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  • Private Groups Stewardship Group key messages 22 March 2017

    Update on Privately Owned and Wealthy Groups including improving the client experience and the ATO’s transformation program

    Client experience and perception surveys

    Lucy Libertone, Assistant Commissioner, Private Groups and High Wealth Individuals, ATO 

    • Outcomes of our recent Perceptions of Fairness Survey for private groups was presented. This survey focuses on advice, review and audit, disputed cases and debt cases across the ATO.
    • Also presented were the outcomes of the monthly Client Experience Surveys. These surveys provide a measure of our Reinvention initiatives by surveying the recipients of services and initiatives. Care is taken not to survey clients multiple times. The most recent survey focused on our one-to-one client engagement experience with large private groups.
    • Highlights from the perception of fairness survey and the client experience survey include: overall the process of advice/reviews and audits was fair (85%) and the respondents surveyed from our large private group engagements told us that they valued the conversation as it helps to resolve issues (78%) without entering into dispute resolution processes.
    • Future client surveys include Income Tax Assurance Notifications and Income Tax Profiles, request for advice and call-back service, commercial deals and the online resource centre.

    Panama papers

    Michael Cranston, Deputy Commissioner, Private Groups and High Wealth Individuals, ATO 

    • Under the ATO’s leadership the Joint International Taskforce on Shared Intelligence and Collaboration (JITSIC) partner countries met in Paris on 16 and 17 January 2017.
    • Thirty revenue authorities shared their findings on investigations arising from the Panama Papers into the role of tax intermediaries, including financial institutions, advisers, lawyers, and accountants, who facilitate tax evasion and avoidance.
    • This historic meeting included the largest ever simultaneous exchange of information – based on legal instruments under the Organisation for Economic Co-operation and Development (OECD) and Council of Europe Multilateral Convention and tax treaties

    Tax gap update

    • The ATO currently publishes gap estimates for; goods and services tax, luxury car tax, petrol and diesel excise and duty, wine equalisation tax payable gap, pay-as-you-go withholding, fuel tax credits.
    • We are improving our methodology and gather further data to ensure the tax gap estimates we report are reliable and credible.
    • We have a panel of independent experts who assist us to assess the reliability and credibility of our gap estimates.

    Alternative dispute resolution

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

    • Our objective is to resolve disputes as early and effectively as possible in a manner that treats taxpayers fairly and with respect.
    • We have introduced services that are tailored for different markets. For example, Independent Review applies to all entities with turnover in excess of $250m pa, our in-house facilitation service is suitable for less complex disputes involving individuals, small businesses and privately held groups, and the Dispute Assist pilot provides assistance to unrepresented individual taxpayers. We have also introduced the Independent Assurance of Settlements program, using 3 former Federal Court judges to provide assurance to the community that our largest settlements, and our settlement process, are robust and appropriate.
    • Litigation remains an important part of our dispute resolution approach. Litigation is particularly effectively where the law is uncertain, and litigation will provide certainty for the community. We also litigate in instances where there is fraud or evasion, or egregious behaviour.
    • Trends in recent years indicate we are achieving our objective and improving the client experience.

    Tax and superannuation update

    Update on superannuation

    James O’Halloran, Deputy Commissioner, Superannuation, ATO 

    • The ATO is on track for implementation of the New Measures and is a key priority.
    • The ATO continues to provide information and education products to the community in relation to the new measures, including the publication of 3 of 7 Law Companion Guidelines.
    • We have provided Industry with system specifications to enable them to develop required systems to capture data and commence reporting for 2017. This follows two ATO sponsored Accelerated Design Workshops held with selected APRA Industry participants, to work through reporting requirements.
    • Enquiries currently remain at low levels with around 300 enquiries received since the law was passed, the majority of enquiries relate to the transfer balance cap measure.
    • The Government’s superannuation reforms announced in the Federal Budget were passed by both houses of Parliament on 23 November 2016. Further regulations to support the package have been released for consultation in early February 2017.
    • The ATO is working towards providing self-options through online platforms such as MyGov to provide visibility of relevant ATO held information to support individuals to assess and understand their position in relation to various aspects of the new measures.
    • The ATO will be providing a series of online interactive tools and calculators to allow individuals to test various scenarios and outcomes, based on their individual circumstances, in the context of the new measures.

    Update on indirect taxes

    Tim Dyce, Deputy Commissioner, Indirect Taxes, ATO 

    Low value imported goods

    • For digital products and services (DPS), law was passed in May 2016 and, for low value imported goods (LVIG) law is currently before Parliament.
    • For suppliers, the law distinguishes between B2C supplies as taxable and B2B supplies as not connected (and subject to relevant reverse charge provisions) and based on OECD agreed principles for DPS consumer supplies, and where goods are delivered for LVIG. Both approaches are consistent with international practice and follow the destination principle. The law (LVIG Bill) addresses ‘who is liable’ on supplies connected with Australia in three distinct ways, broadly:
    • GST applies to the supplier where they make the supply fully in their own right,
    • Where supplies are made through an electronic distribution platform GST will apply solely to the operator of the EDP instead of individually applying to each of the merchants/suppliers who make supplies through it ,and
    • LVIG only: For goods that are sent to a mailbox and reshipped or bought on behalf of a consumer, then it is the ‘re-deliverer’ who will be deemed supplier liable for GST.
    • Products are being finalised for DPS and updated where they intersect with LVIG. Our communications plan is being deployed for DPS. In relation to LVIG, we are working closely with an external agency to frame and deliver an international communications strategy that will reach directly into our key markets.

    BAS refunds

    • While most business activity statement (BAS) refund claims are processed without any ATO intervention, every year we verify a small proportion of BAS refunds to check the accuracy of the information provided and to ensure the refund claims are correct.

    Update on income tax

    Michael Cranston, Deputy Commissioner, Private Groups & High Wealth Individuals 

    Taxpayer Alert 2016/5 – Private Ancillary Funds

    • Private Ancillary Funds (PAFs) are closely held private trusts to encourage personal and corporate philanthropy. These funds hold approx. $3.7 billion in net assets, receiving donations of approx. $462M and making distributions of approx. $282M annually.
    • PAFs can present concerns due to the large amount of assets held and the opportunity for assets to be misused due to the closely held nature of these funds.  As part of our regulation of PAFs we undertake reviews to ensure they are complying with the Private Ancillary Fund Guidelines 2009 as amended.   Areas of concern include related party transactions, diversification of investments, and late lodgement of potential Fund Returns.
    • In most cases where we identify non-compliance the mistake is rectified through education or corrective action.  Serious breaches of the guidelines could result in the revocation of the PAFs endorsement, but to date no fund’s endorsement has been revoked.
    • In May 2016, the guidelines were amended.  A significant change was to allow trustees to apply to the Commissioner to reduce the minimum annual 5% distribution rate. We are currently developing a new practice statement on the exercise of this discretion.

    Taxpayer Alert 2016/12 - Trust Income Reduction Arrangements

    • The Alert received some positive media attention and the ATO has fielded queries from the tax profession
    • Our reviews continue to detect trustees and accountants making mistakes attributed to not reading the trust deed, misconstruing the trust deed or maintaining accounting records that do not reconcile with the administration of the trust
    • There is a draft tax determination being developed on section 109T applying to dividends paid to interposed entities.

    PS LA 2010/4 - Proposed Guidance on unpaid present entitlements (UPE) under sub-trust arrangements

    • Consultation on this matter has been conducted with professional associations and key advisors.
    • This matter (Matter 201702) was registered under ATO Consultation on the ato.gov.au website with an expected completion date of March 2017.

    Law and policy update

    Application of shortfall penalties and interest in an early engagement environment

    Jade Isaacs, Assistant Commissioner, Private Groups and High Wealth Individuals, ATO 

    • The ATO is seeking to clarify its position on shortfall penalty and interest in an early engagement environment to ensure consistency of application.
    • Members agreed to continue to work with the ATO to clarify the position.

    Treasury update

    Jodi Keall, Senior Advisor, Financial System Division, Treasury 

    An update on the status of the following consultations was provided:

    Martin Jacobs, Assistant Commissioner, Private Groups and High Wealth Individuals provided information for private groups on the following:

    Mandatory reporting

    • Mandatory Disclosure Rules (MDR) are part of the OECD’s Base Erosion and Profit Shifting (BEPS) package - Action Item 12.
    • A public discussion paper OECD Proposals for Mandatory Disclosure of Tax InformationExternal Link was released by the Government on 3 May 2016 seeking comment on the how these rules should operate in Australia.
    • Broadly, the proposed rules would require certain material advisers to make early disclosures of aggressive tax arrangements with the view to providing the ATO with real time information on arrangements that have the potential to undermine the integrity of the income tax system. Disclosures would be required if arrangements trigger certain ‘hallmarks’ set out in the rules.
    • It is proposed to commence 1/7/2018.

    Definition of small business entities

    • Under the current law to be eligible to use the 28.5% rate a company must be a small business entity. To be a small business entity the company must be carrying on a business and have aggregated turnover of less than $2 million (noting that there is currently a measure before Parliament to increase that threshold to $10 million and further reduce the corporate rate).
    • Before the 28.5% rate is applied practitioners should satisfy themselves that the company is carrying on a business and meets the other eligibility tests.

    Research and development

    • The ATO and AusIndustry have jointly issued four Taxpayer Alerts:
      1. Claiming the Research and Development Tax Incentive for construction activities (TA 2017/2)
      2. Claiming the Research and Development Tax Incentive for ordinary business activities (TA 2017/3)
      3. Claiming the Research and Development Tax Incentive for agricultural activities (TA 2017/4) and
      4. Claiming the Research and Development Tax Incentive for software development activities (TA 2017/5) including an addendum dealing with supporting software R&D activities.
       
    • The alerts outline general and industry-specific concerns regarding claims for the research and development tax offset. To assist companies and their advisors to correctly register research and development activities, AusIndustry have recently released four new guidance publications. The publications cover software development, agriculture, building and construction and mining.

    Commissioner’s remedial power

    • New legislation received Royal Assent on 28 February giving the Commissioner the ability to resolve smaller unforeseen or unintended outcomes in the tax and super law by legislative instrument.
    • More information about the The Commissioner’s remedial power can be found on ato.gov.au.

    Trevor Jones, Assistant Commissioner, Tax Counsel Network, ATO joined Martin Jacobs to outline the

    ATO review of fraud or evasion procedures and guidelines

    • The ATO is continuing to develop updated guidelines on fraud or evasion.
    • Consideration of fraud or evasion will be undertaken as soon as practicable during an audit or review.
    • We will always distinguish between making general enquiries and making allegations of fraud or evasion – our concerns will generally be expressed in a position paper and the taxpayer provided an opportunity to respond before an opinion is formed.
    • We have a process in place to ensure we only make a finding of fraud when it is appropriate and where evidence of fraud exists.
    • The ATO Taxation Authorisation Guidelines requires an opinion of fraud or evasion must be made by an Executive Level 2 (EL2) or an Senior Executive Service (SES) officer.
      Last modified: 24 May 2017QC 52212