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  • National Tax Liaison Group key messages 28 June 2018 meeting

    Introduction

    Co-chairs Andrew Mills and Grant Wardell-Johnson addressed members and noted the following:

    • The ATO guidance for the Allocation of profits within professional service firms that was due to be released by 30 June 2018 has been impacted by the 2018-19 Federal Budget announcement
    • Tax Time toolkits for agents have been released
    • Mark Konza, Deputy Commissioner, Public Groups and International, was recognised in the Queen’s Birthday Honours List. Mark was awarded the Public Service Medal for outstanding public service and leadership in tax administration. Members congratulated Mark Konza for his award.
    • Speech by Dr Ken Henry ACExternal Link to the Australian Shareholders’ Association Conference in May 2018 - contemplates a different approach to maximising company profits
    • Impacts of the US tax reform as companies appear to be holding off on reorganising their structures.

    Commissioner’s opening remarks

    Chris Jordan AO, Commissioner of Taxation

    The Commissioner noted a number of ATO key initiatives:

    • Tax Time 2018 – The ATO is in final stages of preparation with a large IT update recently successfully implemented
    • Single Touch Payroll (STP) will be introduced on 1 July 2018 for larger employers. STP and Country by country reporting mean the ATO is expecting a large increase in the volume of data it receives.
    • Practitioner Lodgment Service (PLS) – This is the first year that this will be the only channel for tax agents to use for lodgment of income tax returns
    • Release of the tax gap for individuals not in business will occur shortly
    • Federal Budget 2018-19 – The ATO has 55 measures to implement. Significant measures include the black economy initiatives and implementation; additional powers for compliance work in Phoenix activities; investment in debt collection and funding to build systems that will help deter and reduce over-claiming of deductions for work related expenses. The ATO also received funding to develop a detailed business case for modernising business registers bringing together the ASIC Registry and the Australian Business Register
    • Transformation to 2024 – The ATO is refreshing the ‘Reinvention of the ATO’ program and there is now a focus on aspirations for 2024. However, the ATO’s mission, vision and cultural traits will stay the same focusing on client and staff experiences
    • The ATO Corporate Plan 2018-19 (that includes the 2024 aspirations) will be released shortly.

    Members noted that for Single Touch Payroll, there is confusion among employers and employees as to who it applies to. There is a need to educate employees particularly in the large business sector.

    Media criticism of the ATO

    Grant Wardell-Johnson, Chartered Accountants Australia and New Zealand; Michelle de Niese, Corporate Tax Association; and Andrew Mills, Second Commissioner, Law Design and Practice, ATO

    Members praised ATO Deputy Commissioner, Small Business and the Commissioner for their strong responses to recent criticisms of the ATO in the media including the ABC’s Four Corners program.

    Members suggested there may be an opportunity for the ATO to look at its debt collection processes by classifying debt into different categories.

    The ATO noted that:

    • the vast majority of debt is self-declared, ie by lodgment of a return or an activity statement
    • there is a reduction in the number of disputes although the level of debt is increasing
    • it is monitoring a New Zealand pilot to align their instalment system to tie more closely to the cash flow of business rather than a fixed payment time.

    Other points noted:

    • for those new to business, tax payments are usually not due until 18 months after they commence. This may be difficult for taxpayers to pay if they have not kept this money aside
    • the Inspector-General of Taxation is undertaking a review on the ATO’s approach to garnishees
    • the Transparency of tax debt measure (now called Disclosure of Business Tax Debts) is not progressing.

    Members commented on the use of garnishee notices, and how could the ATO and professional agents assist unrepresented taxpayers, eg adopting something similar to the US ‘tax clinic’ concept. The ATO noted that Curtin University had recently launched such a service and the ATO will be observing this and will consider the ‘tax clinic’ approach to debt. Another comment referred to the face to face approach adopted by HM Revenue & Customs Office in the UK before issuing a garnishee notice. This could be considered in Australia although it would be very resource intensive.

    Members acknowledged and welcomed the ATO’s administrative changes such as taking a different approach to dealing with taxpayers who have ABNs but are effectively employees, the new penalty relief initiative and the pilot for independent review of small business audit cases.

    Independent review of small business pilot

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

    From 1 July 2018, the ATO will conduct a 12 month pilot program to assess the feasibility of extending Independent Review to small business taxpayers (those with income or turnover of less than $10 million) who have had income tax audits undertaken by the ATO.

    The Independent Review service for small business will be based on the same design and operating principles as those which apply to the large market. However, the pilot processes will be tailored and flexible to reflect the needs of small businesses. The ATO is consulting with a number of external stakeholders to receive input and feedback on the pilot proposal.

    One important difference to the reviews in the large market will be the requirement to have a case conference much earlier in the process to understand the issues and be more engaged with the taxpayer. The ATO will be more open to additional information being provided in this process.

    The small business reviewer will:

    • be an ATO officer from the Review and Dispute Resolution business area who has had no prior involvement in the audit case and who has experience in small business issues
    • facilitate a case conference with both taxpayer (and their adviser) and ATO audit officers present, to clarify the issues in dispute and the parties’ positions
    • provide written recommendations on the better view of the disputed matters, in terms of the understanding and interpretation of the facts and the application of the law to those facts. The ATO audit team will be required to finalise their audit in accordance with those recommendations.

    Consultation on the process has been very short to enable the pilot to commence from 1 July 2018. The ATO is sending offers to taxpayers to be involved in the pilot. Assessment of the benefits and effectiveness of the service will be conducted during and at the conclusion of the 12 month pilot.

    Members noted that small businesses may have concerns about the independence of the review as it is being conducted by an ATO officer.

    An update on the implementation of the pilot will be provided at the 27 September 2018 NTLG meeting.

    Environmental Scan

    All members; Michael Hardy, Assistant Commissioner, Private Groups and High Wealth Individuals, ATO; and Martin Jacobs, Acting Deputy Commissioner, Private Groups and High Wealth Individuals, ATO

    Members discussed:

    • Promotor penalty regime – Members noted the recent decision handed down by the Federal Court of Australia in Commissioner of Taxation v International Indigenous Football Foundation Australia Pty Ltd [2018] FCA 528External Link and that there have only been four cases regarding the penalty promoter regime in the last 12 years. Members queried if there has been any change in the way the ATO has been applying the promoter penalty rules.

      The ATO advised it has seen a broader range of advisers promoting schemes with Research and Development being one of the current focuses. Other types of advisers identified have included various forms of business advisers, consultants and financial planners. The ATO considers that the promoter penalty laws can have application to any party that promotes a tax exploitation scheme. The ATO observed that it would not rule out applying promoter penalties to an IT consultant that devised and marketed sales suppression software, for example, if they met the requirements under the promoter penalty laws.
    • Tax gap – The ATO provided a brief update on tax gap noting that the release of the figures for the individuals market is expected to be released shortly.
    • Base Rate Entities Bill – Members noted the Treasury Laws Amendment (Enterprise Tax Plan Base Rate Entities) Bill 2018External Link is still before Senate. Members queried the ATO’s approach where a taxpayer would like to lodge early and has acted on the proposed law but the legislation has not yet been passed. The ATO advised there is a general practice applied in these situations and noted there is advice on the Administrative treatment of retrospective-legislation on the ATO’s website.

    Treasury report

    Paul McCullough, Division Head, Corporate and International Tax Division, Revenue Group, Treasury; Mark Konza, Deputy Commissioner, Public Groups and International, ATO; and James Beeston, Assistant Commissioner, Public Groups, ATO

    Paul McCullough provided an update on Treasury matters:

    In relation to the Stapled structures measure, members queried if consultation would be undertaken on the remaining issues and if a Law Companion Ruling (LCR) will be released. The ATO advised that it is general practice for an LCR to be released with new legislation and that there is currently available on ato.gov.au information on Infrastructure – Australian Federal Tax Framework and TA 2017/1 Re-characterisation of income from trading businesses and noted that additional guidance may be provided if necessary.

    Treasury suggested that if stakeholders consider that specific measures have priority to be introduced into Parliament, they should write to the Minister for Revenue and Financial Services with their views.

    Continuous amendments to company tax return forms and compliance implications

    Tim Neilson, The Tax Institute; and Mark Konza, Deputy Commissioner, Public Groups International, ATO

    Members noted that the ATO is increasingly adding questions and required disclosures to relevant company tax return forms (eg the Form C, International Dealings Schedule, Reportable Tax Positions Schedule). Taxpayers are increasingly becoming concerned about the compliance costs associated with the increased requirements to provide information on these schedules.

    The ATO noted that there is rigour around adding questions to tax return forms. The ATO does consider the cost/impact of these questions and consults with stakeholders. The ATO acknowledges the growth in the request for information which often reflects the additional measures that have been put in place by Government.

    Black Economy Taskforce report

    Tony Greco, Institute of Public Accountants; and Peter Holt, Assistant Commissioner, Black Economy Taskforce, Small Business, ATO

    The Black Economy Taskforce final reportExternal Link was tabled in October 2017. In response to the recommendations of the final report, in the Federal Budget 2018-19 the Government announced key measures.

    Members raised this item to discuss the likely wide implications for the tax practitioner community and what the ATO’s plans are to respond to the Report. The ATO advised additional funding has been provided with a large majority to be used in enhanced compliance activity. There are 10 projects:

    • Standing taskforce – brings together key government agencies to undertake a cross-agency approach, modelled on Serious Crime Taskforce, with the ATO providing the secretariat
    • Establishing an implementation team in Treasury that is different to the role of the Advisory Board
    • New and enhanced ATO enforcement compliance activity – includes focus on small businesses that are cash only, agents of concern, education for small businesses
    • Introduction of an economy-wide cash payment limit
    • Further expansion of taxable payments reporting system to three new industries
    • Removing tax deductibility of non-compliant payments
    • Increasing the integrity of the Commonwealth procurement process
    • Combatting illicit tobacco
    • Modernising business registers
    • ABN reforms.

    Treasury is consulting on a number of measures. There will be an awareness campaign which will focus on changing the culture around the cash economy.

    Justified Trust

    Michelle de Niese, Corporate Tax Association; and Judy Morris, Assistant Commissioner, Public Groups, ATO

    Justified Trust is a concept from the Organisation for Economic Cooperation and Development (OECD). Justified trust builds and maintains community confidence that taxpayers are paying the right amount of tax.

    Members were interested in the next steps for the concept of justified trust and whether it will be applied more broadly than just the large corporate market.

    Justified trust works along with tax gap and audit work to tell a holistic story. Justified trust applies across the system but in different ways. Although the one-on-one approach works well in the large corporate market, this approach does not work in other parts of the system. Justified trust in other areas may come from third party data.

    2018-19 budget measures

    Paul Drum, CPA Australia; Tim Neilson, The Tax Institute; Paul Drum, CPA Australia; Louise Clarke, Deputy Commissioner, Policy Analysis and Legislation; Malcolm Allen, Assistant Commissioner, Superannuation; Martin Jacobs, Acting Deputy Commissioner, Private Groups and High Wealth Individuals, Shahzeb Panhwar, Assistant Commissioner, Public Groups and International, ATO

    Members raised this item to discuss significant measures announced in the Federal Budget 2018-19.

    • Superannuation – three-yearly audit cycle for some self-managed superannuation funds - Members noted that this measure was unexpected and that it could have a serious impact for auditors. Treasury noted that they will be consulting on this measure. (Post meeting update: Treasury released a discussion paperExternal Link on 6 July 2018 with comments closing 31 August 2018.)
    • Division 7A integrity rule – Members wanted to clarify the operation of Division 7A integrity rule. The ATO advised the Budget announcement clarified the treatment of Unpaid Present Entitlements (UPEs) for which the ATO has an existing practice statement. The Government has stated that it will ensure that UPEs come within the scope of Division 7A from 1 July 2019.
    • Thin capitalisation - valuation of assets and treatment of consolidated entities – Members noted matters of concern are how a taxpayer can use an old valuation and also the opening balance question on the transition. The ATO advised the Asset valuation thin capitalisation information on ato.gov.au outlines the ATO approach.
    • R&D measure – definitions used for the new intensity tests - Members noted there is uncertainty in how the ATO will make calculations under the intensity tests. The ATO noted that details of this will be included in the consultation paper when it is released. (Post-meeting update: Treasury released documents for consultationExternal Link on 29 June 2018 with comments closing 26 July 2018).

    Outbound communications

    Melinda Smith, Chief Service Delivery Officer; and Grant Brodie, Deputy Commissioner Strategy and Support, ATO

    Melinda Smith and Grant Brodie attended the meeting to provide members with an overview of the ATO plans for outbound communications over the next five years.

    The ATO noted that although the digital uptake by taxpayer is increasing and paper is decreasing, one of the challenges is that it is not reducing enough. This approach is not just about getting paper correspondence out of the system and moving to digital but also improving the experience for clients. The ATO has identified and will focus on the top ten areas that contribute towards paper correspondence or poor client experience.

    The ATO is also working on ‘digital destinations’ to ensure the destinations for digital correspondence is right. In addition, the ATO is working on a ‘preferencing system’ to allow individuals and tax agents to choose where they would like to have correspondence sent.

    Whistle-blowers

    Michael Croker, Chartered Accountants Australia and New Zealand; Erin Holland, Deputy Commissioner, Intermediaries and Lodgment; and Les de Wind, Assistant Commissioner, Intermediaries and Lodgment, ATO

    Members raised this item to discuss the ATO’s plan regarding the Better Protecting Tax Whistle-Blowers measure. The legislation is currently before the Senate and not yet passed by Parliament. The Government announced that these protections will commence from 1 July 2018.

    The ATO’s primary role will be to receive, assess and (where appropriate) investigate disclosures. This is an existing role and will not change as a consequence of the introduction of the measure.

    The ATO currently receives around 45,000 items of information from the community each year, with the majority of informants providing their information anonymously. The ATO expects approximately 50% of these would fall within the scope of the proposed law.

    The formal whistle-blower process will commence once an informant has commenced their own external victimisation proceedings. When the ATO is notified that this has occurred, steps will be taken to support the whistle-blower by locating records supporting that the whistle-blowing occurred, providing confirmation of the whistle-blowing, and detailing the actions taken by the ATO in managing and holding this information.

    The ATO has a number of processes occurring to ensure readiness for the introduction of this measure. This includes working on the design, development and implementation of the “Tax Integrity Centre”, which will replace the existing Tax Evasion Reporting Centre.

    The Tax Integrity Centre is expected to be introduced during early 2019-20. In the interim, the community and potential whistle-blowers can continue to provide their information online through the Tax Evasion Reporting Centre. Information can also be provided via telephone or through the post.

    Guidelines for ATO staff on how to manage whistle-blower escalations are being developed. These guidelines will be ready for distribution once the legislation is passed. Similarly, external communications (including updates to ato.gov.au) are being designed in readiness for the passing of the legislation.

     NTLG action item update

    Robyn Theacos, Director, Consultation Hub, ATO

    A status update on four action items was provided:

    • NTLG 1703/1 – Rewrite of PS LA on Taxpayer Alerts
    • NTLG 1712/3 – Draft Ruling TR 2017/D7 – ATO timeline and level of interaction
    • NTLG 1803/1 – Status of Whistle-blowers legislation and information re safe harbours for thin capitalisation and exemption for withholding tax for foreign super funds
    • NTLG 1803/2 – List of external engagement/education activities for GST residential property measures.

    Members agreed to close action items NTLG 1712/3, NTLG 1803/1 and NTLG 1803/2 and that NTLG 1703/1 remains ongoing.

    Members

    List of members

    Organisation

    Name

     

     
    • 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

    Paul McCullough, Division Head, Corporate and International Tax Division, Revenue Group

    Chartered Accountants Australia and New Zealand

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

    Corporate Tax Association

    Michelle de Niese

    CPA Australia

     
    • Paul Drum
    • Sue Williamson
     

    Institute of Public Accountants

    Tony Greco

    Law Council of Australia

     
    • Adrian Varrasso
    • Clint Harding
     

    The Tax Institute

    Tim Neilson

    The Tax Institute -
    Professional Bodies Coordinator

    Stephanie Caredes

    Apologies

    Organisation

    Name

    Treasury

    Maryanne Mrakovcic, Deputy Secretary, Revenue Group

    The Tax Institute

     
    • Tracey Rens
    • Robert Deutsch
     
      Last modified: 17 Sep 2018QC 56792