided to date to support the ATO’s view. The ATO reiterated that the compendium which will be provided to ABA members prior to issuing provides a comprehensive view of the Commissioner’s position and addresses each of the elements in the submissions by ABA members. The ATO agreed to take on further comments in relation to the consultation process post meeting.
    • Queries were also made as to the ABA’s submission in relation to the application of the ATO's administrative practice for PSLA 2011/27. The ATO confirmed that a written response to the submission was covered in the compendium, which is the written outcome of the Commissioner’s position in respect of all of the submissions. The ATO’s position is that PSLA 2011/27 is to be applied on a case by case basis.

    Other business

    The ATO is still considering whether GSTR 2004/4 will apply prospectively or retrospectively.


    Attendees are listed below.




    Sandra Farhat (Chair), Public Groups and International


    Katherine Leung (Secretariat), Public Groups and International


    Melanie Sinn (Secretariat), Public Groups and International


    Adam Johnson, Public Groups and International


    Anna-Maria Stephens, Tax Counsel Network


    Arya Heryanto, Public Groups and International


    Christopher Ferguson, Public Groups and International


    James Campbell, Public Groups and International


    John Gill, Tax Counsel Network


    Jonathan Tang, Public Groups and International


    Mark Robinson, Commonwealth Business Registry Service


    Marcus Ryan, Tax Council Network


    Megan Croaker, Public Groups and International


    Peter Joseph, Small Business


    Philemon Daniel, Public Groups and International

    AMP Limited

    Martin Scott


    Anthony Fitzgerald


    Darren Norman

    Australian Banking Association

    Essam Husaini

    Bank of Queensland

    Michael Hellier

    Bendigo and Adelaide Bank

    Andrew Wright

    Bendigo and Adelaide Bank

    Ben Edwards

    Commonwealth Bank of Australia

    George Spathis

    Commonwealth Bank of Australia

    Jeff Barcham

    Commonwealth Bank of Australia

    Tasos Mihail

    Macquarie Bank

    Ambrose Leung

    Macquarie Bank

    Gary Ching

    National Australia Bank

    Mark Killer

    National Australia Bank

    Zoe Ye


    Chris Plakias


    Dale Gordon

      Last modified: 23 Jul 2020QC 63262