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  • National Tax Liaison Group key messages 19 September 2017

    Q and A with the Commissioner of Taxation

    Chris Jordan AO, Commissioner of Taxation

    The Commissioner of Taxation addressed members noting there has been significant and incremental reform to the tax system as a whole and gave examples such as the changes to transfer pricing rules, the Multinationals Anti-Avoidance Law, amendments to our general anti-avoidance provisions (Part IVA), diverted profits tax, the superannuation administration reforms, the benefits of reinvention to administration, transparency and dispute resolution.

    A member commented on the 20 integrity/transparency measures in the large market with the Commissioner noting while focus will remain on the large market, there will be a shift to include other market segments, tax gap and the black economy.

    The Commissioner also noted that Tax Time 2017 is going well. The ATO has received more returns with quicker refunds and complaints are down by 30%. Systems are stable and operating. The Practitioner Lodgment Service is still progressing through beta testing with 30 agents. The ATO is revisiting agents that were consulted previously and is working with them to systematically work through the irritants and prioritising them.

    Members raised various topics with the Commissioner including:

    • ATO Corporate Plan 2017–18 – a member queried if there are any changes in priorities. The Commissioner advised the ATO is committed to delivering its current mission and vision and there is no change in priorities. It is a streamlined, easier to read four-year plan and contains nine strategic objectives with areas of focus including performance measures for each objective. The plan was co-designed with business areas, which then align their priorities to those objectives. The ATO is rationalising its internal support and governance committees to support the plan focussing on an experience lens. The Commissioner encouraged members to read the plan.
    • ATO systems irritants – a member commented that the IT hardware appears stable. The Commissioner noted the IT outages were due to a hardware issue in relation to ATO IT storage. Going forward and where it can, the ATO is moving operating functions to a cloud environment, eg ATO online and Standard Business Reporting.

    The Commissioner advised the ATO is one year behind for some of its initiatives. We are aware of a number of irritants but are working on upgrades with work also underway with digital service providers to transition the top 10 functions available in the portal to practice management software.

    • Work related expenses – a member asked, with the focus now shifting to work related expenses, whether there will be a strategic document apart from educational campaigns regarding this considering the impact on taxpayers and agents. The Commissioner noted that a comprehensive narrative is being developed. The key message is that taxpayers may only claim deductions that they are entitled to, rather than ‘standard deductions’ that have become practice for various employee or industry groupings.
    • Tax gap – a member queried if it is expected that announcements from the Minister will accompany the tax gap information. The Commissioner’s response was there may be announcements, although that would be a matter for government.

    Environmental scan

    All members

    Members noted various matters that are on the horizon and may have an impact on the taxation and superannuation systems. Topics included:

    • The improvement of the technology service of the ATO
    • Role of financial and tax advisers, and the narrowing of the definition of what tax professionals can do, eg prohibition on providing financial advice
    • Proposals to limit deductions for tax advice to $3,000; and approach to discretionary trusts, are a concern
    • Consideration of a director identification number.

    Treasury report

    Rob Raether, Division Head, Corporate and International Tax Division, Revenue Group, Treasury 

    Rob Raether provided an update on Treasury matters:

    • Exposure draft on Eligibility for the lower company tax rateExternal Link was released for public consultation on 18 September 2017 with comments due by 29 September 2017.
    • Housing affordability package – exposure draft on Increasing the supply of Affordable HousingExternal Link was released for public consultation on 14 September 2017 with comments due by 28 September 2017.
    • Multilateral instrument – Australia has adopted most of the multilateral provisions. The Joint Standing Committee on Treaties is due to report on 6 December 2017. The legislation is expected in the first half of 2018.
    • Treasury Laws Amendment (GST Low Value Goods) Bill 2017External Link received royal assent on 26 June 2017 to apply from 1 July 2018. The Productivity Commission report is looking at different collection models and is due to report at the end of October 2017.
    • Council of Federal Financial Relations (CFFR, working group of Federal and State representatives) – working on harmonisation, eg moving to a model where gambling taxation occurs at the point of betting consumption.
    • Petroleum Rent Resource Tax review and Stapled Structures – work continues following consultation processes.
    • Consolidation integrity measures – an Exposure DrafExternal Linkt was released for consultation on 11 September 2017 which included six different measures with comments due by 6 October 2017.
    • Mandatory Disclosure Rules – The Board of Taxation has provided a report to Government.

    Members queried the status of the following:

    • Corporate Collective Investment Vehicle (CCIV) – tax legislation
    • Whistleblower legislation
    • Beneficial ownership issues.

    Treasury took these questions on notice and will provide an update in due course.

    Action item NTLG 1709/1 – Status of Corporate Collective Investment Vehicle (CCIV), whistleblower legislation and beneficial ownership issues

    Foreign Investment Review Board and the tax guideline

    Tim Neilson, The Tax Institute; Adrian Varrasso, Law Council of Australia, Rob Raether, Division Head, Corporate and International Tax Division, Revenue Group, Treasury; Roger Brake, Division Head, Foreign Investment Division, Treasury; and Mark Konza, Deputy Commissioner, Public Groups and International, ATO 

    Members raised this item to discuss the policies and processes that apply in relation to tax risk and the relationship with the ATO and the Foreign Investment Review Board’s (FIRB) approval per FIRB Guidance Note 47External Link.

    Members noted there is a perception that default tax conditions are imposed and that Guidance Note 47 provides no clarity to applicants on how the tax risk applies to their application. A member provided an example where an applicant was advised that if they received a high risk rating from the ATO, FIRB would recommend to the Treasurer not to approve the transaction. The member also noted that a condition was imposed that the applicant would not undertake a particular debt funding. Members asked for clarity and that FIRB provide an explanation if it was going beyond Guidance Note 47.

    Roger Brake advised that FIRB considers all applications on a case-by-case basis. When a proposal is received FIRB determines which Government agency would have an interest in the proposal with the statutory test being impact on the national interest. FIRB is an advisory body and decisions on proposals are made by the Treasurer. The Treasurer is interested in potential tax risks and the ATO is always consulted to provide an assessment on tax risk rating.

    The Treasurer can approve a proposal, approve a proposal subject to conditions or block a proposal where it is contrary to the national interest. Where the Treasurer intends to impose conditions, FIRB engages in a natural justice process with applicants that includes consultation, feedback and the consideration of alternative proposals. The majority of proposals have no conditions beyond the standard tax conditions. FIRB will make applicants aware of standard tax conditions and encourages applicants to communicate concerns early to ensure decisions on FIRB proposals are made within the statutory timeframes.

    In response to a member’s query on what is considered a special tax risk, Roger Brake advised that FIRB consults with the ATO to provide a risk rating. The ATO provides advice about the tax conditions that should apply but ultimately the decision about whether to impose conditions rests with the decision maker. Members noted that the ATO has ten days to initially review the proposal taking into account the history of the parties. Mark Konza explained the high, medium and low risk ratings.

    Members suggested that the guidance note could be improved and maybe a joint FIRB/ATO guidance document developed. Roger Brake acknowledged that applicants wanted clarity and advised members that the current Guidance Note is broad regarding conditions, but that the FIRB would consider ways to reduce uncertainty. Roger Brake noted that early engagement on an application is important and much preferred by both FIRB and the ATO.

    Single Touch Payroll – small business pilot

    John Shepherd, Assistant Commissioner, Single Touch Payroll, ATO 

    Single Touch Payroll (STP) is a Government initiative to streamline reporting obligations. Employers will be able to meet their reporting obligations to the ATO at the same time they pay their employees. Employers with 20 or more employees need to report using STP from 1 July 2018. The Government has announced it will extend STP to employers with 19 or fewer employees from 1 July 2019 subject to legislation being passed in Parliament.

    John Shepherd advised the ATO has started receiving STP reports from a limited release in July 2017. These reports include payments such as salaries and wages, pay as you go (PAYG) withholding and superannuation information. The current legislation notes superannuation payments are reported by the employer. This reporting will change and superannuation guarantee contributions will be reported by the superannuation funds who have received the payments. This will allow near real-time visibility of non-payment or late payment of superannuation guarantee.

    A member queried if STP will exclude self-managed superannuation funds. John Shepherd noted there are plans to include them in the future. Initial rollout will be with Australian Prudential Regulation Authority regulated funds.

    Employers who report an employee’s payment and withholding details through STP may not have to provide that employee with a payment summary at the end of the financial year. The ATO will provide this payment and withholding information to employees through myGov.

    The threshold of employers with 20 or more employees was chosen as most of these employers already run a payroll system and report electronically to the ATO. Whether an employer meets the 20 employee threshold is based on a headcount of employees as at 1 April 2018. Communications will be sent to substantial employers over the next month. A member commented that it would be useful to get some feedback from early adopters in the small business sector.

    The STP Small Business Pilot included businesses that electronically and manually processed payroll to understand any barriers.

    Key points arising from the STP Small Business Pilot included the following:

    • most small businesses would be able to implement with modest cost depending on the size and capability
    • a third of those in the pilot have payroll systems that would be updated by the STP provider and transitioned to STP
    • another third have some electronic capability but would need support to change to STP
    • for smaller employers there will likely be alternate options for those who may not be able to transition to full payroll systems (similar to SuperStream)
    • it will be important to identify low cost, low complexity solutions for small employers, eg for businesses with one or two employees there may be free software solutions or internet banking option to report STP at the same time as payment
    • temporary deferrals/extensions may be appropriate for areas with low or no internet connectivity (similar to SuperStream).

    Barriers to adoption included:

    • trust and fear of reporting information not cleared by their accountant – the ATO will provide assurance that with STP employers will not be penalised if there is an error
    • time and cost to implement STP – need to consider appropriate incentives for businesses to change to STP
    • about 70,000 (10%) businesses need the greatest support but that number is gradually decreasing with internet availability and capabilities of business owners
    • the role of trusted intermediaries as very small businesses rely on bookkeepers and tax agents.

    Responding to a member’s query, John Shepherd advised the STP Small Business Pilot final report will be published in the next few weeks. John Shepherd also noted there is likely to be some targeted consultation on law change in the near future. This will provide an opportunity to test the 20-employee threshold and incentives. States and Territories are keen to get real-time reporting of data through STP. Employers are keen on opportunities to leverage STP to streamline their State/Federal obligations.

    Post meeting note: The STP Small Business Pilot final reportExternal Link has been published and is available on ato.gov.au

    Managing data

    Grant Wardell-Johnson, Chartered Accountants Australia and New Zealand (CA ANZ); Michael Croker, CA ANZ; Michael Ingersoll, Acting Deputy Commissioner, Smarter Data Program, ATO; and Nadine McBain, Assistant Commissioner, Smarter Data Program, ATO 

    Members raised this item to discuss the ATO’s approach in managing the increased volumes of data from numerous sources including initiatives such as Country-by-Country reporting and also how the ATO will assess other countries’ requests for data.

    Michael Ingersoll advised members the immediate focus is on how the ATO will consume the data rather than how to secure it and make it accessible. Discussions will be undertaken with other early adopters of Country-by-Country reporting such as the UK about the insights they have gained from the data.

    The ATO has a data and analytics strategy. This includes adopting a measured approach to 2020, using new data sets and maximising what the ATO does with existing data. It is important that the ATO sets up its ability to manage data in an enterprise way. Michael Ingersoll gave Single Touch Payroll (STP) as an example of data that comes in a structured way through a specific hub. ATO systems have the ability to bring in that data and store and manage the volume as it increased. The ATO is moving away from single event reporting to STP reporting 26 or 52 times a year and is now investing in planning on how to manage that data in an enterprise framework.

    The Smarter Data business area has been set up for over two years managing data in an enterprise framework. Strategy is driven by the increasing volumes of data. The ATO’s goal is to be a data driven organisation and managing data as a corporate asset by getting the best value and protecting that asset, finding ways to use data to improve the client experience and gaining insights from the data. Data is managed for the ATO but also for interactions with other Government systems.

    Challenges include managing the volume, velocity and variety of data (structured and unstructured, eg Country-by-Country reporting). The goal is curated data sets by ensuring ATO business areas have relevant products to assist their data management processes. By 2020 data will be the centre of ATO business.

    Members’ comments included:

    • Query how the ATO plans to manage requests from other jurisdictions noting there will be an increase in the volume of data in early 2018. The ATO advised that it has taken a lead role with OECD, but not as an early adopter. Smarter Data is working with the relevant business area for Country-by-Country reporting.
    • Intermediaries would like to know what the data will look like in the ‘deeper dive’ portal as it not well known how ATO knowledge management systems work. Also if there are any churn/reverse workflows to correct data. The ATO advised it will need to compare data from different sources to see why there may be a disparity caused by a data problem or if a mismatch of the data reflects reality.
    • How transparent will the ATO be with the data, ie will sanitised data eventually get back to the community to help drive business decisions. The ATO noted there is data available on data.gov.au but work is underway (not in the ATO) to develop this further.

    Small business company tax rate

    Michael Croker, CA ANZ; Michael Ingersoll, Acting Deputy Commissioner, Smarter Data Program, ATO; Deborah Jenkins, Deputy Commissioner, Small Business, ATO; and Michelle Allen, Acting Assistant Commissioner, Law Interpretation and Advice, Instalments, New Measures and Priority Issues, Case Leadership and Strategy and Engagement (LINCS), Individuals, ATO 

    The Exposure Draft on Eligibility for the lower company tax rateExternal Link was released for consultation by Treasury on 18 September 2017 with comments to be provided by 29 September 2017.

    Members acknowledged the ATO for taking on board feedback and for reaching a position regarding this. Members noted there is confusion about the rate and the flow-on consequences of rate change for franking credits etc. Members also noted that in the Exposure Draft there is an additional test regarding passive income for bucket companies.

    Members discussed the form of guidance that may be required. The ATO recognised there is a community need for guidance. Deborah Jenkins advised the ATO is considering a number of options for the guidance such as a draft Law Companion Guideline, a draft Practical Compliance Guideline or a draft Taxation Ruling.

    Post meeting update: On 18 October 2017 the ATO published for consultation the draft Taxation Ruling 2017/D7 Income tax: When does a company carry on a business within the meaning of section 23AA of the Income Tax Rates Act 1986?  with comments due 1 December 2017. The draft Taxation Ruling includes examples of how the ATO view will apply to companies in common scenarios.

    Advice and guidance

    Clint Harding, Law Council of Australia; Adrian Varrasso, Law Council of Australia; Kirsten Fish, Chief Tax Counsel, ATO; and Louise Clarke, Acting Deputy Chief Tax Counsel, ATO 

    Members wanted to discuss the role of the Public Advice and Guidance (PAG) Centre. Members noted there has been a shift of traditional products to new products such as Practical Compliance Guidelines (PCGs), Law Companion Guidelines (LCGs) etc. Members wanted to understand the relationship between binding and non-binding advice, eg the issue of a ruling plus a PCG combination, and queried how the ATO determined what type of product would need to be issued. Members also raised the Review of the Private Binding Rulings for discussion.

    Kirsten Fish advised that following the 2014-15 Review of Public Advice and Guidance, a new Public Advice and Guidance (PAG) model was implemented. The PAG Centre was established within the Tax Counsel Network (TCN) and the PAG Units within the Client Engagement Group’s business lines were created to implement a corporately managed and coordinated end-to-end system to provide ATO public advice and guidance. The relevant business areas work together to assess the risk and determine the workflow for the guidance.

    The ATO advised there has been no shift away from binding products but there has been an increase in the number of non-binding products. The choice of product is driven by whatever is the appropriate product for the issue taking into consideration whether it is an interpretive issue or conveying the ATO’s view of best practice. This decision is undertaken by the relevant business area with assistance from TCN. It is proposed to undertake earlier targeted consultation before it is determined what the product will be. Guidance is to be written in plain English with the format reflecting the audience, their needs and the message the ATO would like to convey. The ATO noted that LCGs will be ‘rebadged’ and called Law Companion Rulings that will be issued at the same time as the new legislation is effective, reflecting the binding nature of the product.

    Kirsten Fish noted that a focus is working with business areas to ensure the ATO has the right balance of products between rulings and PCGs. The ATO is currently undertaking a stocktake of issued Taxpayer Alerts to ensure follow-up guidance and advice has been issued where appropriate.

    Review of Private Binding Rulings - members noted that it appears that the timeframes are getting longer in the process of getting a private binding ruling. Second Commissioner Neil Olesen advised there was no evidence of longer timeframes the last time this issue had been raised and invited members to provide examples of where this had occurred.

    Chevron decision

    Louise Clarke, Acting Deputy Chief Tax Counsel, ATO; and Shahzeb Panhwar, Assistant Commissioner, Public Groups and International, ATO 

    On 18 August 2017 Chevron confirmed it would not seek special leave to appeal the Federal Court decision in April 2017. Members raised this item to discuss the implications going forward for the pricing of debt, the issue of guidance material and the Decision Impact Statement.

    Louise Clarke advised that a draft Decision Impact Statement (DIS) is well advanced and deals with Division 13 and Subdivision 815-A but not Subdivision 815-B as that part of the legislation has not yet been tested. A draft Practical Compliance Guideline is expected to be finalised in the next couple of months. This additional guidance will cover issues such as when Subdivision 815-A applies in relation to interest free loans.

    A member commented that there appears to be a trilogy between fact, law, and the orphan principle, and queried where the ATO sits in that trilogy. Louise Clarke advised the ATO will include commentary about the orphan principle in the DIS expressing the ATO’s view on how that principle sits within Subdivision 815-B. The ATO proposes to undertake consultation on the draft DIS but it will need to consult internally first.

    A member noted that the Full Federal Court decision highlights the distinction between property and conditions. The ATO advised that going forward the focus is on the financial and commercial relations but the issue of conditions will also be considered.

    Tax gap

    Paul Suppree, Corporate Tax Association; Paul Drum, CPA Australia; and Neil Olesen, Second Commissioner, Client Engagement, ATO 

    Neil Olesen provided an overview of tax gap including the ATO’s position and direction.

    Tax gap is the broadest measure of system health. The ATO is developing estimates for various tax gaps and Neil Olesen briefed members on the current work being undertaken. There is an estimation process for each gap (theoretical tax payable against the amount of collected tax) for a defined period. Each gap is measured differently.

    The ATO released the estimate for the Superannuation Guarantee gap on 29 August 2017 with the Minister for Revenue and Financial Services, the Hon Kelly O’Dwyer MP announcing a legislative changeExternal Link. It is expected that information on available tax gap estimates will be published in the ATO’s Annual Report 2016-17 when it is tabled in Parliament at the end of October 2017.

    Members acknowledged the work the ATO is undertaking regarding the estimates of tax gaps.

    Red tape reduction

    Michael Croker, CA ANZ; Trent Jakubowski, Senior Adviser, Tax Framework Division, Treasury; and Andrew Watson, Assistant Commissioner, Intermediaries and Lodgment, ATO 

    Members raised this item to discuss whether ‘red tape reduction’ was still on the Government’s agenda and if so, which area has carriage of the matter. Members queried if the ATO has a mandate and if the Board of Taxation is involved.

    The ATO noted that regulatory reform is still part of Government policy and that the Office of Best Practice Regulation in the Department of Prime Minister and Cabinet reports on the Government’s regulatory reforms agenda. The ATO prepares a report every six months on regulatory reforms.

    Trent Jakubowski advised that Treasury is working closely with the ATO and the Board of Taxation to pursue regulatory reform proposals having policy and law impacts. NTLG members were invited to provide comments on ideas which would reduce tax system complexity and encouraged to consider the following focus areas:

    • ideas which remove or reduce compliance costs for the community, and
    • ideas that support the ATO’s future client experience approach including the opportunity to remove irritants moving forward into a new digital age.

    It was noted that the immediate priority for the Government is implementing its heavy legislative program. Noting this challenge, Treasury and the ATO are particularly interested in ideas which may be addressed administratively or packaged with existing legislative measures.

    Members raised two questions regarding Government reporting which the ATO and Treasury agreed to confirm:

    1. In assessing the yearly regulatory impacts does Government take the ‘net’ regulatory impacts into account?
    2. How does Government report on regulatory reform impacts?

    Action item NTLG 1709/2 – Regulatory reform impacts

    NTLG action item update

    Carlo Paje, Senior Technical Adviser, Tax Counsel Network, ATO 

    Carlo Paje provided a status update on ongoing action item NTLG Impact of taxpayer alerts on large corporates and how the Taxpayer Alert system may be improved to manage unwanted impacts, noting that the ATO is currently revising Practice Statement PS LA 2008/15 Taxpayer Alerts. The ATO acknowledged that confidential external consultation should occur before alerts are issued, except in very limited and exceptional circumstances; the revised PS LA will reflect this requirement.

    Members requested an out-of-session update on the current status of the review of PS LA 2008/15 and the estimated timeframes for its completion.

    Attendees

    Organisation

    Name

    Australian Taxation Office

    • Andrew Mills, Second Commissioner, Law Design and Practice (Co-chair)
    • Neil Olesen, Second Commissioner, Client Engagement
    • Carlo Paje, Senior Technical Adviser, Tax Counsel Network
    • Robyn Theacos, Senior Director, ATO Consultation Hub, Design and Change Management (Secretariat)
     

    Treasury

    Rob Raether, Division Head, Corporate and International Tax Division, Revenue Group

    Chartered Accountants Australia and New Zealand (CA ANZ)

    • Grant Wardell-Johnson (Co-chair)
    • Michael Croker
     

    Corporate Tax Association

    Paul Suppree

    CPA Australia

    Gavan Ord

    Institute of Public Accountants

    Tony Greco

    Law Council of Australia

    • Adrian Varrasso
    • Clint Harding
     

    The Tax Institute

    • Matthew Pawson
    • Tim Neilson
     

    The Tax Institute -
    Professional Bodies Coordinator

    Stephanie Caredes

    Apologies

    Organisation

    Name

    Treasury

    Maryanne Mrakovcic, Deputy Secretary, Revenue Group

    Corporate Tax Association

    Michelle de Niese

    CPA Australia

    Paul Drum

     

      Last modified: 21 Dec 2017QC 54133