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Australian Financial Markets Association Liaison Group key messages 18 November 2021

Summary of key topics discussed at the Australian Financial Markets Association Liaison Group meeting 18 November 2021.

Last updated 24 February 2022

General business

James Campbell opened the meeting advising of staff movements and introducing Bill Neskovski as the new group Chair. Bill is currently acting Assistant Commissioner for Banking and Finance as well as Operations in Sydney. He is leading the ATO Banking and Finance strategy. A competitive recruitment process underway for Assistant Commissioners across the ATO, and this role will be permanently filled through this process. Bill has been with the ATO for over 20 years and has experience in compliance engagements across many industries and income tax focus areas including transfer pricing.

Adrian Mow has replaced Dean Lynch and Danny Ong is the new Australian Financial Markets Association (AFMA) Liaison Group secretariat.

It has been a tough few years due to COVID-19, with regards to the ATO, we have reopened most offices to many staff and are looking to get more people, gradually return to the office for at least 60% of the time, in the short to mid-term.

The meeting intent is to take AFMA through the Banking and Finance strategy for both income and goods and services tax (GST) and to discuss several of the ATO's 'focus areas' during the next 12 months.

In relation to foreign banks for GST, the ATO noted that there are several reviews starting in the 2022 financial year in the Top 1,000. Some will be specific GST risk reviews that will enable the ATO to consider more complex GST risks for large banking and finance entities ahead of a combined assurance review (CAR). The ATO stated it would be looking to leverage from all information on hand to minimise the need for information requests where possible.

The ATO advised it would be taking an increasingly integrated approach in cases to look at issues from a whole-of-tax perspective. This is again aligning with streamlining the information request approaches and trying to leverage from information that may already be held within the ATO. For instance, high-level GST questions may be asked as part of a pre-lodgment compliance review to scope future GST assurance reviews in the Top 100.

The ATO acknowledges that many staff may not have had leave both within the ATO and externally due to COVID-19, travel restrictions and or new and emergency work programs. Where possible the ATO is looking to delay or agree on response due dates that align with staff not being in the office over the Christmas break.

Banking and Finance strategy update

Virginia Gogan and James Campbell provided a high-level walkthrough of the strategy document which alternated between income tax and GST.

Mergers and acquisitions

It was noted that mergers and acquisitions (M&A) activity is significant at present, and possibly heightened over the next 12 months as some groups are recalibrating operations or responding to longer term trends.

The ATO is dealing with several divestments including a number of M&A deals where some Authorised Deposit-taking Institution (ADI) businesses are moving across to others. There are some complicated issues associated with the interaction of the Financial Sector (Transfer and Restructure) Act 1999 and the tax legislation. There are other issues around potential capital gains tax that is linked to sub-issues such as valuation/goodwill.

Fintech and cryptocurrency

The ATO is developing its strategy around Fintech – the ATO is aiming to put out a definition of the market and defining submarkets that clarify the ATO's position to external bodies. This would include pulling together the markets and structures and forming a view, and areas around uncertainty that would cover both income and GST. This strategy will not only look at new initial public offerings or traditional fintech's such as those operating in the 'buy now, pay later' space, but will also crossover to existing banking operations offering fintech services. The ATO wants to delineate and address confusion between fintech and cryptocurrency. There are some documents that will be rolled out.

Rob Colquhoun noted that AFMA would like some guidance around how crypto was treated, for example, under Taxation of financial arrangements (TOFA) Division 230 of the ITAA 1997.

James Campbell commented there was a range of crypto related issues, one particular issue being looked at was that some of the other business lines, Individuals, was related to transparency provisions and the required reporting obligations.

There are gaps on interpretation of the legislation based on historical drafting prior to crypto being introduced. Other future issues include issuance of digital currencies that are backed by central banks, and services which include receiving crypto as a payment.

Negative interest rates

Addressing low/negative interest rates is still of interest but are currently being dealt with on a taxpayer-by-taxpayer basis for those that need certainty. Adding it to remains as a 'to-do' item.

Common reporting standards

Another team within the ATO handles common reporting standards (CRS) for the Public Groups & International population. Some member banks and financial institutions have intensive engagement, and there is a strategy document that details that strategy. CRS has been in place for a while. The ATO has identified some issues and noted that it was proposing to be firmer on the accuracy and frequency of the information provided and will be addressing where companies are not reporting exactly what is required.

Major bank levy

Amounts received from the major bank levy (MBL) is currently on a downward trend. The MBL did spike a little. Some factors included:

  • the change in the mix of investors putting money back into bank accounts
  • the securitisation activity of the big banks
  • tapping into the liquidity facilities with the Reserve Bank of Australia, early in 2020
  • the subsequent reversing out of those facilities
  • COVID-19 impacted the amount of MBL that was received.

The trends in MBL are also linked to another issue around change in accounting treatment. This is an industry issue. Historically all the big banks have had large self-securitisation programs –- they were almost double counting part of their liabilities due to an internal imputed loan that was recognised as part of the securitisation structure. For various reasons, there were internal receivables and payables between the ADI and the securitisation vehicle which were not netted off as a result. This effectively meant some external liabilities were double counted. The industry is now moving away from this and will no longer be recognising the imputed loan and the securitisation vehicle.

The ATO has looked at this and is reasonably comfortable with it. Due to this there will be a permanent downshift in the MBL. The ATO's view is that it will plateau and then start to go back up. There has been some divestment activity in the last 18 months that has affected this as well. The initial forecast for the MBL was $6.2 billion across the first four years, and across that period the actuals were around $6.3 billion.


The ATO will be ramping up the activity in the Top 1,000 space for financial entities, which include some specific GST reviews and integrated activities for the Next Actions Program.

The ATO advised it has some risk reviews for the Medium and Emerging market. A few of the relevant issues we are looking at include:

  • Fintech and GST interactions.
  • Buy now, pay later space for the classification of services. This is where entities are making a financial supply of credit even if there is no interest charged. There will be issues where taxpayers are using a revenue-based method that does not marry up with the costs backing this.

The market is moving very quickly and evolving. The ATO stated it has recommended entities make sure their apportionment methods are up to date. Common errors include reverse charge on cross border transactions. We are flagging this up front and expect there is a comprehensive governance review and this is checked. This needs to be reviewed for both external third party and internal transactions.

It was noted that the ATO has previously provided some bespoke data tests that can be used and may develop further data tests in future.


The ATO have five of the seven top banks at high assurance and is moving towards monitoring and maintenance. The proposed approach is an intensive look every three years, and the other two years are focussed on large transactions where the ATO adopts a 'monitor and maintain' approach.

The ATO advised it is reconsidering the approach to transfer pricing and branch attribution for the Australian Banks on the basis that they are viewed as relatively low risk. We are proposing to be more lenient and to try and group transactions and issues together using sample testing where it is relevant.

In terms of progression, the Top 1,000 are less developed in terms of high assurance. The ATO’s banking and finance team perspective is, the focus is on practical outcomes. ATO leadership is constantly mindful of resourcing considering COVID-19.

Due to several delaying factors, for example COVID-19 and resourcing, the ATO is finishing the last two cases from the first round of cases and started two to three next actions cases on foreign banks. They are intensive and further work is being done on items from previous years, including reviewing current issues from recently lodged years.

Next actions letters have been issued and for taxpayers in the banking industry, the letters confirm the interaction between Part IIIB and Division 815C with respect to all internal dealings including branch funding arrangements which fall outside of Part IIIB.

The ATO advised the areas currently being looking at have previously been flagged and will likely involve having guidance or further guidance be issued including TR 2005/11 and internal dealings. The ATO noted it will respect internal dealings but want to price those on an arm’s length basis. There are no widespread issues identified in the market, but the ATO stated there might be some misunderstanding about what is and is not allowed by the ruling.

What is recorded internally needs to be reflected with what the group is doing externally. The ATO stated it is generally satisfied with what they see the foreign banks are doing with their internal funding, but there may need to be engagement with individual taxpayers when the ATO has concerns or need more information.

Bail-in regime

There is a lot of merit for law reform in this space, however the ATO need to wait for Treasury to perform due diligence and confirmation of next steps with legislation.

TOFA and hedging amendments

The ATO noted that since the budget announcements the amendments have been in a holding pattern.

London Interbank Offered Bank Rate transition

Phil Daniel thanked Rob Colquhoun and AFMA for providing feedback and comments in the last consultation.

The scope of the paper was tightened, as it is intended to provide assurance to the market in that the amendments to the financial contracts should not terminate the existing contract in creating a new one.

The paper does address most tax issues that the ATO envisage comes with London Interbank Offered Bank Rate (LIBOR) ceasing and the following transition. It is expected TOFA would handle most of the tax consequences and the ATO does not see this as triggering the loss of an exemption under 128F (ITAA1936).

The ATO expect the revised paper to be issued sometime next week, where further consultation time will be provided, though no further meetings are anticipated. The ATO will develop a sheet that will be published after the Christmas break.

The ATO had several discussions with Treasury regarding the draft legislation and suspect the AFMA submission was responsible for some of Treasury’s changes in position, as the LIBOR amendments were withdrawn. Once Treasury realised how complicated that would be, they went back to the drawing board.

The ATO do not expect revised amendments any time soon so are developing an administrative solution for key currencies, based on the currencies being used. The ATO is proposing initially three to four currencies (USD, AUD) there are a few more being considered given the time frame. There will be a separate session with industry stakeholders to inform the guidance and the ATO is keen to work with industry to develop the appropriate proxies.

In terms of USD, there will be a continued USD LIBOR quotation for certain durations. AFMA noted that it was worthwhile considering a proxy for USD LIBOR even if it is quoted given that the quoted rate may not be representative of the true funding cost for banks.

Even though US LIBOR continued to be quoted, in the US there was a push for banks to adopt Secured Overnight Financing Rate. AFMA noted that there were five main currencies they believed would be relevant for quotation, and that Bloomberg does provide spread information between different pairs, so the conversation could start there.

The ATO will pursue a practical compliance approach. AFMA were satisfied that no further significant meetings were required for the paper. AFMA provided feedback that a compliance approach requiring legal analysis on a contract-by-contract basis would impose a disproportionate compliance burden.

The ATO commented that determining the legal change of contracts is up to the taxpayer and they would not prescribe an approach – they advised that it would not accept an accounting approach, however it also does not need to be done on a contract-by-contract basis, it can be done on a portfolio basis.

The ATO noted that if there are any individual taxpayers who think there an issue, they can contact James Campbell or Philemon Daniel.

Offshore Banking Unit transition issues

The 2023 income year will be the last year of the Offshore Banking Unit (OBU) regime, with different end dates for taxpayers based on their year-end for tax purposes.

The ATO will be proceeding with a communications strategy that will be available on and a letter campaign where the ATO writes to each OBU. There are approximately 150 registered OBUs but only about 50, active. The ATO stated it is more interested in the ones that are only occasionally active and not fully aware of their obligations.

The ATO is scoping out the extent that guidance and messaging is required to go on Alternatively, it might involve a letter to the major industry associations. For example, there have been queries on whether taxpayers could move from OBU to Domestic Banking Unit before the end of the regime, and whether that could potentially cause issues with the purity test.

Some other issues are situations where taxpayers have entered longer term transactions in the OBU regime at a tax rate of 10% and those transactions might continue past the repeal date.

The ATO are mindful that taxpayers have set up OBUs and long-term arrangements in good faith and will look at the commercial rationale of those transactions.

Another issue the ATO mentioned would be taxpayers looking to change their year-end for tax purposes to take advantage of the regime for longer. The ATO’s initial view was that this would not be agreed to and the ATO may issue guidance on this point. AFMA provided feedback that its preference was to align the cessation of the OBU regime/OBU deadline with the income year. The ATO will consider if the market will receive a Practical Compliance Guideline (PCG), other guidance or whether Treasury would need to consider law changes.

Practical Compliance Guideline 2021/D3 update

Bruce Matheson and Dale Seiler provided an update for Practical Compliance Guideline PCG 2021/D3 Imported hybrid mismatch rule – ATO's compliance approach.

The ATO has consulted with large corporates to see how easy it is to comply with the PCG and appreciates the enormity of this task regarding tax compliance. This is the first rule that goes outside Australia, it is a huge burden.

The ATO is still consulting, and internal processes are being worked out to get the document approved and published. The material changes from the last version were that although the body of the PCG has not changed much, the risk zones have changed significantly.

The red zone will be reserved to the very egregious taxpayers. In relation to both the top down and bottom up approaches, the PCG contains further commentary that refers back to examples and principles provided by the Organisation for Economic Co-operation and Development Action 2 (Hybrid Mismatch Arrangements) documentation.

The ATO intentionally did not put in a purpose test or to request 'best endeavours' – as we could not go down a path where taxpayers and certain jurisdictions will try and adopt the rules, do the bare minimum, and not provide us any information or create scenarios where the relevant information was held in silos offshore.

There has not yet been a strong focus on technical positions, and for now the PCG is compliance focussed. There will be technical positions released that are currently being considered by the ATO.

There is not yet a list of comparable foreign countries. AFMA suggested that a list be provided and updated as the ATO’s program of work developed further. The ATO is hoping to get the PCG out before Christmas 2021.

Tax transparency and COVID-19 guidance

This will be the ATO’s seventh annual report and will showcase the impact of the Tax Avoidance Taskforce. It will cover the tax affairs of large corporations operating in Australia and reflect on the effects of the 2019-20 bushfire season as well as the early stages of the COVID-19 pandemic across the economy. Dissimilar industries will have been impacted differently, and there will be outliers in each industry.

Consistent with prior years, some of the labels covered will include:

  • entity name per tax return
  • Australian business number
  • total income
  • taxable income
  • tax payable
  • petroleum resource rent tax
  • minerals resource rent tax payable.

The report will cover the 2019–20 income year and will include entities that have lodged by 1 September 2021. Any entities lodging after this date will typically show up in the following report.

Justified trust – Combined assurance reviews update

Harjit Singh provided an overview of the combined assurance review (CAR) and streamlined tax assurance report (STAR) programs. Judy Morris and Harjit Singh lead the program.

The CAR program is the first integrated program. For example, integrating the GST colleagues into the Top 1,000 area with income tax.

Justified trust is still the basis for industry engagements, the way the ATO speaks to taxpayers is still based on the four justified trust pillars. The product outcome is the ATO provides an assurance rating for each area in income tax and an overall GST risk rating.

The ATO has a separate product for streamlined review for GST for Top 1,000 that goes through and provide assurance ratings, this process takes some time and for income tax the ATO is seeking to gain efficiencies a second time around, for example, top-up taxpayers that get reviewed.

AFMA asked whether the ATO GST team would come in and do a STAR in addition to the income tax STAR. Harjit Singh advised that it is possible – a recommendation may be referred to GST for a STAR, however there are other products such as risk reviews that GST may choose to do.

The funding for the CAR program comes from the tax avoidance taskforce initiative and this program will be in operation until June 2023. Top 1,000 is not a static population, given that the ATO’s program of work defines entities with turnover threshold over $250 million as a Top 1,000 entity (rather than the Top 1,000 entities by turnover). Entities fall in and out of the program. Currently, there are about 1,500 entities in Top 1,000 and less than 100 in Top 100 entities.

If a taxpayer was reviewed the first time, it does not mean they will also get reviewed the second time. In most cases, if a taxpayer was reviewed previously, it is likely that the ATO would not conduct another review until around four years afterwards.

So far, the ATO has completed about 150 reviews in the CAR program and hope to complete another 250 by June next year and 300 in the following year, which will cover a significant batch of the current Top 1,000 population.

The ATO do not look to send reporting financial institutions (RFIs) after profiling taxpayers and instead are now sending out standard RFIs. Unless they are a new entrant to the population, taxpayers will be getting a standardised RFI in the first instance. Accordingly, new entrants will get CARs with a deeper dive RFI. The ATO will be updating the CAR website with the standardised RFI questions for taxpayers to get prepared. This will enable taxpayers who are above the threshold to prepare for initial engagement.

Top-up taxpayers (taxpayers who have been previously assessed) will receive less questions, however it is expected for them to tell the ATO about risks that are present in a proactive manner.

Previously the ATO would give a notification period of 4 months and then 28 days response time. Now the ATO has removed the notification period and now give a 56 day response period, with some flexibility.

Once the ATO receive the response from your first RFI, it has a triage panel and looks at your previous overall assurance rating, whether actions were taken if the taxpayer was a top-up taxpayer, and whether timely and complete RFI responses were provided.

Ideally the ATO would like comprehensive documentation in the first RFI response, otherwise the second RFI is very much targeted. Ratings will be put against the taxpayer, for example, light touch, targeted, high intensity taxpayer from a panel, which will determine how the ATO communicates with the taxpayer. Generally, high intensity is for taxpayers who have not actioned requests and have had low assurance.

Governance remains to be an area where high assurance is challenging – findings report for Top 1,000 will come out on this shortly. The ATO is not seeing an increase in high assurance on this because taxpayers are not achieving Stage 2 for Governance. To achieve this rating, taxpayers require the following:

  • Board Level Control 4 (BLC4) –effectively designed periodic testing program which includes GST controls.
  • Managerial Control 4 (MLC4) – effectively designed GST data controls which includes documentation which evidences GST controls built into business systems as well as standard rules for assigning tax codes and process for setting up, adding, and deleting of customer and vendor master files and tax codes.
  • Managerial Control 6 (MLC6) – effectively designed business activity statement preparation, review, and approval process.

Rob Colquhoun asked if when the ATO were looking at a top-up taxpayer, would the CARs be different for previously low/medium assurance taxpayers? Harjit confirmed that there was a differentiated approach based on what the ATO understood from previous products and behaviours.

Harjit advised that previously, the benchmark for governance changed from Stage 1 to Stage 2 for high assurance ratings. The product experience is changing, and the key indicator is that the taxpayer is having shorter reviews if they are high assurance and are considered to be light touch. For example, a taxpayer with Stage 3 governance may end up with a discussion as opposed with an RFI.

In relation to overall assurance, around 60% sit in medium, with about 40% not reaching high due to governance not reaching Stage 2.

Rob Colquhoun asked whether the order of review for the STAR process be consistent with the CAR process. Harjit confirmed that generally, yes, it is first in first out, unless they are subject to Next Actions cases.

Internally there is also ordering principles for casework – Q1 2022 will be when the ATO begins engaging.


From a GST perspective – typically it will be a short sharp risk review product that goes quite broad and covered a lot of topics. About 20% of taxpayers looking at the RFI have found an error just from self-review. For example, errors in journal entities, incorrect apportionment methodologies. A report is being prepared and that findings report will be due about mid-December, prior to Christmas.

Rob Colquhoun asked whether there were GST tests for industries other than banking. Virginia Gogan commented that the GST data testing is bespoke for each industry, however there is also a broad version available. Those data tests are currently not undertaken in the CAR product but is used in specific GST risk review.

Other Business

Tax treaty renegotiation process (Interest Withholding)

Rob Colquhoun asked whether the ATO was aware that Treasury was considering the definition of 'financial institution' for tax treaty purposes.

James Campbell commented that the ATO was across the issue. There is a team that cuts across the office in Internationals and policy. Sometimes there are jurisdiction specific questions, in other cases there are policy related questions.

A question arises as to whether the preferred approach to interest withholding tax exemptions is through tax treaty definitions or modifications to the domestic law.

Relating to the financial institutions’ exemption – this is looking at the nature of a margin business. Withholding tax can be a big dampener on capital coming into Australia. That is a big factor in that specific exemption and must be balanced with both economic and tax consequences by government.

There are other pools of capital that want to come into Australia – does that need to come through the financial institution exemption or is there a new exemption that should be introduced? The ATO will provide whatever input that it can to Treasury and government, including how the current provisions work and who it currently applies to.

Taxation Ruling TR 2005/5

Taxation Ruling TR 2005/5 will be republished soon in the coming month with the addendum having been updated and further clarification provided as to the application of the exemption.


Attendees list




Bill Neskovski (Chair), Public Groups and International


Andrew Nutman, Public Groups and International


Bruce Matheson, Public Groups and International


Dale Seiler, Public Groups and International


Danny Ong (Secretariat), Public Groups and International


Dilara Arslan, Public Groups and International


Hans Tan, Public Groups and International


Harjit Singh, Public Groups and International


James Campbell, Public Groups and International


Katherine Leung, Public Groups and International


Melanie Sinn, Public Groups and International


Philemon Daniel, Public Groups and International


Luis Alvarenga

Australian Financial Market Association

Robert Colquhoun

Bank of America

Wee-Ling Chuan

Commonwealth Bank Australia

Robert Pugliano

Credit Suisse

Jo Altit


Jeffrey Tan


Kane Nicholson


Lisa Rawlings


Mark Stevens


Paul Cotter


Tony Lo Russo

Societe Generale

Anley Viengkhou


Jack Zheng