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  • National Tax Liaison Group key messages
    27 September 2018

    Introduction

    Second Commissioner Andrew Mills and Michael Croker, Chartered Accountants Australia and New Zealand

    ATO Co-chair Second Commissioner Andrew Mills noted that Chartered Accountants Australia and New Zealand representative Michael Croker will stand in as non-ATO Co-chair for the meeting as a replacement for Grant Wardell-Johnson who is an apology.

    Andrew Mills and Michael Croker noted the following items of interest:

    • New Zealand’s review of its tax system with a focus on the tax and transfer systems and a proposal which considers a targeted approach to capital gains.
    • The Hayne Interim Report of the Financial Services Royal CommissionExternal Link - due to be released 28 September 2018.
    • Role of intermediaries in the context of Australia’s aging population, particularly in relation to advice on SMSF structures and guardianship.
    • Recent proposals for changes to the refundable franking credit tax offset and the potential impact on retirement income.

    Acting Commissioner’s opening remarks

    Jacqui Curtis, Acting Commissioner of Taxation

    The Acting Commissioner noted:

    • There have been a number of meetings with the new Ministers The Hon Stuart Robert MP and Senator The Hon Michaelia Cash.
    • House of Representatives Standing Committee on Tax and Revenue report on Taxpayer Engagement with the Tax SystemExternal Link was released on 10 September 2018 and consideration of the recommendations has commenced.
    • There are a number of reviews underway by external scrutineers such as the ANAO review in small business debt, the Inspector-General’s review of fraud control management and the review on ATO’s use of garnishee notices.
    • ATO census results were positive with significant improvements from last year particularly in the area of culture with the ATO scoring very high engagement results.
    • The new capability framework which outlines the core sets of skills, knowledge, attributes and behaviours that the ATO needs to successfully deliver the administration of the tax and super system. The ATO’s capability framework is being considered to potentially be adopted as a basis for something new in the Australian Public Service.
    • The ATO has reviewed its Enterprise Risk Management Framework with Assistant Commissioner Ben Kelly the new Chief Risk Officer.
    • Christina Li from Ernst and Young has joined the ATO as Chief Internal Auditor.

    Data handling by ATO/IT systems requirements/Smarter Data

    Michael Croker, Chartered Accountants Australia and New Zealand; Clint Harding, Law Council of Australia; Marek Rucinski, Deputy Commissioner, Smarter Data Program, ATO; Michael Ingersoll, Assistant Commissioner, Public Groups and International, ATO; and Kristy Dam, Assistant Commissioner, EST Strategy, Innovation and Information Management, Enterprise Solutions and Technology, ATO

    Members requested an outline of the Smarter Data program including:

    • the ATO’s approach to data collection and how the collected data is used
    • how the ATO is handling all the data coming in via Country by Country reporting and Common Reporting Standards
    • how the ATO is dealing with the requests for information via the information sharing treaties and the multi-lateral instrument
    • what the ATO is doing regarding the use of distributed ledger systems (Blockchain).

    Marek Rucinski provided an overview of Smarter Data. Smarter Data is the custodian of data across the ATO. Smarter Data works with ATO business lines to design and deliver the right information and insights, for example, data and analytics tools, modelling, and reporting that enables business to create value through better client experiences, faster, more efficient processes and greater consistency of approach.

    Smarter Data has been using a centralised model but is now moving towards a hub and spoke approach, restructuring the teams with clear talent groups.

    The ATO is moving to build its infrastructure to cope with the large volume, velocity and variety of data being received. The analytics infrastructure is expanding rapidly to support the evolving data landscape, new analytics need and business use cases with ATO analytics products built to address both internal as well as external to ATO consumption of data and insights.

    The data landscape is rapidly changing creating challenges in harnessing it and opportunities in exploiting it at scale and speed with ethical/privacy boundaries and data management framework. The ATO analytics capabilities are being developed to support the rise of new artificial intelligence techniques and democratisation of data across the ATO.

    Michael Ingersoll advised the ATO is receiving Country by Country data sets and that this information is being exchanged with other countries with a focus on making the data available as quickly as possible on a case by case basis. The ATO is preparing for the Common Reporting Standard data coming in with the first exchange of tax information taking place from 30 September 2018.

    Kristy Dam noted that blockchain technology is still maturing. It is recognised that the technology has a lot of potential but there are other non-technology factors that need to be considered such as governance, incentives and business processes. Blockchain technology needs to work in the context of the existing IT environment, with issues around integration, scalability of performance and migration of data still to be worked through. At this stage the ATO does not have any plans to use blockchain technology.

    Annual changes to the Company Income Tax Return and associated schedules (and instructions) in a centralised location

    The ATO noted it will publish a summary of tax time changes annually in a centralised location on the ATO website to assist tax agents, tax professionals and taxpayers in gaining an early understanding of the possible impacts for each new reporting income tax year. 

    A paper outlining a number of products including publishing timeframes for the summary of tax time changes was provided to members for their information.  It is expected that a summary of the tax time changes for products released in June/July 2018 will be published by December 2018.

    Environmental scan

    All members

    Members noted various matters that are on the horizon:

    • Inspector-General of Taxation reviews: Review of the Future of the Tax Profession and Fraud Control Management.
    • How franking credits are currently being utilised within the system and the potential impact on different taxpayer groups if the credits were no longer refundable.
    • (Post meeting update: The information on franking credit usage is included in Quick facts from Tax stats 2012-13 [slide 6] that is published on bettertax.gov.au).

    Treasury report

    Maryanne Mrakovcic, Deputy Secretary, Revenue Group, Treasury

    Maryanne Mrakovcic provided the following update:

    • New ministerial arrangements – The Treasurer is the Hon Josh Frydenberg MP, Assistant Treasurer is the Hon Stuart Robert MP and Assistant Minister for Treasury and Finance is Senator the Hon Zed Seselja.
    • Mr Philip Gaetjens has been appointed as Secretary to the Treasury.
    • Legislative program – since the 28 June 2018 NTLG meeting, eight bills have been introduced into Parliament. These include the black economy package, the staples package and the Research and Development integrity measures. Five bills received Royal Assent.
    • Australia ratified the Multilateral Instrument (MLI) on 26 September 2018. Australia’s final adoption provisions are similar to the provisional adoption positions when Australia signed the MLI. The MLI will enter into force for Australia on 1 January 2019 for withholding tax and on 1 July 2019 for income tax.
    • Status of Whistle-blowers legislation – Legislation was introduced on 7 December 2017. The Bill was referred to the Senate Economics Legislation Committee with the Committee issuing a reportExternal Link on completion of the inquiry. The Government has not yet made any announcements.

    Tax gap

    Tony Greco, Institute of Public Accountants; Nicole Dykstra, Acting Deputy Commissioner, Client Engagement Group Strategy and Performance, ATO; Alison Lendon, Deputy Commissioner, Individuals, ATO; and Adam Kendrick, Assistant Commissioner, Individuals, ATO.

    Members requested an update on tax gap. Members acknowledged and complimented the ATO on its communications with the release of the ‘Individuals not in business’ tax gap. Alison Lendon thanked members for their feedback and noted that the close collaboration on the issues through the working groups worked well.

    Nicole Dykstra briefed members on the ATO’s overarching tax gap program. The program includes transaction, income and administration tax gaps. The income gaps are broken into different populations. The random enquiry program helps to calculate the gap. The gaps are tested using statistical methods with independent tax gap expert panels that assure the methodology. This ensures that the estimates are credible, reliable and meaningful.

    The ATO has recently released the tobacco tax gap, the individuals not in business income tax gap and the large and small superannuation funds income tax gaps.

    Black Economy

    Michael Croker, Chartered Accountants Australia and New Zealand; Patrick Boneham, Principal Adviser, Individuals and Indirect Tax Division, Revenue Group, Treasury; and Matthew Bambrick, Assistant Commissioner, Small Business, ATO.

    Members queried how the ATO is handling the increased compliance requirements following the expansion of the Taxable Payments Reporting System (TPRS) into more industries. Members noted that the ATO has been collecting data regarding the building and construction industry since 2012 and asked if the ATO is able to share this data.

    The ATO noted that the TPRS provides transparency if taxpayers are complying with their obligations. The data will be used to identify discrepancies, for example, identifying taxpayers who are not in the system and those who should be reporting more. The ATO noted the building and construction experience has been positive and successful with a high level of compliance. An update on the effectiveness of the TPRS in the building and construction industry could be provided at a future NTLG meeting.

    Patrick Boneham noted that on 20 July 2018 Treasury released a consultation paper on Designing a modern Australian Business Number systemExternal Link with comments closing 31 August 2018. Treasury received 200 submissions and are in the process of reviewing these.

    Company tax rate

    Robert Deutsch, The Tax Institute; Paul McCullough, Division Head, Corporate and International Tax Division, Treasury; Matthew Bambrick, Assistant Commissioner, Small Business, ATO; and Andrew Harnisch, Director, Policy, Analysis and Legislation, ATO.

    Managing dual company tax rate

    Members requested a discussion on the management of the current dual rate company tax rate system, following the passage of the Laws Amendment (Enterprise Tax Plan Base Rate Entities) Act 2017 and the Government decision not to proceed with the broader reduction in the Treasury Laws Amendment (Enterprise Plan No2) Bill 2017 (Cth).

    Members also wanted to discuss the implications of draft PCG 2018/D5: Enterprise Tax Plan: small business company tax rate change: compliance and administrative approaches for the 2015-16, 2016-17 and 2017-18 income years

    Members noted they are receiving enquiries about franking credits in an environment of a change in the corporate tax rate. The ATO noted that going forward there is a dual rate system and that some companies may be franking at a rate that is different to their corporate rate.

    Andrew Harnisch advised that the draft PCG 2018/D5 is being finalised and includes information regarding the approach to correct incorrect franking credits and distributions. Members noted the issues are more around changes in the current environment and changes in turnover and suggested a set of ‘FAQs’ would assist taxpayers with these issues. The ATO noted there was some guidance on the ATO website although members felt that the information did not go into the required level of detail. If there are specific issues that require additional guidance, members were invited to provide details and the ATO would review the existing guidance and/or the information on the website.

    Members noted that the information in Law Companion Ruling (LCR) LCR 2018/D7 Base rate entities and base rate entity passive income includes a number of useful examples and that it is a very helpful LCR.

    Observations of US tax reforms and impact on Australia

    Treasury advised that a paper US Corporate Tax Reform: Implications for the rest of the worldExternal Link was released in November 2017. Treasury has been monitoring what has been happening to the US corporate tax rate cut as well as the role of the Global Intangible Low Tax Income (GILTI) and Foreign Derived Intangible Income (FDII).

    Other topics

    Members queried the status of a proposed discussion paper on exploring options for taxing digital business in Australia that was referred to by the Treasurer in the 2018-19 Budget Speech. Treasury noted there have been no announcements from the Government regarding this.

    Stapled structures and MITs

    Clint Harding, Law Council of Australia; Paul McCullough, Division Head, Corporate and International Tax Division, Treasury; Kirsten Fish, Chief Tax Counsel, ATO; and Sharon Murray, Assistant Commissioner, Public Groups and International, ATO

    Members requested an update and queried what guidance the ATO intends to issue regarding the integrity measures.

    On 20 September 2018, the Government introduced the Treasury Laws Amendment (Making Sure Foreign Investors Pay Their Fair Share of Tax in Australia and Other Measures) Bill 2018External Link (Stapled Structures Bill). The Bill was referred to the Senate Economics Legislation Committee with a report due on 9 November 2018.

    The ATO noted that it is consulting with industry bodies and others to scope the topics where guidance would be required. The ATO invited members to provide details of any further issues that require guidance.

    Members noted that there was a fair degree of support for the proposed approach as it was seen as balanced.

    Fund raising for drought stricken farmers

    Mathew Umina, Assistant Commissioner, Small Business, ATO

    Members noted that it would be useful if the ATO provided guidance on what expenses incurred by some taxpayers are deductible and what are not when helping drought stricken primary producers. This should also include information regarding the use of fundraising via crowdfunding rather than making donations via a deductible gift recipient.

    The ATO website includes information about help that is available for drought-affected taxpayers across regional, rural and metropolitan areas to manage their tax. ATO officers had recently toured regional NSW to speak to people impacted by the drought.

    The ATO noted there has been an increase in donations to drought-affected communities. Where the amounts received are spent on deductible expenses, such as purchasing feed for livestock, there will be no net taxable outcome, as the assessable income amounts would be reduced by the deductions claimed.

    Amounts received from charities or crowdfunding platforms will only be assessable if they are to be used in business rather than for other purposes. For example, where the amounts received are intended to be used for such things as food and clothing, these amounts are not assessable income.

    If charities are receiving money to provide basic necessities, this is not assessable income. Government assistance payments are assessable in the hands of the recipient unless the Government designates they are exempt.

    The ATO noted it had recently updated information on its website regarding Crowdfunding providing examples of tax implications of various crowdfunding arrangements.

    The focus of the ATO is to assist and support the drought stricken community.

    Overview of ATO 2024 vision, ATO Corporate Plan 2018-19 and ATO Annual Report 2017-18

    David Allen, Deputy Commissioner, Enterprise Strategy and Design, ATO

    David Allen provided an overview of the ATO’s 2024 vision noting that 2024 is the next wave of change, reflecting the ATO’s commitment to ongoing transformation. The ATO has made great progress with its reinvention in the last three to four years, delivering real outcomes for the community.

    The ATO has developed a six year focus to achieve its 2024 aspirations with the aim to improve the staff experience and improve the client experience. The two aspirations to 2024 are:

    • Building trust and confidence – The Government and community have trust and confidence in the ATO and the tax and super systems.
    • Streamlined, integrated and data-driven – Tax, super and business registration is streamlined, integrated and automated where it can be.

    The ATO is actioning 2024 through the ATO Corporate Plan 2018-19. The Corporate Plan has nine strategic objectives that are the foundation of 2024. In 2018-19 the ATO has committed to delivering 42 strategic initiatives that are aligned to achieving its objectives.

    The ATO Annual Report 2017-18 is expected to be released at the end of October 2018 (now released). It aligns to the Corporate Plan through reporting the ATO’s performance against the nine strategic objectives. The ATO’s approach to strategic planning and reporting reinforces the ATO’s commitment to achieving its 2024 aspirations.

    Overview of dispute resolution in the ATO

    Deborah Hastings, Deputy Commissioner, Review and Dispute Resolution, ATO

    Deborah Hastings briefed members on how the ATO approaches the resolution of disputes in a fair, impartial and independent way and the resolution and prevention services that are available to taxpayers.

    The Review and Dispute Resolution (RDR) business area was established in 2013 which was independent and separate from the original decision makers. RDR had responsibility for the newly established Independent Review for large market audits, large market objections, all litigation and Alternative Dispute Resolution (ADR) approaches. Since July 2015 RDR has responsibility for the review of all objections and litigation and many ADR services and processes.

    Key innovations include:

    • Independent Review for entities with a turnover greater than $250m (July 2013).
    • In-House facilitation of disputes (which can be applied at audit, objection and litigation) (April 2014).
    • Test case litigation program, which supports clarification of the law (available since the mid-1990s but refreshed and updated by the ATO in 2013-14).
    • Improvements to ATO Settlement Practice (revised code of settlement and leadership of the Settlement Coordinator Network) (2014-15).
    • Project management of complex related disputes (2016).
    • Dispute Assist for taxpayers who are in vulnerable situations and in dispute with the ATO (no other tax jurisdiction offers a similar service) (December 2016).
    • Independent Assurance of Settlements (providing assurance to the community that the ATO’s largest settlements are fair and reasonable outcomes) (2017).
    • Fast intensive triage (FIT) of incoming objections (March 2017).
    • Dispute Prevention focus aimed at identifying opportunities to prevent disputes from escalating to objections (linked to FIT in 2017).
    • Improvements in communicating decisions to taxpayers, including Reasons For Decision letters, streamlined and tailored approach, and appropriate language to suit the nature of the dispute (December 2017).
    • Independent Review for Small Business pilot program (July 2018).

    Implementation of the independent review of small business pilot

    Catherine Willis, Assistant Commissioner, Review and Dispute Resolution, ATO

    The Independent Review of Small Business pilot was discussed at the 28 June 2018 NTLG meeting with an update on the implementation of the pilot to be provided at the 27 September 2018 NTLG meeting.

    Catherine Willis noted that since 1 July 2018 the ATO had made offers to 89 eligible businesses with an audit in progress to be a part of the pilot of an independent review service to small business. There are currently nine cases on hand. Some of these requests have been resolved without the need for formal written recommendations.

    Taxpayers have 30 days to request a review and need to clearly outline the specific issues that are disputed from the audit decision. The case officer may discuss other options for addressing the issues raised. If eligible, the request will be referred to an independent reviewer to undertake a review of the documents setting out the taxpayer’s position and the audit position.

    Case conferences give the opportunity for all parties to assist the independent reviewer with understanding the issues. The ATO has conducted case conferences in person, by phone or visits to the taxpayer’s premises to provide as much flexibility as possible.

    The ATO has received some requests for independent review where an independent review was not the appropriate process. These requests were redirected to the appropriate area or advice and guidance was provided on the best way to deal with the issues raised.

    The ATO expects to expand the pilot nationally from mid-October 2018.

    NTLG action item update

    Justen Nixon, Tax Counsel Network, ATO

    Justen Nixon provided a status update on NTLG 1703/1 – Rewrite of PS LA on Taxpayer Alerts noting that the expected date for publishing the new PS LA is 11 October 2018. It was suggested that this action item continue as ongoing pending the publication, with a view to closing the action item at the 30 November 2018 NTLG meeting.

    Members

    Australian Taxation Office

    Andrew Mills, Second Commissioner, Law Design and Practice (Co-chair)

    Neil Olesen, Second Commissioner, Client Engagement

    Justen Nixon, Senior Technical Adviser, Tax Counsel Network

    Robyn Theacos, Director, ATO Consultation Hub, Enterprise Strategy and Design (Secretariat)

    Treasury

    Maryanne Mrakovcic, Deputy Secretary, Revenue Group

    Paul McCullough, Division Head, Corporate and International Tax Division, Revenue Group (afternoon session)

    Chartered Accountants Australia and New Zealand

    Michael Croker (Acting Co-chair)

    Institute of Public Accountants

    Tony Greco

    Law Council of Australia

    Clint Harding

    The Tax Institute

    Tracey Rens

    Bob Deutsch

    The Tax Institute -
    Professional Bodies Coordinator

    Stephanie Caredes

    Apologies

    Australian Taxation Office

    Sandra Roussel, Assistant Commissioner, Enterprise Strategy and Design

    Treasury

    Paul McCullough, Division Head, Corporate and International Tax Division, Revenue Group (morning session)

    Chartered Accountants Australia and New Zealand

    Grant Wardell-Johnson (Co-chair)

    Corporate Tax Association

    Michelle de Niese

    Paul Suppree

    CPA Australia

    Paul Drum

    Sue Williamson

    Law Council of Australia

    Adrian Varrasso

      Last modified: 10 Dec 2018QC 57586