GST Advisory Group record of meeting, February 2014
Venue: ATO Docklands, Melbourne
Date: 12 February 2014
Start: 10.00 am Finish: 3.30 pm
Chair: James O'Halloran
Secretariat: Andrea Allen, ATO Corporate, Contact phone: 03 9285 1132
Deputy Commissioner, Indirect Tax, ATO: James O'Halloran (Chair)
Assistant Commissioner, Tax Counsel Network, ATO: Gordon Brysland
Assistant Commissioner, External Relations and New Measures, ATO: Paul Southwell
Manager, Indirect Taxes and Small Business Entities, Treasury: Kate Preston
States and Territories Representative: John Corlis
Member, Australian Bankers’ Association: Chris Plakias
Member, CPA Australia: Ken Fehily
Manager, GST, WET and Excise, Coles Australia: George Nikolaou
Assistant Director, Corporate Tax Association: Michelle de Niese
Head of Tax Policy, Institute of Chartered Accountants in Australia: Michael Croker
Member, Property Council of Australia: Andrew Howe
Member, Business Law Section, Law Council of Australia: Andrew Sommer
Member, The Tax Institute: Matthew Nicholls
Professor of Law, University of Sydney: Rebecca Millar
Special Advisor, GST Revenue, Indirect Tax, ATO: Mario Rinaudo
Tax Counsel Network, ATO: Jenny Lin
Hoffman Donohue Pty Ltd: Julia Donohue
Executive Director, Council of Small Business of Australia: Peter Strong
Update on Advisory committees and consultation
The GST Advisory Group (Group) was advised that, by the end of 2013, the ATO’s eight key stewardship committees (including the NTLG) had all met at least once. These groups are tasked with considering matters of strategic importance to the tax and superannuation systems in their sector or area.
As at 31 December 2013, we had 57 matters for consultation completed, in progress, new or under consideration registered with the Consultation Hub.
The ATO also advised that they have 202 stakeholders registered who are available to participate in consultation.
There are 12 technical and special purpose working groups and 14 stakeholder relationship management groups meeting on an as-needs basis; examples include Division 815 Rulings Project Working Group, Professional Firms Working Group, Dispute Resolution Working Group, the ATO Website Working Group and the Statutory Remedial Power Working Group.
In terms of GST specific matters, the Group was advised that consultation in respect of three matters was completed, and one was still under consideration; outcomes and full descriptions of the issues can be found on ato.gov.au
GST system in operation
Discussion focused on recent cases and rulings, particularly the MBI Properties Pty Ltd decision, along with the draft ruling which issued on moveable home estates (subsequently withdrawn).
GSTR 2013/D2 Goods and services tax: supplies made by an operator of a ‘moveable home estate'External Link
Despite extensive consultation on GSTR 2013/D2 Goods and services tax: supplies made by an operator of a ‘moveable home estate'External Link before issue, it became clear following publication that the changes to practices within the industry were not significant enough to disturb the existing GST treatment. Therefore, to restore certainty as soon as possible, the draft ruling was withdrawn.
MBI Properties Pty Ltd v. Commissioner of Taxation  FCAFA 112
The Full Federal Court decision in MBI Properties Pty Ltd v. Commissioner of Taxation  FCAFA 112 is seen as a significant and strategic issue by the ATO and the Group noted that the ATO has filed an application for special leave in the High Court. The ATO is continuing to prepare for the various contingencies associated with the upcoming decision on this application.
Diverse views were shared by Group members on the likely reaction within the marketplace, i.e. disputes between tenants and landlords. The ATO plans to make its position public as soon as practicable after the special leave decision.
The Group also shared perspectives on the interim Decision Impact Statement (DIS) that had been issued (MBI Properties Pty Ltd (NSD 329/2013External Link) and the implications for the community should the ATO not be successful in the application, (including administering the law according to the Full Federal Court judgment).
The Group had a broad discussion on a number of key features including that:
- Some members felt that the commercial leasing industry as a whole appears to be behaving on a 'business-as-usual' footing consistent with assurance in the interim DIS - that is, there is as yet no upsurge in disputes or litigation (including by input taxed lessees).
- Some members felt that the law must be changed.
- Some members felt that the ATO should have anticipated this potential issue.
- The ATO advised members that rigorous scenario planning is underway.
The ATO and Treasury advised that it was important to remember priorities of government and parliamentary processes that need to be balanced regarding any possible situation where an amendment to the GST law may be considered.
It was broadly agreed that the decision in MBI properties is indeed a strategic or possible a systemic issue. However, depending on the final position it is likely to significantly influence commercial assumptions, practice and advice that would need to be monitored and is likely to require certainty from the ATO on its administrative approach.
Other topics raised/discussed
Further technical topics raised by members of the Group were discussed including:
- the nexus test in the context of the characterisations of payments (usually in the form of incentives or rebates) in multiparty transactions, and
- the issue of a taxpayer needing to know they are a taxpayer else how are they to understand their obligations and entitlements.
- Non–ATO Members led the discussion on these items and advised that these were not currently causing significant concern in relation to any of them. However, the ATO was asked to stay alert to the possibility of any of them emerging as an area requiring focus.
- AP Group Limited and Commissioner of Taxation  AATA 409
The Group did focus on the outcomes from AP Group Limited and Commissioner of Taxation  v Secretary to the Department of Transport (Victoria)  FCAFC 84.
Some members felt that AP Group is a clear demonstration of the ‘nexus conundrum’ which promotes uncertainty and creates ‘undesirable outcomes in terms of fiscal neutrality'.
The ATO made several key points:
- The AP Group and Department of Transport decisions now give a degree of judicial guidance in this area.
- Credit access in multipartite transactions is a perennial focus of debate across the VAT-GST landscape.
- Australia’s GST law never sought to adopt the complete neutrality that some argue for, insofar as credit access depends on getting an identifiable ‘something’ in return for a payment.
- The ATO is developing a public ruling explaining the impact of AP Group on motor vehicle incentive payments.
- There was a general discussion about ‘foundational obligations’ and the level at which characterisation should be carried out, with queries about the possibility of class rulings being issued.
- Broadly, most members did not seek to describe the general issue as being either strategic or systemic in nature, but rather framed it in terms of it being an ongoing irritant of which the ATO should be aware and to consider the implications outside of the motor industry.
Unenacted GST measures
A final matter discussed was the potential administrative impacts of not proceeding with a number of announced but unenacted GST measures.
It was broadly agreed that the unenacted GST measures (announced by government in late 2013 as not proceeding) were not integrity issues and that while important, were seen by the Board of Taxation which recommended them as improvements to the GST system.
Members advised that they were keen to assist in any way they can, including with helping to shape amending provisions for the two measures that will proceed. The desire for early engagement between Treasury and members was emphasised.
International GST/VAT scan
There was a short presentation on techniques from the University of Exeter and Tax Administration Research Centre (TARC) master class. The ATO is now using operational data and statistical techniques to help us identify the types and level of non-compliance that contribute to the tax gap, and the underlying causes.
It was confirmed that the methodology used by the ATO when measuring the macro GST gap is broadly similar to overseas jurisdictions.
The ATO compares the difference between theoretical GST liabilities from external sources with actual GST liabilities to derive the GST gap. This approach is supplemented with bottom-up analysis.
The Group was advised of the importance of tax gap measurement for a tax administration. This extends to understanding the integrity of the system, to allow the evaluation of the degree to which a tax administration is successful, to understand the causes of non-compliance and to help improve risk selection models.
Looking forward, reflecting on techniques from the TARC Master Class, the ATO is now using operational data and statistical techniques to help us identify the types and level of non-compliance that contribute to the tax gap, and the underlying causes.
The ATO is exploring methods for quantifying taxpayer non-compliance behaviours by our pillars of compliance ((registration, correct reporting, lodgment and payment) and the GST gap by industry.
International issues from European VAT systems
International initiatives of interest were discussed, including the European Union response to fraud (reverse charging) and South Africa’s plans to tax inbound e-commerce. The OECD guidelines on ‘business to consumer’ arrangements and the ‘location principle’ were also discussed.
Red tape reduction
The members offered several ideas as potential opportunities to assist meeting the government’s targets for red tape reduction.
The ATO has reviewed the ideas and where possible clustered them into key themes for further exploration. Key themes include:
- improved services and support tools
- further streamlining of electronic interactions including greater use of pre-filling
- streamlining/reducing ATO approval processes for reviews and disputes, and
- amendments to different Acts. This might cover requiring fewer taxpayers to register, or reducing exemptions/exclusions to remove complexity.
There are several projects underway in the ATO and across government which will deliver some of the outcomes suggested by members, especially the improved services and support tools.
Further, acknowledging the government’s legislative program priorities, we have commenced work examining the significance of changes required to bring about streamlining obligations, and we have also started work examining our own administrative practices and reporting requirements with a view to reducing any unnecessary regulatory burden.
Canberra - 18 September 2014