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  • National Tax Liaison Group key messages 30 November 2018

    Introduction

    Second Commissioner Andrew Mills, Law Design and Practice; and Grant Wardell-Johnson, Chartered Accountants Australia and New Zealand

    ATO Co-chair Second Commissioner Andrew Mills welcomed members and noted that this would be Second Commissioner Neil Olesen’s last NTLG meeting. Andrew Mills expressed his appreciation of Neil Olesen’s contribution to the NTLG.

    On behalf of NTLG members, non-ATO Co-chair Grant Wardell-Johnson thanked Neil Olesen for his contribution to the NTLG. Grant Wardell-Johnson noted Neil Olesen was highly regarded by members and has provided valuable insights to the group. Neil Olesen has been a long-term ATO officer with a strong sense of the organisation’s culture and a great wealth of experience. Grant Wardell-Johnson wished Neil Olesen all the very best for the future.

    Grant Wardell-Johnson also expressed his thanks to Deputy Commissioner Deborah Hastings. Grant Wardell-Johnson noted that Deborah Hastings has made a significant contribution to the Independent Review process and has been a great asset to building co-operation between business and the ATO. Grant Wardell-Johnson conveyed his best wishes to Deborah Hastings for the future.

    NTLG updates

    Co-chair Second Commissioner Andrew Mills

    Independent Review for entities that are not ‘large’ or ‘small’

    Members queried how the ATO plans to provide independent review for entities that do not fall into the ‘large’ sector or the ‘small’ sector. Members wanted to suggest ideas on how the ATO could undertake this.

    The ATO noted it would like to allow the current independent review of small business pilot run to completion (June 2019) for the ATO to assess the key learnings from the current Independent Review processes before considering any further expansion.

    The ATO has a range of services that are available to promote the earlier resolution of disputes, or prevention of disputes. For example, the ATO’s In-House Facilitation service (conducted by an independent facilitator in Review and Dispute Resolution) is available at audit and objection stages, and can be requested by either the taxpayer or ATO officer.

    Changes to the ATO Legal Database

    The ATO noted edited versions of private rulings over 15 years old have been removed from the Database. There are particular edited versions that have been retained that may be incorporated into other guidance.

    The transition to the new ATO Legal Database is now complete. Feedback has been positive and the co-location of the edited versions with the other technical information has been a great practical improvement. Further releases are expected in 2019. The ATO is working on improving the search function. The ATO welcomes any feedback from members.

    In response to a member’s query, the ATO noted that a request can be made for an edited version to be incorporated into a product.

    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:

    • ATO communications on Single Touch Payroll
    • Cryptocurrencies – ATO to discuss concerns with CPA Australia representative Paul Drum
    • Tax policy in 2019
    • Tax administration in school curriculums – members noted this as a positive ATO initiative
    • Tax gap.

    Action item

    1811/1

    Due date

    4 March 2019 NTLG meeting

    Responsibility

    Deputy Commissioner, Private Groups and High Wealth Individuals

    Cryptocurrencies

    ATO to discuss concerns regarding cryptocurrencies with CPA Australia representative Paul Drum

    Treasury report

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

    Paul McCullough provided the following update:

    Digital economy paper

    Grant Wardell-Johnson, Chartered Accountants Australia and New Zealand; and Paul McCullough, Division Head, Corporate and International Tax Division, Revenue Group, Treasury

    The Government is working with other countries, through the G20 and the OECD, to address the challenges to Australia’s tax systems with the potential adoption of a Digital Services Tax (DST).

    Members raised this item to discuss whether Australia should take unilateral action in relation to a DST and its position on multilateral action. Grant Wardell-Johnson congratulated the Treasury officers involved with the consultation undertaken on the digital economy and Australia’s corporate tax system.

    Grant Wardell-Johnson noted the following key points regarding the adoption of a DST:

    • World Trade Organisation rules – a DST is aimed at non-residents with a strong digital presence in Australia. To comply with the rules, a DST would also need to apply to residents.
    • The UK has indicated that in adopting a DST, the UK would make an exception to companies in losses or those in low margin businesses resulting in many companies being impacted. A DST would most likely override this.
    • It could be damaging for competition as it would affect companies differently and would impact on those with low margins.
    • It may be difficult to draw clear boundaries, for example, what is the boundary between digital and other services. If there is a DST in another jurisdiction and one in Australia, this could result in duplication of taxes.
    • Australia should embrace taxation law on good principle.
    • Query whether a long-term solution is feasible.

    Paul McCullough thanked Grant Wardell-Johnson for his comments regarding the Treasury officers and noted the consultation paper was well received. The focus of the paper was on digitalisation of the economy supporting a multilateral solution. There are many countries that have different motivations for adopting a DST.

    Paul McCullough acknowledged the key points made by Grant Wardell-Johnson and noted that another concern is whether a DST would increase effective tax rates for Australian companies. Australia has the benefit of observing the approach taken by other jurisdictions and could improve on those positions.

    Grant Wardell-Johnson congratulated Treasury officer Brendan McKenna on his three year appointment as Minister-Councillor (Economic) for the OECD.

    Development of guidance materials for new law

    Adrian Varrasso, Law Council of Australia; Tracey Rens, The Tax Institute; Paul McCullough, Division Head, Corporate and International Tax Division, Revenue Group, Treasury; Louise Clarke, Deputy Commissioner, Policy, Analysis and Legislation, ATO; and Andrew Orme, Deputy Chief Tax Counsel, Public Advice and Guidance, ATO

    Members noted they have observed a trend where explanatory materials produced by Treasury contain limited interpretation material and instead reference ATO guidance material (for example, Rulings and Determinations). Members provided some examples and wanted to discuss their concerns with this trend. A copy of The Tax Institute’s submission to the Review of the Australian Public Service that included similar examples was also provided to members.

    Adrian Varrasso noted that the Law Council has queried whether it is appropriate to cite ATO views published in Tax Determinations in Treasury’s Explanatory Memoranda (EMs). The ATO views in Tax Determinations are made at a particular point in time and are referenced at the time the EM is issued. Second Commissioner Mills observed that this may simply be a short-hand way of describing what is understood to be the current state of the law to give context to the changes proposed in the amending Bill. He queried whether members thought that it would be better or different if that view of the law was spelt out in full rather than through a reference to an ATO (or other) document.

    Paul McCullough noted that references to cases and the current state of the law are included in EMs for the benefit of the reader to provide context to the current state of the law. The current state of the law also relevantly includes the interpretation taken by the ATO as the administrator of the law. The material provided in the EM to a new Bill cannot be used to interpret the existing law; rather it provides guidance on the application of the Bill that is being introduced.

    The Tax Institute’s submission was provided to Treasury’s Law Design Office. Paul McCullough undertook to follow-up with Treasury’s Law Design Office whether there is a technical basis for the concern.

    Action item

    1811/2

    Due date

    4 March 2019 NTLG Meeting

    Responsibility

    Treasury representative Paul McCullough

    Explanatory Memoranda

    Paul McCullough to follow-up with Treasury’s Law Design Office whether there is a technical basis for concern for including ATO views published in Tax Determinations in Treasury’s Explanatory Memoranda

    ATO Policy Analysis and Legislation business line

    Grant Wardell-Johnson, Chartered Accountants Australia and New Zealand; and Louise Clarke, Deputy Commissioner, Policy, Analysis and Legislation, ATO

    Members wanted to discuss with Deputy Commissioner Louise Clarke her strategic vision for the Policy Analysis and Legislation (PAL) business line.

    Louise Clarke provided an overview of the PAL business line. The business line was established to provide a central area for working with Treasury. It brought together the revenue analysis, policy, law and administrative design capabilities from across the office. The business areas are:

    • Revenue Analysis Branch (RAB), as far as policy development is concerned, provides estimates of the impact on revenue collections of proposed changes to tax and superannuation law and new measures; estimates costs of compliance associated with law changes; assists with measuring the cost to the ATO of administering these new measures; and makes revenue forecasts for use in Budget cycles. RAB also monitors revenue flows, contributes to the Government’s financial statements, and assists with performance measurement in the ATO. The area works closely with the Tax Analysis Division in Treasury.
    • Law and Policy Design (LAPD) – leads the ATO’s work in law design and has responsibility for coordinating and providing the ATO’s input into announced policy measures, the drafting of instructions and explanatory memoranda to the Treasury, which has responsibility for tax policy. Together with the Treasury, LAPD also has responsibility for providing assurance that draft law gives effect to the Government’s policy intent and can be administered. It is also the central point for advocacy, and managing ideas from within the ATO for dealing with loopholes, administrative issues in the law and ideas for how the law can be improved.

    Louise Clarke noted that a key aspect of the strategic vision for PAL is to make the ATO’s advocacy more focussed on overall ATO priorities and linking it to the ATO 2024 vision for improving the administration of the tax and super systems. This means being more proactive in prioritising issues, bringing together ideas on how we can make it easier for taxpayers to comply with the tax system and what law or policy changes are needed to address issues with the law, and working with Treasury on these ideas.

    Black economy

    Grant Wardell-Johnson, Chartered Accountants Australia and New Zealand; Patrick Boneham, Division Head, Black Economy, Revenue Group, Treasury; and Peter Holt, Assistant Commissioner, Small Business, ATO

    Members raised this item to discuss with Treasury their priorities for the 72 out of 75 Black Economy measures the Government wishes to proceed with. Members also wanted to discuss how the ATO plans to implement these measures.

    Patrick Boneham noted that of the 80 recommendations, 12 have been actioned. Eight recommendations are not progressing at this time as they are dependent on other recommendations progressing first. Treasury is currently consulting on 16 recommendations. The penalty paper Improving Black Economy Enforcement and Offences released on 22 November 2018 included eight recommendations. Treasury is still in the process of developing the policy parameters for the work. It is expected the paper on the sharing economy will be released shortly that will cover international and domestic issues.

    Another tranche of work involves 26 recommendations of which 18 are progressing such as the digital identity, cross agency data sharing, legislation on Phoenix arrangements, high value bank notes, and the review on vulnerable workers.

    Treasury is building a rolling amount of work deliberately in small traches to maintain the momentum. The first papers were released in July 2018 followed by a second tranche in November 2018. There will be a similar timeframe in the future for the release of papers.

    Grant Wardell-Johnson queried if there was a program to measure the effectiveness of the black economy measures. Patrick Boneham noted this is an ongoing process. There are two tranches of work, one is working on the report recommendations and the other will be a five year review in 2022 of the work done on the recommendations.

    Peter Holt noted the ATO has a large program of work. This includes following-up lodgment obligations, protecting the rights of employees and creating level playing fields. There are mobile strike teams which have visited over 2300 businesses around Australia raising ATO visibility and gathering intelligence.

    The ATO is part of a taskforce with various agencies. Charters and MOUs have been prepared to ensure transparency and governance of the cross-agency work. A challenge is identifying where the different taskforces start and end.

    The ATO is preparing for implementation and is using the same methodology for any new measure/initiative, for example communication plans, risk management, EST system program, telephony solutions and data analytics programs. There are project managers over each to ensure deliverables and accountability.

    Patrick Boneham noted that if members would like to raise any issues relating to the penalties consultation, to contact the team to discuss these before the consultation closed on 21 December 2018.

    Inspector-General of Taxation’s Review of Fraud Control Management

    Tony Greco, Institute of Public Accountants; and Michelle Rak, A/g Assistant Commissioner, ATO Corporate, ATO

    The Inspector-General of Taxation (IGT) Review into the ATO’s Fraud Control Management was commenced at the request of the Senate Economics References Committee to examine the ATO’s management of internal and external fraud risks. The IGT report on the Review of ATO’s Fraud Control ManagementExternal Link was released on 22 October 2018.

    A paper was provided to members noting the following key points:

    • The IGT found no evidence of internal fraud or corruption of a systemic nature.
    • The IGT acknowledged that generally the ATO has sound systems in place for managing risks of internal fraud.
    • The IGT report recognises that the ATO has undertaken a number of internal reviews to further improve its integrity culture procedures and training.
    • The IGT made one recommendation as a matter for Government and 13 recommendations for the ATO.

    Michelle Rak advised a number of recommendations have been implemented but there is still a large program of work. Michelle Rak updated members on the status of the other IGT reviews:

    • Review of the Future of the Tax Profession – this has been provided to the Minister for consideration by Government.
    • Review of ATO’s use of garnishee notices – work is continuing on this review.

    Taxpayers’ Charter

    Michelle Rak, A/g Assistant Commissioner, ATO Corporate, ATO

    Michelle Rak briefed members on the revised Taxpayers’ Charter. Key points noted:

    • The revised Taxpayers’ Charter was released on 22 October 2018 following extensive consultation with the taxpayer community which addresses recommendations made by the Inspector-General of Taxation (IGT) in his report Review into the Taxpayers’ Charter and taxpayer protections (December 2016)External Link.
    • The revised Taxpayers' Charter is available through multiple channels to ensure its accessibility including online, via PDF and hardcopy and in 24 different languages.
    • The Taxpayers’ Charter now includes more information about the ATO’s digital interactions with the community, simplified information about review and audit processes and uses plain language to improve readability.
    • A one page overview of rights and obligations is now available Taxpayers’ Charter – Essentials.
    • The Taxpayers’ Charter reaffirms the ATO’s commitment to a mutual relationship of trust, confidence and respect with taxpayers and tax professionals to foster willing participation in the tax and superannuation systems. It provides a framework for all interaction with clients, outlining their rights and obligations and clarifies mutual expectations.
    • There is improved visibility of the Taxpayers’ Charter through revised and invigorated internal and external communications.

    Michelle Rak noted that the Taxpayers’ Charter will be reviewed in 12 to 18 months to ensure it maintains its currency.

    ATO/taxpayer engagement in FIRB applications

    Adrian Varrasso, Law Council of Australia; and Simon Hellmers, A/g Assistant Commissioner, Public Groups and International, ATO

    Members raised this item to discuss the ATO’s and Treasury’s engagement in the FIRB process. Adrian Varrasso provided two examples for discussion regarding ATO engagement and the potential breach of conditions and secrecy provisions.

    Simon Hellmers noted Treasury and the ATO have a process in place that the ATO does not discuss proposed conditions with the applicant. The ATO provides advice to Treasury but Treasury will engage with the applicant to discuss any issues.

    The ATO provides advice to Treasury on tax risks which may include advice on how the risks could be managed by proposed conditions, however ultimately it is the Treasurer that decides whether to impose conditions and what conditions to impose. When the ATO is engaged by Treasury to review a FIRB application for tax risks, the ATO is performing an advisory function only and has no decision making authority with regards the application. As such, an applicant would need to engage with Treasury if they would like to discuss any concerns regarding the proposed conditions. Members discussed examples when it would be inappropriate for the applicant to discuss tax conditions with the ATO.

    Members noted that although the FIRB Guidance Note 47 has been updated, this element of the application process is not clear in the guidance note and there is a need for further guidance to provide certainty to FIRB applicants.

    It was agreed that Simon Hellmers would raise the issue of insufficient public guidance regarding interactions with the ATO during the application process with Roger Brake, Division Head, FIRB, and Treasury. The ATO will also look to facilitate a subsequent meeting with Treasury and nominated NTLG members to discuss the application process and see whether improvements can be made to FIRB guidance.

    Action item

    1811/3

    Due date

    4 March 2019 NTLG meeting

    Responsibility

    Simon Hellmers, A/g AC Public Groups and International

    ATO/Treasury engagement with FIRB applicants

    Simon Hellmers to raise the issue of insufficient guidance regarding interactions with the ATO during the FIRB application process with Roger Brake, Division Head, FIRB, Treasury. The ATO will also look to facilitate a subsequent meeting with Treasury and nominated NTLG members to discuss the application process and see whether improvements can be made to FIRB guidance

    ‘Reporting entities’ and who should prepare General Purpose Financial Statements

    Paul Drum, CPA Australia; Jeremy Hirschhorn, Deputy Commissioner, Public Groups and International, ATO; and Kasey Macfarlane, Assistant Commissioner, Private Groups and High Wealth Individuals, ATO

    The Australian Accounting Standards Board (AASB) is consulting on the reporting entity concept and general purpose financial reports (GPFS) and special purpose financial reports (SPFS). Members wanted to discuss with the ATO the AASB’s proposals and potential implications for various sectors, and what it means for the Australian economy in the context of transparency, consistency and accountability.

    Members noted there is a statement on the AASB’s website that the ATO supports the AASB’s proposals.

    Jeremy Hirschhorn noted this is an AASB initiative and it is about standardisation and having a consistent reporting framework. Having a consistent framework may make the whole tax compliance burden on small businesses easier. Increasingly the accounting standards link to tax and the ATO is working closely with the AASB to ensure there is an awareness of what it means as there could be follow-on tax implications for businesses.

    Kasey Macfarlane noted the Treasurer released a media releaseExternal Link on 16 November 2018 stating that the Government will reduce the reporting burden for small and medium businesses by raising financial reporting thresholds which have not been adjusted since 2007.

    For small businesses, standardisation of accounting records is likely to occur through accounting software.

    Jeremy Hirschhorn noted that relevant ATO contacts are Kasey Macfarlane (Kasey.macfarlane@ato.gov.au) and Stan Spasojevic (Stan.Spasojevic@ato.gov.au) should members wish to discuss this AASB initiative further.

    ATO’s approach to advisers

    Sue Williamson, CPA Australia; and Jeremy Hirschhorn, Deputy Commissioner, Public Groups and International, ATO

    Members raised this item to discuss the ATO’s approach to advisers in the context of how adviser behaviour impacts how the related taxpayer issue is treated. The discussion also covered the tools available for direct action against advisers in light of current Legal Professional Privilege (LPP) disputes and the broadening of promoter penalty regime.

    Jeremy Hirschhorn noted the ATO’s use of formal notices has been at the same level for the past three years. One change is that the formal notices have been used earlier in the process when a problem emerges. Another change is that the ATO has been issuing notices to advisers where it is identified that the firm has been involved in taxpayer alert type schemes.

    The ATO has received some LPP claims in response to formal notices that appear to be excessive, for example, having regard to the number of documents said to be covered by the claim. When the relevant documents are reviewed, it is clear they were never privileged. Where there is a formal legal engagement, the ATO is increasingly testing the engagement to see if the document said to be privileged was prepared for the relevant purpose. Firms that are involved in providing advice on the validity of LPP claims should ensure that their scope of engagement is appropriately aligned. The engagement should include confirming the fundamental elements required to establish privilege (rather than making assumptions that these are satisfied).

    There are concerns about breaching formal notices, holding back facts and evidence, promoter penalty issues and making false and misleading statements. There is potential evasion were documents are concealed from the Commissioner to prevent an assessment being made and potential fraud where communications illustrate a ‘mutual unveiling’ of non-tax commercial purposes. Over the next six months, there will be a number of cases that will be made public to test these behaviours.

    Tim Neilsen asked if the ATO proposes to release some information that could be used as a guide to address the concerns. A suggestion was that the information on LPP on the ATO website could be updated with the additional information.

    It was noted that LPP needs greater coverage in education and practice to improve its use and understanding. Members discussed fora sub-group to be established with ATO officers and nominated NTLG members to discuss the concerns regarding the use and understanding of LPP and to work together on potential solutions such as guidance and the development of standardised engagement for the review of LPP.

    Action item

    1811/4

    Due date

    4 March 2019

    Responsibility

    Jeremy Hirschhorn, A/g Second Commissioner, Client Engagement

    Legal Professional Privilege in taxation advice and services – scope and guidance

    A sub-group to be established with ATO officers and nominated NTLG members to discuss the ATO’s view of the scope of Legal Professional Privilege (LPP), establishment of guidance in this regard and the development of standardised engagement for the review of LPP

    Supplementary information is at Attachment A

    Role of NTLG and the contribution made by NTLG members as representatives

    All members

    Members raised this item to discuss their role and responsibilities as NTLG members and how they can best represent and serve their members.

    Members noted that the NTLG is regarded as a forum that addresses strategic issues to benefit Australia’s taxation and superannuation system. Members discussed what the ATO’s expectations are regarding NTLG members passing on information to their organisations’ members. Members noted that as a group, they have been very responsible regarding what is passed on. The ATO noted that members provide insight to the system by raising issues. This helps the ATO identify whether it is an isolated or a systemic issue and put in place strategies to fix the issue.

    It was acknowledged there is mutual trust between the ATO and NTLG members and sharing information provides joint oversight of the system that is designed to continue and improve it.

    Effectiveness and contribution of NTLG for 2018

    All members

    Members were asked for their views on the effectiveness of the NTLG, that is, do discussions/outcomes meet the intent for the group, what works well, what needs to be changed, is the work of the group effectively communicated. If not, what needs to be done?

    Andrew Mills noted that the group works well together. Contribution to the agenda from members is positive and topics are raised to discuss and find solutions for improvements on issues that could impact on the tax system. There is a lot of trust within the group.

    Jeremy Hirschhorn noted a challenge for this group (and all stewardship groups) is identifying how members can provide the ATO with greater insight on what is happening in the system. This information could influence the ATO’s approach on issues.

    Grant Wardell-Johnson noted that agenda topics are raised on issues members consider may have an impact on the system or issues they are currently dealing with. Grant Wardell-Johnson suggested that members need to consider what they would like to achieve in 2019. There are improvements that can be made, for example, the way taxation statistics are presented.

    Members will be provided with a set of questions seeking their feedback on the effectiveness of the NTLG.

    NTLG action item update

    Second Commissioner Andrew Mills, Law Design and Practice

    Andrew Mills provided a status update on NTLG 1703/1 – Rewrite of PS LA on Taxpayer Alerts. It was noted that this action item remains ongoing.

    Michelle de Niese noted an initial discussion had occurred with Deputy Commissioner Jeremy Hirschhorn and NTLG members Adrian Varrasso and Michael Croker. Michelle de Niese advised she was not aware of the changes that had been made to the Practice Statement. It was agreed that the ATO provides a final marked-up version of the rewritten Practice Statement to Michelle de Niese, Adrian Varrasso and Michael Croker to show the changes made.

    Post-meeting update: A final marked-up version of the rewritten Practice Statement showing the changes made was sent to Michelle de Niese, Adrian Varrasso and Michael Croker on 19 December 2018.

      Last modified: 11 Feb 2019QC 57874