National Tax Liaison Group key messages 24 February 2022

Key highlights

• Members provided positive feedback on consultation conducted through the Single Touch Payroll program of work, Top 1,000 program and the Reportable Tax Position schedule working group.
• Members provided some topics that may benefit from consultation.
• Members were encouraged to provide further context such as the likely impact when identifying matters that may need public guidance.
• The ATO’s draft Legal professional privilege (LPP) protocol is currently undergoing an internal review. It is intended that the draft LPP protocol will be finalised by the end of quarter one of this calendar year .
• Members identified it can be difficult to source all relevant information regarding ATO compliance activities applicable to small business operators and practitioners. Members have been encouraged to submit ideas to the ATO so it can consider how to improve its messaging to small business operators, practitioners and advisers to bridge this gap.
• The ATO’s 'Improve small business tax performance strategic initiative' is investing in utilising digital services and data to improve and simplify the client experience and simultaneously reduce the tax gap.
• Members provided their views and thoughts to assist the ATO to prepare for the Inspector-General and Taxation Ombudsman investigations.
• Treasury is making improvements to Explanatory Memorandums and welcomes feedback in relation to those changes.
• Treasury and the ATO are refining best practice principles, including developing a process map, for new legislation guidance products.

Opening comments

Kirsten Fish, Second Commissioner, Law Design and Practice Group, ATO and Peter Godber, The Tax Institute

The National Tax Liaison Group (NTLG) Co-chair Kirsten Fish welcomed members and advised that David Watkins representing Chartered Accountants Australia and New Zealand has been appointed as a new member to the NTLG.

The external co-chair Peter Godber noted that members are excited about the year ahead with the broadened scope of the NTLG and focussed work program. Members are looking forward to engagement with the ATO and Treasury as well as other external bodies. Members will aim to facilitate open and honest dialogue, with a focus on how members can provide effective and useful feedback.

Proposed consultation

Alex Affleck, Deputy Chief Tax Counsel, Office of the Chief Tax Counsel, ATO, Christina Sahyoun, CEO, Board of Taxation, Marty Robinson, Acting First Assistant Secretary, Corporate and International Tax Division, Treasury

Updates were provided from the ATO, Board of Taxation and Treasury.

ATO

Several draft products were recently issued, including:

• Draft Taxation Ruling TR 2022/D1 Income tax: section 100A reimbursement agreements
• Draft Taxation Determination TD 2022/D1 Income tax: Division 7A: when will an unpaid present entitlement or amount held on sub-trust become the provision of 'financial accommodation'?
• Draft Luxury Car Tax Determination TD 2022/D1 Luxury car tax: how to determine the principal purpose of a vehicle
• Draft Taxation Determination TD 2022/D2 Income tax: deductibility of expenses incurred in establishing and administering an 'employee share scheme'.

Currently, the ATO is working on:

• Draft Excise ruling – Excise refund scheme – meaning of 'legally and economically independent' for alcohol manufacturers
• Draft Taxation Ruling – Residency tests for individuals
• Draft Practical Compliance Guide – Non-commercial business losses – Commissioner's discretion (flood, bushfire and COVID events)
• Draft Taxation Determination – Use of an individual’s image by related entities
• Updating Practical Compliance Guideline PCG 2019/5 The Commissioner's discretion to extend the two-year period to dispose of dwellings acquired from a deceased estate
• Finalising Draft Taxation Ruling TR 2021/D5 Income tax: expenses associated with holding vacant land.

Board of Taxation

• Reports on the post implementation review of GST on Low Value Imported Goods measure and the dual-agency administration model for the Research and Development Tax Incentive were completed and submitted to government late last year.
• The Board’s current focus is on delivering the final report on the Review of CGT Roll-overs which is due to government on 22 April 2022.

The Board is preparing to undertake a review of digital assets and transactions with the Terms of Reference with the Treasurer for consideration. Stakeholders have been proactively contacting the Board to be involved in any planned consultations when the review commences. Once the Terms of Reference have been formally issued by the Treasurer, a working group of representatives from the Board, ATO, Treasury, and external stakeholders will be established for the purposes of the review.

In a parallel process, the ATO will consider developing further guidance on the current rules for digital assets. The ATO will likely consult on these issues and the views being formed. To assist with this process, members will provide their list of the relevant issues that require guidance.

Treasury

• Members were provided with a list of completed consultations since the last NTLG meeting.
• A public consultation process for the Patent Box tax concession for medical and biotechnology innovations occurred in July/August 2021.
• Treasury has been mostly focussed on Pre-budget submissions over December and January. Members thanked Treasury for considering their submissions.

OECD Pillars 1 and 2 consultation will occur shortly with the digital tax working group. The OECD is running separate consultation processes on each building block for Pillar 1. A member noted that the Accounting foundations for Pillar 2 were released for a two-week consultation period, but they believe no one from Australia or the Global Accounting Alliance provided a submission. It was highlighted that this is a highly specialised area, and it may be difficult to identify the right people to be involved in the consultation process. Treasury will have further discussions to determine how best to engage with the profession and identify the right people for further consultations.

Members noted that a request for feedback on increasing the Administrative Appeals Tribunal powers to pause or modify ATO debt recovery action occurred in January giving one week for responses. Treasury agreed it was a rapid process and are willing to discuss how to properly engage the profession.

Members also passed along their well wishes to long-serving Treasury officer Paul McCullough, who recently announced his retirement.

Potential new matters for consultation and emerging issues

All members, Alex Affleck, Deputy Chief Tax Counsel, Office of the Chief Tax Counsel, ATO, Lisa Clifton, Assistant Commissioner, Tax Counsel Network, ATO and Christina Sahyoun, CEO, Board of Taxation

Members identified potential matters for consultation as well as emerging issues:

• Proposed legislation for the sharing economy
• FBT and income tax issues relating to the use of electric vehicles
• Working from home deductions
• Timeliness and extent of Covid-19 related guidance – Members noted that consistent communication and engagement by the ATO would have been beneficial in addressing the uncertainty for taxpayers and practitioners. For example, members noted the guidance on the tax treatment of rapid antigen tests (RATs) could have been released earlier and did not address FBT exemption issues. The ATO responded that guidance on the FBT treatment of RATs had been provided and updated in 2021 at the time employers commenced use of them.
• Contractor versus employee – Guidance needs to be updated to reflect recent High Court decisions. The ATO confirmed that they are reviewing relevant guidance, with updating a priority.

Members will provide their list of issues relevant to the Private Wealth market that require guidance. Kirsten Fish encouraged members to outline their reasons for seeking guidance and the likely impact on the market so the ATO can consider and prioritise the issues. An out of session meeting can be arranged to address individual issues as needed.

Members would like the ATO to be more open about the current state of progress on issues. In some instances, members find that there is a lack of engagement with professional bodies when they raise an issue.

The NTLG Co-chairs will arrange an out of session meeting to discuss the feedback that members have raised in relation to the consultation process and its effectiveness.

Action item	NTLG 22021/1
Due date	28 April 2022
Responsibility	Kirsten Fish
Description	Effectiveness of consultation A meeting to be arranged between the NTLG Co-chairs, Alexis Kokkinos (NTLG member) and Kate Wilson (Assistant Commissioner, Enterprise Strategy and Design) to discuss the effectiveness of the current consultation processes.

Consultation processes

All members

Members were provided with the opportunity to discuss current or recently closed consultation processes. Members noted an instance where the ATO’s open consultation page stated that an issue was under consultation with particular stakeholders without the ATO actively engaging those stakeholders. Other issues of concern identified are confidential consultations and providing input into topics but feeling that it is not being considered.

Feedback on the consultation for the Single Touch Payroll (STP) program was noted as operating very well because:

• the proposed program of work was made available
• the right stakeholders across business, software developers and professional bodies were engaged
• there was good collaboration and frank discussion
• the ATO made decisions early.

Members complimented the Top 1,000 governance guidance consultation run by Judy Morris.

Response to the joint bodies’ submission on Private Rulings

Alex Affleck, Deputy Chief Tax Counsel, Office of the Chief Tax Counsel, ATO and Justin Byrne, Law Council of Australia

NTLG members had been provided with a response to their submission on their concerns related to Private Rulings prior to the meeting.

The ATO reiterated that edited private rulings are simply a record of an ATO decision; they are not public advice products, cannot be relied on and the ATO is not bound by them. They are published for transparency and integrity. Members noted that they are used by advisers and acknowledged they should only be used as an aid to identify issues they may need to consider.

Members asked how the ATO determines when it is appropriate to prepare public guidance. ATO noted private rulings are a good source of intelligence but this is identified manually based on information from business areas. The ambition is to have a more systemic, data driven approach, which the ATO is working towards.

The ATO has limited resources and matters need to be prioritised. The identification of an issue is not sufficient to then require a public advice and guidance product. Further work is undertaken to determine its impact and therefore its priority. If members identify issues, they also need to provide us with a sense of the impact.

The other area noted in the members’ submission was problems with the search engine where different results are obtained between the ATO search engine and external search engines. As an example, withdrawn rulings do not appear in external search engines. The ATO will work with members on improvements to its search engine, and requested members provide relevant examples for investigation.

Action item	NTLG 22021/2
Due date	28 April 2022
Responsibility	Justin Byrne
Description	ATO Search engine NTLG member Justin Byrne to provide Alex Affleck with example(s) of ATO search engine issues for the ATO to investigate.

Legal professional privilege protocol

Belinda Darling, Assistant Commissioner, Public Groups and International Transparency, ATO

The ATO has worked through the feedback received through the formal consultation process to revise the draft protocol. The document is currently subject to internal review.

The ATO is aiming to have the protocol finalised by the first quarter of this calendar year. The finalised protocol will be supported by a compendium which will set out all the key issues raised during consultation and the ATO’s response to each issue.

The ATO is updating existing training packages and internal guidance for staff in relation to managing LPP claims and information gathering to reflect the final protocol. The updates to these materials and guidance will ensure that staff are aware of the feedback received by stakeholders in relation to the protocol and that appropriate considerations are given to this feedback and concerns when the protocol is applied in practice.

The ATO has also been working on developing a consultation framework to understand how computer-assisted technology can help the ATO assess LPP claims more efficiently. The ATO will be reaching out to interested stakeholders to participate in this consultation.

Members asked if current litigation would impact the protocol. The ATO advised that any legal developments that impact the protocol will result in changes as soon as possible.

ATO Compliance program

Tony Greco, Institute of Public Accountants, Jeremy Hirschhorn, Second Commissioner, Client Engagement Group, ATO and Deborah Jenkins, Deputy Commissioner, Small Business, ATO

Members identified that there is a lot of transparency of ATO Compliance activities for large corporates and high net worth markets, but not as much information for the smaller segments. The main driver for seeking further information on the ATO’s compliance program is to support advisers to understand where they should focus their attention. Since the last Compliance program document was produced a lot has changed and there are a lot of new risk factors. A succinct picture of the ATO’s compliance approach would allow advisers to focus on ensuring clients are doing the right thing and remain aware of key risks in the current environment.

The ATO advised the last Compliance program document was published in 2013, and it was agreed by many to cease its publication. While it covered all sectors, it became very repetitive and required significant resource commitment.

The ATO talks openly about the issues that attract our interest in a particular year in various ways but queried if there was a gap in the way we communicate this information. Members acknowledged the information the ATO provides but that it is not all in one location which can make it difficult to find. The information was less clear in the small business segment with messages being very general. Members were invited to provide their ideas about the best way the ATO could communicate messages to both small business operators and practitioners.

Small Business Tax performance

Elinor Kasapidis, CPA Australia, Peter Holt, Assistant Commissioner, Small Business, ATO and Andrew Watson, Assistant Commissioner, Small Business, ATO

The ATO explained that the Improve small business tax performance strategic initiative is focused on integrating tax reporting mechanisms into the systems small businesses use and making verifiable data easier for them to provide, access and use. Investment in this area presents a significant opportunity to improve and simplify the client experience and help small businesses get their tax and superannuation obligations right.

The small business income tax gap remains the largest tax gap. A large proportion of the small business income tax gap can be attributed to shadow economy behaviour, which includes:

• deliberate under-reporting of income
• exaggerating business expenses
• operating completely outside the tax system.

The remainder of the gap is driven by mistakes, poor record keeping, misunderstanding of tax obligations, or behaving opportunistically.

Members noted that many businesses are not ready because investing in technology does not necessarily improve profitability.

Inspector-General of Taxation and Taxation Ombudsman (IGTO) Investigations

Elinor Kasapidis, CPA Australia, Ilana Millar, Assistant Commissioner, Review and Dispute Resolution, ATO, Ben Kelly, Deputy Commissioner, Policy, Analysis and Legislation, ATO and Anna-Maria Stephens, Assistant Commissioner, Tax Counsel Network, ATO

Members thought it would be beneficial to provide their views and submission points on the current IGTO reviews into Administration and Management of Objections, Exercise of the Commissioner’s Remedial Power, and General Powers of Administration to the ATO.

• Objections – Members advised that their submission will note perceptions within the smaller market about the expense and challenge of objecting and the effect this has on whether taxpayers exercise their rights.
• Commissioner’s Remedial Power (CRP) – A submission will be provided on the history of the CRP and their experience to date. It was noted that there is only a small pool of people familiar with the CRP.
• General Powers of Administration – Members believe this power is quite limited and consider it cannot be used in a broad range of circumstances outside of settlements, debt collection activity and Practical Compliance Guidelines.

Review of new legislation guidance products

Alex Affleck, Deputy Chief Tax Counsel, Office of the Chief Tax Counsel, ATO and Marty Robinson, Acting First Assistant Secretary, Corporate and International Tax Division, Treasury

The ATO and Treasury thanked members who participated in the workshops last year. ATO and Treasury are refining the proposed best practice principles and developing a process map to highlight the key interaction points between the ATO, Treasury and the community, including where identified improvement opportunities sit within the new law guidance process.

Treasury is continuing to improve Explanatory Memorandums and considering how they complement drafting of the legislation. The revised approach has been applied to some recent bills and members should have noticed some changes in their presentation. Treasury welcomes any feedback on the changes.

Members suggested the ATO and Treasury could consider incorporating the principles into the ATO – Treasury protocol to improve the transparency of interactions.

Members asked about the approach to the inclusion of examples in Explanatory Memorandums. Treasury noted there is a range of views on the use of examples and there has not been a consistent approach. They are intended to be illustrative not determinative. There will be more consideration on this issue.

Treasury update

Marty Robinson, Acting First Assistant Secretary, Corporate and International Tax Division, Treasury

Treasury noted that the budget has been its primary focus, however work has continued on the Tax Treaty negotiation program with Iceland and Luxembourg with negotiations to commence with Greece, Portugal, and Slovenia.

Treasury provided the following updates on measures identified by members.

• The Collective Corporate Investment Vehicles legislation, and the extension to Loss Carry Back measure and Temporary Full Expensing to 30 June 2023 has been recently passed.
• The Sharing economy legislation has been introduced however the Autumn sitting session has been shortened so may not progress.
• The government has deferred amendments to Division 7A which would
  • clarify the circumstances in which Division 7A applies to unpaid present entitlements
  • improve operation and administration of integrity rules for closely held private groups.
• Work is continuing to develop the legislation, in conjunction with the ATO, on the tax residency of foreign incorporated companies. Treasury is developing a consultation paper on the key components, particularly a workable definition of core commercial activity and engaging with the Board of Taxation for their perspective.
• Legislation was introduced on 9 February for the effective life of certain intangible assets to be self-assessed however it is likely to be deferred.
• Treasury is working on draft legislation for the reduced record keeping requirements for FBT while the ATO is engaging with stakeholders to understand the records that might be available.
• The proposed changes to the self-managed superannuation funds central management and control safe harbour will be progressed in line with other government priorities.

Members asked:

• if residency of corporate limited partnerships is being considered for the consultation paper
• how the recent announcement regarding RATs will progress if there are limited sitting days remaining. The ATO confirmed that unless law is passed in upcoming sittings on 29–30 March the ATO will administer in accordance with the current law. Treasury and government are aware of the consequences of the provisions not being enacted prior to the income tax and FBT year ends.

Post-meeting update:

Since the meeting Treasury has advised that:

• they will explore the potential expansion of the rules to corporate limited partnerships and certain trusts as part of the consultation paper on the Corporate residency measure
• the timing of legislation for the deductibility of tests for COVID-19 and its exemption from FBT is a matter for government. The government is mindful of the practical issues arising from the announced 1 July 2021 date of effect of and the approaching end of the current FBT and income tax years.

Action item

An update was provided on action item NTLG 1911/1 – Compliance Costs.

Acting Deputy Commissioner Andrew Watson and Acting Deputy Commissioner Karen Foat met with Professors Chris Evans and Binh Tran-Nam who advised that if the NTLG were to pursue an ongoing program of work around compliance costs, then a diagnostic tool approach like the VAT diagnostic tool developed for cross country assessment would be suitable and achievable.

This tool could not be simply replicated and would require a design process which would be complex and require some time to complete.

Members confirmed their commitment to this work and advised that they would discuss further and provide their thoughts on the next steps. Professors Evans and Tran-Nam are willing to contribute and support this work.

This action item remains in progress.

Other business

Members noted that the information provided on Section 99B and the work that is being undertaken does not give them sufficient insight to the breadth of what is occurring. Members were requested to provide their views / issues to the NTLG secretariat. An out of session conversation may be held once the information has been received and considered by the ATO.

Action item	NTLG 22021/3
Due date	28 April 2022
Responsibility	Julie Abdalla
Description	Section 99B – Member submission Members have been requested to provide their aggregate views to the NTLG Secretariat. Once received, the information will be considered to determine if an out of session discussion is appropriate.

Attendees

Attendees list

Organisation	Attendees
ATO	Kirsten Fish (Co-chair), Law Design and Practice
ATO	Jeremy Hirschhorn, Client Engagement
ATO	Jessica Chiu, Tax Counsel Network
ATO	Robyn Theacos (Secretariat), Enterprise Strategy and Design
Chartered Accountants Australia and New Zealand	David Watkins
Chartered Accountants Australia and New Zealand	Michael Croker
Corporate Tax Association	Michelle de Niese
CPA Australia	Alexis Kokkinos
CPA Australia	Elinor Kasapidis
Institute of Public Accountants	Tony Greco
Law Council of Australia	Angela Lee
Law Council of Australia	Justin Byrne
The Tax Institute	Jerome Tse
The Tax Institute	Peter Godber (Co-chair)
The Tax Institute Professional Bodies Coordinator	Julie Abdalla
Treasury	Maryanne Mrakovcic
Treasury	Marty Robinson

Apologies

Apologies list

Organisation	Member
Treasury	Maryanne Mrakovcic

Information about the key topics discussed at the National Tax Liaison Group meeting 24 February 2022.