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  • National Tax Liaison Group key messages 20 June 2017

    Operation Elbrus

    Andrew Mills, Second Commissioner, Law Design and Practice, ATO 

    Andrew Mills provided an update on Operation Elbrus. The joint operation with the AFP was clearly a success in showing our capability to detect and take action with those doing the wrong thing. Our systems of security and internal controls have been robust and effective in identifying attempted unauthorised access of information. The ATO is very aware of how important it is that the community trusts us, our decisions and actions and we will be thorough in our investigations into what has happened. The ATO is issuing guidance for those affected by Plutus Payroll Australia Pty Ltd. The guidance will provide clarity regarding PAYG withholding and super guarantee as well as other matters.

    IT systems outage

    Andrew Mills, Second Commissioner, Law Design and Practice, ATO 

    Members were briefed on the state of the ATO’s IT systems following the replacement of the faulty hardware that caused the outages in December 2016 and February 2017. The ATO noted that a key focus is to provide resilient and reliable infrastructure in time for Tax Time 2017 to eliminate the likelihood of another major outage during this important period. The ATO’s priority is to ensure stability, reliability and availability of services to the community, key stakeholders and government. Members noted the release of the ATO systems report.

    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 ongoing concern regarding companies and whether they are carrying on a business
    • government’s ‘fair tax’ advertising campaign
    • tax gap
    • Australian Law Reform Commission’s inquiry into elder abuse
    • political donations
    • Tax Time 2017.

    Treasury report - Budget update

    Kathryn Davy, Principal Adviser, Corporate and International Tax Division, Revenue Group, Treasury 

    Kathryn Davy provided an update on Budget matters including:

    • Affordable housing package – Treasury is consulting on these measures and will draft legislation in the coming months.
    • Changes to Foreign resident capital gains – main residence exemption to be removed for non-residents (as defined for tax purposes). Targeted consultation to be undertaken on this measure. The withholding measure has passed and is awaiting royal assent.
    • Hybrid measures for Additional Tier 1 capital – proceeding to draft legislation and expecting this to be released in the second half of 2017.
    • Multinational Anti-Avoidance Law – small change regarding foreign trusts and partnerships; legislation expected to be introduced in Autumn 2018.
    • Bank levy legislation passed on 19 June 2017.
    • The $20,000 small business instant asset write off has been extended by 12 months.
    • GST on low value goods – legislation returned to the House of Representatives with a deferred start date.
    • Black economy taskforce – measures include the extension of taxable payment reporting to courier and cleaning industries, and further funding for the ATO to audit black economy risks.
    • Small business CGT concessions – new integrity rules linking the CGT events to the relevant business.
    • Medicare levy – changes to fund National Disability Insurance Scheme starting 1 July 2019.
    • GST on precious metals –changes will apply retrospectively from 1 April 2017. (Post-meeting note: Retrospective legislation received royal assent on 26 June 2017)
    • Double taxation of digital currency – legislation is currently being drafted with consultation anticipated before 30 June 2017. Legislation expected to be introduced in the Spring 2017 sitting of Parliament.
    • Wine Equalisation Tax (WET) Rebate – changes to reduce the WET rebate and introduce tightened eligibility criteria. Consultation undertaken in April 2017, with legislation to be introduced in Parliament on 22 June 2017.
    • Petroleum Resource Rent Tax review – independent report due end of September 2017.
    • Stapled structures – consultation undertaken in March 2017. Plan to conduct targeted and confidential consultation in July 2017. Treasury will present options to the Treasurer shortly.

    Members commented on the following aspects of the ‘housing affordability package’:

    • Denial of deductions for interstate travel – there have been no subsequent Government announcements or any formal ATO guidance regarding this measure. Treasury noted that legislation should be introduced in the coming months.
    • Annual charge on foreign owners of underutilised residential property.
    • First home saver account.
    • New category of managed investment trusts.

    Additional resourcing for Treasury and the Office of Parliamentary Counsel

    Matthew Pawson, The Tax Institute; and Kathryn Davy, Treasury 

    Treasury and the Office of Parliamentary Counsel (OPC) were provided with additional funding over four years in the 2017-18 Budget to provide dedicated law design and drafting resources for tax and financial system legislation. Members queried what this will mean for Treasury, its priorities and its focus in the coming period.

    Treasury advised that it is working on boosting drafting resources to help progress the backlog of measures. There are new drafting teams in OPC and additional policy staff in Treasury. Treasury will also continue with its secondment programs trialling a number of different models for secondments and will be seeking applicants from the private and public sectors.

    Treasury report

    Kathryn Davy, Principal Adviser, Corporate and International Tax Division, Revenue Group, Treasury 

    Other Treasury activities included:

    • Multilateral instrument – signed on 7 June 2017. This modifies 30 of Australia’s bilateral Double Tax Agreements on a provisional basis, to be confirmed on ratification. Australia has adopted all of the substantive provisions with a few exceptions (mainly regarding Permanent Establishments). Each country must apply the multilateral instrument to all of its Double Tax Agreements.

    Members noted there would be value in joint learning forums for practitioners on the new approach to treaty interpretation.

    Members raised the following items:

    • Announced but unenacted measures – a member commented that a published work program would be helpful. Treasury advised that due to shifts in Government priorities, it was hard to predict timeframes. Treasury are progressing the draft consolidation changes noting they are not yet on the legislative program.
    • Mandatory disclosures – this is now with the Board of Taxation for consideration before a final decision is made.
    • Collective investment vehicles – this is a priority for the Government.
    • Whistleblowers – this is a priority for the Government. Tax and corporate whistleblowers are being considered together. The issue of compensation is still being considered.
    • General purpose financial statements – there are concerns on the proposed position in the ATO’s draft guidance, particularly in the large corporate sector.
    • Transparency of engagement with professional organisations and practitioners.

    Recent significant tax cases

    Tim Neilson, The Tax Institute; Tony Greco, Institute of Public Accountants; Clint Harding, Law Council of Australia; Debbie Hastings, Deputy Commissioner, Review and Dispute Resolution; and Kirsten Fish, Chief Tax Counsel, ATO 

    Debbie Hastings briefed members on recent tax cases noting that it has been a period of heightened litigation activity, with 30 litigation decisions handed down in the last seven weeks. Significant decisions have included:

    • Binetters – special leave application has been denied
    • Chevron, Thomas, Cable & Wireless – Full Federal Court decisions, currently subject to special leave applications to the High Court
    • Hacon – Federal Court decision. (Post meeting note: appeal filed to the Full Federal Court.)

    Chevron, Thomas, Cable & Wireless: Members wished to discuss the impact on ATO administration and what will be the ATO position for each case in the respective Decision Impact Statements. The ATO noted that these matters are ongoing with special leave applications filed in the High Court. Decision Impact Statements are generally not issued until the conclusion of all court proceedings. An overview was provided for each case.

    ChevronExternal Link – the Full Federal Court provided clarification on Division 13 and Subdivision 815-A for loans. This will assist in other transfer pricing cases. A draft practical compliance guideline (PCG) was issued in May 2017. However, the decision is the subject of a special leave application and the ATO will not issue a Decision Impact Statement until the litigation is concluded. A member commented about this decision raising questions about the distinction between ‘property’ vs ‘conditions’.

    Cable & WirelessExternal Link – the Full Federal Court upheld the ATO position that tax had not been withheld in error. The Court held unanimously that the share buy-back reserve was not share capital, having regard to the economic and commercial reality of the taxpayer’s circumstances. The case was distinguished from Consolidated Media where the buy-back reserve was clearly a return of contributed capital. A member asked if there should be more guidance as there is uncertainty in the community about what is share capital. The ATO will consider issuing guidance if it is needed.

    Thomas - Mid-audit, the taxpayer sought declaratory relief from the Queensland Supreme Court, where Applegate J declared the relevant trustee resolutions to have a particular effect. The ATO issued a s99A assessment contrary to the declaration. The assessment was upheld by the Federal Court, but was subsequently overturned by the Full Federal Court. The Full Federal Court held that the Supreme Court’s original declaration is still valid and live – in line with the Executive Trustee case in South Australia – and the Full Federal Court was in no position to disturb it. The declaration therefore formed part of the factual circumstances by which the Commissioner is bound to consider.

    Managing aged draft rulings

    Kirsten Fish, Chief Tax Counsel, ATO 

    Kirsten Fish sought members’ views regarding a Parliamentary Committee recommendation that long-standing draft taxation rulings (TRs) and taxation determinations (TDs) that have not been finalised after 12 months be automatically withdrawn. Members discussed the advantages and disadvantages of the recommended approach. The general consensus of members was that draft TRs and TDs un-finalised after 12 months should not be automatically withdrawn.

    Diverted profits tax

    Clint Harding, Law Council of Australia; and Mark Konza, Deputy Commissioner, Public Groups and International, ATO 

    Members raised this item to discuss the ATO’s approach to administering the Diverted Profits Tax (DPT), including the composition of the DPT panel.

    The ATO provided an overview of the DPT process. The ATO emphasised that, prior to a DPT assessment being issued, it must have been referred to the specialist DPT team, the Tax Counsel Network, a Preliminary General Anti-Avoidance Rules Panel (which will usually include at least one independent non-ATO member), and finally, to an ATO officer at the Deputy Commissioner level or above for approval to issue the assessment. The DPT assessment will then be followed by a 12 month review period during which the taxpayer may provide facts and/or arguments to displace the DPT assessment. The ATO has consulted on the process and is preparing a Law Administration Practice Statement and a Law Companion Guideline to support it, which are expected to be issued by the end of June 2017.

    The DPT applies from 1 July 2017. The ATO is working to ensure that Advance Pricing Arrangements will be able to provide certainty in respect of DPT to taxpayers who rely on such arrangements.

    Reappointment of the Commissioner of Taxation

    Chris Jordan AO, Commissioner of Taxation 

    On 27 April 2017 the Treasurer, the Hon. Scott Morrison and Minister for Revenue and Financial Services, the Hon. Kelly O’Dwyer MP, announced the reappointment of Chris Jordan AO as Commissioner of Taxation with a new seven year term from 1 March 2017 until 29 February 2024. Also announced was the appointment of Mr Ramez Katf as Second Commissioner from 1 May 2017 to 30 April 2024. Mr Katf also retains the role of Chief Information Officer.

    The Commissioner viewed Mr Katf’s appointment and his own reappointment as a significant vote of confidence and endorsement of the ATO Executive and their strategic direction. The ATO Executive team is committed to Reinvention for the longer term, continuing the focus on improving the client and staff experience.

    A member queried when the ATO will be implementing new IT initiatives previously placed on hold due to work to ensure stability in IT systems. The Commissioner stated that a key focus and priority has been the preparations for Tax Time 2017. There are also other significant changes – Single Touch Payroll, Superannuation and the new Practitioner Lodgment Service (PLS).

    Other points of interest raised by members included:

    • Replacement of aging business registers – the Commissioner commented that we need to streamline the approach to registrations so that the ATO can meaningfully help small businesses. Discussions are ongoing.
    • The ATO’s approach to professionals following Operation Elbrus – the Commissioner stated there is nothing new in the ATO’s approach, but Operation Elbrus may accelerate efforts to improve integrity (for example, around identification and vetting of company directors). The challenge is finding the line between phoenix activity and genuine business failure.
    • Reduced ATO workforce – the Commissioner noted that the ATO has met or exceeded its service standards with 4,000 fewer people, all while increasing engagement levels among ATO staff.

    Transparency of tax debt

    Tim Neilson, The Tax Institute; Robert Ravanello, Deputy Commissioner, Debt; and Michael Zeitlhofer, Assistant Commissioner, Debt, ATO 

    The planned start date for this measure was 1 July 2017 but legislation has not yet been introduced. The ATO informed members that the planned start date of 1 July 2017 is unlikely due to legislative priorities and resources.

    There have been a number of rounds of consultation with issues identified and feedback provided to the Minister. The next step is further consultation on the draft legislation. Once Royal Assent has been received, the ATO will take a phased implementation, focusing on high risk operators carrying higher levels of debt and only companies that meet the reporting criteria.

    A member queried how long it would take to remove a tax debt from a taxpayer’s record following payment of that debt. The ATO advised that normally credit reporting bureaus retain records for five years but we are working with them to reduce this time significantly.

    Consultations over public and school holiday periods

    Matthew Pawson, The Tax Institute; Clint Harding, Law Council of Australia; and Robyn Theacos, Director, Consultation Hub, ATO 

    This topic was related to Consultation Steering Group open action item CSG 1702/1 combined ATO and Treasury consultation schedule. Members expressed their concerns about the volume of consultations carried out over the April 2017 public holiday period while acknowledging that Treasury does not always have a great deal of discretion regarding the timing of some matters.

    The ATO advised that to improve visibility, the ATO intends to publish a register of planned consultations on ATO guidance products. The Office of Parliamentary Counsel has no objections to publishing a calendar of upcoming legislation and consultations, however further work is required before this can progress.

    The ATO will work on its processes to avoid, wherever possible, certain periods such as public or school holiday periods and Treasury peak periods for consultations. Members commented that consultations should be framed to focus on the key issues and be clear about the outcomes the ATO is seeking, recognising that this has been the case with recent consultations.

    Company tax rate changes and franking accounts

    Paul Drum, CPA Australia; Kathryn Davy, Treasury; and Michael Ingersoll, Assistant Commissioner, LINCS, Individuals; and Alister Boyes, Director, LINCS, Individuals, ATO 

    The focus of this discussion was on the policy intent behind the measure, and what guidance is proposed by the ATO. Members noted that there was demand in the market for ATO guidance for a company on when it would be considered to be ‘carrying on a business’.

    Members queried the ATO’s approach in dealing with companies who have over-franked. The ATO noted it has provided some advice before the law change and the ATO will not seek to penalise companies that have acted on that advice. Where a company has over-franked, the ATO would generally expect the company to contact their shareholders and amend their distribution statements. A member gave an example involving a bucket company. The ATO’s response was that guidance is being prepared so it cannot commit to a position on a specific situation. Members were encouraged to provide specific examples to the ATO for consideration.

    Simpler BAS

    Tim Dyce, Deputy Commissioner, Indirect Tax; and Susan Baranski, Assistant Commissioner, Small Business, ATO 

    This discussion was to update members on the background, progress and future plans for the Simpler BAS. The Simpler BAS is due to start on 1 July 2017 and will be the default reporting option for small business. Simplifying the BAS will reduce the GST reporting requirements and make GST bookkeeping easier.

    Simpler BAS was trialled with 48,000 businesses with new registrants given the option of using the Simpler BAS. The ATO advised that:

    • feedback from small business participants was positive
    • taxpayers operating on Simpler BAS would not be asked to recreate the ‘original’ long-form BAS labels
    • businesses do not need to change accounting or bookkeeping systems to use Simpler BAS.

    The ATO intends to issue information promoting Simpler BAS to small business through industry association newsletters, tax practitioner newsletters and bulk emails.

    Non-payment of superannuation guarantee

    Tony Greco, Institute of Public Accountants; and James O’Halloran, Deputy Commissioner, ATO 

    On 2 May 2017, the Senate Economics References Committee released its reportExternal Link from its inquiry into superannuation guarantee non-payment.

    Members queried how the ATO plans to minimise non-compliance by employers of their superannuation guarantee obligations and, given the ATO’s systems do not currently have real time information, how the associations/private sector can help the ATO to address non-compliance.

    The ATO advised that Single Touch Payroll, to be rolled out shortly, will include employer reporting of superannuation guarantee obligations for each employee each payday. The ATO is also working with the super funds industry to ensure their receipt of superannuation guarantee payments is reported to the ATO. To increase transparency, progressively from 1 July 2018, all APRA regulated super funds will be reporting to the ATO the superannuation guarantee contributions paid to them nearer to real time. Future SMSF reporting arrangements for superannuation guarantee contributions are still under design.

    Work-related expense deductions

    Grant Wardell-Johnson, Chartered Accountants Australia and New Zealand; Paul Drum, CPA Australia; Alison Lendon, Deputy Commissioner, Individuals; and Adam Kendrick, Assistant Commissioner, Individuals, ATO 

    The House of Representatives Standing Committee on Economics tabled its Report on the inquiry into tax deductibilityExternal Link on 15 June 2017. Members were interested in the ATO’s approach and administration of work-related expense deductions. There are concerns in the industry at the number of increasing work-related expense claims by individuals who lodge their own tax returns as well as returns prepared by the tax agent population.

    The ATO’s approach has included providing advice to agents, advice to individuals preparing their own tax returns through MyTax, and sharing work-related expense risk profiles with tax agents. The ATO will be providing online nudge messaging in real time for those who use myTax and a pre-fill notification for agent prepared returns where claims for work-related deductions are higher than expected. The ATO acknowledged the work of CPA Australia, who have prepared a checklist on work-related expenses. The ATO has seen and provided feedback on CPA Australia’s checklist and would like to commend it to the other professional organisations. The ATO expects to publish information on the Individuals tax gap estimate by the end of 2017.

    In response to a member’s query, tax agents who have been identified as making false work-related expense claims have been referred to the Tax Practitioners Board.

    Black economy taskforce

    Grant Wardell-Johnson, Chartered Accountants Australia and New Zealand; Kathryn Davy, Treasury; Emma Rosenzweig, A/g Deputy Commissioner, Small Business, ATO; and Matthew Bambrick, Assistant Commissioner, Black Economy Taskforce Secretariat, Treasury 

    In late March 2017, the Government released the Black Economy Taskforce’s interim reportExternal Link that outlines the Taskforce’s initial findings and recommendations. Members queried the ATO’s approach to responses and processes to the interim report. Members acknowledged that everyone should get involved with the Taskforce’s work as it will make a significant difference to the tax system.

    An overview of the Taskforce was provided, noting the following:

    • The Taskforce was established at the end of 2016 with Mr Michael Andrew AO as Chair. The Taskforce brings together 19 government agencies as well as private sector organisations including the Small Business Councils, Institute of Public Accountants, industry associations, labour hire associations and the Grattan Institute.
    • The Taskforce received 20 submissions (19 from the general public) and worked with industry associations and other stakeholders to shape the interim report.
    • In the interim report, there were 35 recommendations with some for immediate action and others for further exploration and consultation.
    • Recommendations for immediate action announced by the Government in its 2017–18 budget included:
      • the extension of the Taxable Payment Reporting System to the courier and cleaning sectors
      • a ban on the manufacture, distribution, possession, use or sale of sales suppression technology
      • reviewing Australian Government procurement processes.
       
    • The Taskforce is currently consulting and holding a series of public meetings and industry roundtables across Australia. Submissions close on 31 July 2017. The Taskforce will provide a final report in October 2017.

     

    A member commented that some of the recommendations were broad and questioned the level of detail that the Taskforce would be developing for each of the recommendations. The Taskforce Secretariat advised that it is working to the next level of detail and encourages stakeholders to provide submissions into the consultations.

    NTLG action item update

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

    Carlo Paje provided an update on ongoing action item NTLG 1703/1 Impact of taxpayer alerts on large corporates and how the Taxpayer Alert system may be improved to manage unwanted impacts, noting that Deputy Commissioners Will Day and Jeremy Hirschhorn and A/g Deputy Chief Tax Counsel Grahame Hager met with NTLG members Michelle de Niese, Michael Croker and Adrian Varrasso on 15 June 2017 to continue discussions regarding the issues raised.

    The ATO has committed to review Practice Statement PS LA 2008/15 Taxpayer Alerts and to consider in all cases the appropriate follow-up product or action to provide further direction on Taxpayer Alerts.

    Members agreed that action item NTLG 1703/1 remains open and ongoing while the review of the Practice Statement is in progress.

    Attendees

    Organisation and name of 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

    Kathryn Davy, Principal Adviser, Corporate and International Tax Division, Revenue Group

    Chartered Accountants Australia and New Zealand (CA ANZ)

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

    CPA Australia

    Paul Drum

    Institute of Public Accountants

    Tony Greco

    Law Council of Australia

    Clint Harding

    The Tax Institute

    • Matthew Pawson
    • Tim Neilson
     

    The Tax Institute -
    Professional Bodies Coordinator

    Stephanie Caredes

    Apologies

    Organisation and name of apologies

    Organisation

    Name

    Treasury

    • Maryanne Mrakovcic, Deputy Secretary, Revenue Group
    • Rob Raether, Division Head, Corporate and International Tax Division, Revenue Group
     

    Corporate Tax Association

    Michelle de Niese

    Law Council of Australia

    Adrian Varrasso

     

      Last modified: 11 Sep 2017QC 53251