Private Groups Stewardship Group key messages 9 March 2022

Review and dispute resolution client experience for the private groups market

Andrew Orme, Deputy Commissioner, Review and Dispute Resolution, ATO, led a discussion on the ATO’s approach to dispute resolution, with particular reference to private groups. He observed that an effective dispute resolution process is critical for encouraging willing participation.

The ATO’s strategic litigation approach was also explained noting that the ATO will settle matters where appropriate and matters are litigated where there is a need to clarify the law or where the ATO wants to send a message in relation to certain taxpayer behaviour.

The ongoing role of Private Wealth in disputes and litigation was also explained. Importantly, Private Wealth works collaboratively with the ATO’s Law Design and Practice Group in all Private Wealth disputes and litigation.

ATO noted:

• Approximately 29% of cases are settled during pre-audit stage, 48% during the audit stage, 15% at the objection stage with a very limited number of cases settling once they reach the Administration Appeals Tribunal or the courts.
• A technical and settlement panel meets regularly to review and assure the appropriateness of all cases for settlement.
• A key focus is on timeliness of processing, active case management and reducing aged cases.
• The Dispute Resolution Working Group was placed on hold during the height of COVID-19 but will be reconvening soon.

Members’ comments

Members welcomed the discussion noting it is difficult for taxpayers and advisers to get an insight into how different areas of the ATO operate. It addressed, to some extent, ongoing concerns about the lack of visibility of progress of matters and concern that specialist knowledge is not utilised in disputes.

Next steps

The ATO agreed to continue to discuss issues arising in relation to the review and dispute resolution process and agreed to bring back Law Design and Practice Group representatives to future Private Groups Stewardship Group (PGSG) meetings.

Action item	20220309-1
Due date	Ongoing
Responsibility	Louise Clarke and Elinor Kasapidis
Action item details	PGSG Co-chairs to discuss issues in relation to the review and dispute resolution process.

Public advice and guidance for private groups market

Co-chair Elinor Kasapidis, CPA Australia, explained the genesis of this agenda item as following on from a discussion at the National Tax Liaison Group about the ATO’s approach to public advice and guidance (PAG) more generally, including how the ATO identifies and prioritises issues for PAG.

Jeya Somasekaran, Assistant Commissioner, Private Wealth, ATO, explained the ATO’s approach to identifying and prioritising issues for PAG in the Private Groups market.

The ATO noted there are a range of sources to identify potential PAG topics, including:

• law changes, for example, new measures, amendments, court decisions
• changes in the commercial environment which potentially mean that the application of existing tax law needs to be considered in new contexts, for example, impact of COVID-19
• where our internal intelligence indicates there is an issue warranting guidance because failing to do so will pose a high risk to the health of the tax system
• where there is a high demand for private advice on a particular issue
• where there is a high likelihood that issuing PAG on an issue will positively affect taxpayers’ engagement or compliance behaviours.

The ATO noted it has limited resources and therefore must prioritise topics for PAG.

Relevant considerations include:

• that guidance on significant new measures will typically be a high priority
• the urgency for PAG
• the size of the taxpayer population that is potentially affected by the PAG
• the materiality of the dollars of revenue and compliance costs relating to the issue intended to be covered by the PAG
• community need – whether there is an issue of demonstrated industry significance, for example, feedback received from industry participants, tax associations
• recommendations from scrutineers and other government bodies, for example, Inspector-General of Taxation and Taxation Ombudsman, Board of Taxation, or government reviews
• prevalence of the issue that the PAG is seeking to address – whether it is prevalent now or anticipated to be prevalent in the future.

Members’ comments

Members observed that there is potentially a disconnect between the ATO’s priority list and that of clients and practitioners and there would be advantages if practitioners could contribute issues which they see as high priority for PAG.

Members also voiced concern about draft rulings that remain drafts for significant periods of time, for example, Draft Taxation Ruling TR 2017/D1 Income tax: composite items and identifying the depreciating asset for the purposes of working out capital allowances.

The ATO welcomed members raising PAG issues at the PGSG.

The ATO also noted that draft rulings may take time to finalise for a variety of reasons and assured members that the rulings in development were actively managed.

Next steps

The ATO agreed to work with Elinor to establish a way of sharing and developing a priority list of issues for PAG.

Action item	20220309-2
Due date	Ongoing
Responsibility	Louise Clarke and Elinor Kasapidis
Action item details	PGSG Co-chairs to discuss a process to progress PAG issues for prioritisation.

Supporting lodgment and payment by private groups

Anita Challen, Assistant Commissioner, Lodge and Pay, ATO, led a discussion on the ATO’s approach to managing payment and lodgment obligations in the Privately Owned and Wealthy Groups (POWG) market and how it fits in with the overall focus on supporting taxpayers to get back on track. She explained that the ATO actively uses help and assist types of engagement including with advisers. ATO activity is tailored for specific markets. Given the importance of POWG to community confidence in the tax and super systems, clients who do not meet their lodge and pay obligations and choose not to engage with us can expect to see us move to enforcement actions more quickly.

Since November 2021, the ATO has begun to normalise its lodge and pay activities and has adopted practices that balance ongoing support with enforcement action where appropriate. In coming months, we intend to improve awareness of our enforcement action through two initiatives:

• Disclosure of Business Tax Debts – We have written to POWG clients (approx. 4,500) to inform them that they currently meet the eligibility criteria for a disclosure of their tax debt to credit reporting agencies (debt greater than $100,000 and more than 90 days old) and that they should take action regarding the debt.
• Director Penalty Notices – We have written to directors of POWG companies (approx. 5,000 directors across 4,000 companies) who have not met their debt obligations to inform them that we will be considering issuing Director Penalty Notices (DPN) in their names, making them personally liable for the debts of the company, unless action is taken by the company to pay the debt in full or enter into a payment plan.

Tony Poulakis, Assistant Commissioner, Private Wealth, ATO, noted that for the POWG market:

• lodgment and payment of debt (includes non-payment of super guarantee, withholding tax and GST) are below expectations
• nudge messaging and direct engagement with group controllers, including advisers and tax professionals, has been successful although controllers may not have full visibility across all entities within the group
• payment discussions will become part of all client interactions.

It was noted that the ATO’s Annual Report 2020–21 states that as at 30 June 2021 the collectable debt for private groups was $8.4 billion and $24.3 billion for the small business taxpayer segment.

Members’ comments

• Members raised challenges experienced by Private Wealth clients, particularly in the medium and emerging market with arranging payment plans, including ATO officers
  • following scripts and not engaging in conversation with the accountant
  • being unaware that payment plans have been entered into and possibly acting on outdated information
  • relying on traditional methods of payment plans which require a payment upfront which is not always feasible for impacted clients – the ATO should consider alternative forms of security such as cross guarantees
  • not considering specific industry issues, for example, the construction industry is still struggling with a 40% insolvency rate and difficulties with getting back on site
  • refusing payment plans because of several years of outstanding lodgments and payments.
   
• Members saw value in the ATO focussing on taking a holistic view of a business and not considering that they have yet to return to normal operations.

Income Tax, Public Advice and Guidance update

Jade Hawkins, Assistant Commissioner, Private Wealth, ATO, presented a package of draft guidance products addressing Section 100A and Division 7A of the Income Tax Assessment Act 1936 were released on 23 February 2022 with public consultation closing on 8 April 2022. The products include:

• Draft Taxation Ruling TR 2022/D1 Income tax: section 100A reimbursement agreements
• Draft Practical Guideline PCG 2022/D1 Section 100A reimbursement agreements - ATO compliance approach
• Draft Taxation Determination TD 2022/D1 Income tax: Division 7A: when will an unpaid present entitlement or amount held on sub-trust become the provision of 'financial accommodation'.

Taxation Determination TD 2021/9 Income tax: JobKeeper payments received or expected as a result of research and development expenditure was published on 22 December 2021. It sets out how the ‘at-risk rule’ applies to JobKeeper payments received by a research and development entity.

The extension of loss carry back (LCB) to allow eligible corporate entities to carry back tax losses from the 2022–23 income year, became law in February 2022. In addition, there was an amendment which provides the mechanism to enable clients to change an LCB choice, which became law in December 2021. To implement the change:

• a system build by the ATO and digital service providers is required, and is expected to be available for Tax Time 2022
• where a client/adviser engages with us prior to Tax Time 2022, the ATO will work with them to manually process the client’s change in choice.

Members’ comments

Members noted the recent public commentary on the section 100A package and offered to assist the ATO with managing the consultation process.

Next steps

The ATO agreed to an out of session consultation on the section 100A package with interested members of the PGSG.

Action item	20220309-3
Due date	Ongoing
Responsibility	Louise Clarke and Elinor Kasapidis
Action item details	PGSG Co-chairs to discuss how interested members of the PGSG could assist the ATO with the consultation process.

Other Business

Michael Croker, Chartered Accountants Australia and New Zealand, noted Practical Compliance Guideline PCG 2021/4: Allocation of professional firm profits - ATO compliance approach

• There are compliance cost impacts for individual professional practitioners (IPPs) as compared to the blue-collar workforce.
• Where a post implementation review is undertaken, it should consider that as a result of the PCG, IPPs are incurring the cost of engaging professional advisers to support their position.

Co-chair Louise Clarke, Deputy Commissioner, Private Wealth, ATO, advised that Draft guidance for Section 99B of the Income Tax Assessment Act 1936 and the application to payments or benefits from non-resident trusts is expected to be finalised by mid-2022, possibly as Tax Determination/s. Members would like to see their situations covered and to participate in the consultation process.

Action item	20220309-4
Due date	Ongoing
Responsibility	ATO
Action item details	ATO to provide PGSG members with updates on progress of section 99B draft guidance and any proposed consultation activities.

Attendees

Attendees list

Organisation	Attendees
ATO	Louise Clarke (Co-chair), Private Wealth
ATO	Emma Rosenzweig, Superannuation and Employer Obligations
ATO	Jade Hawkins, Private Wealth
ATO	Kasey Macfarlane, Private Wealth
Arnold Bloch Leibler	Paul Sokolowski
Chartered Accountants Australia and New Zealand	Michael Croker
CPA Australia	Elinor Kasapidis (Co-chair)
Deloitte Private	Michael Gastevich
Fox Private Group	Garry Voigt
Greenwoods & Herbert Smith Freehills	Andrew White
Independent Member	Paul Brassil
KPMG Australia	Bernadeene Cangelosi
Law Council of Australia	Justine Byrne
Lowy Family Group	John Fanning
Oatley Family Group	Sharon Clark
PwC	Michael Dean
Tax Bar Association	Terry Murphy QC
The Tax Institute	Chris Wookey
7-Eleven Group	Kenny Cheong

Apologies

Apologies list

Organisation	Member
Law Council of Australia	Angela Lee
PFD Foods	Peter Cartsidimas

Information about the key topics discussed at the Private Groups Stewardship Group meeting 9 March 2022.