Tax Practitioner Stewardship Group key messages 12 March 2021

Superannuation and Employer Obligations

Superannuation guarantee (SG) amnesty wrap up

The SG amnesty ceased on September 2020. As at 28 February 2021, 98% of the disclosures received had been processed. The ATO is contacting those employers who have qualified but who have not yet paid the outstanding SG or entered into a payment plan. Where they fail to respond, they will be disqualified from the amnesty and the benefits, otherwise available, will be reversed as if they were never eligible, with Part 7 penalties applied to any unpaid quarters.

The top four industries that participated in the amnesty were construction, retail trade, professional scientific technical services, and accommodation and food services.

The ATO is working on educational assistance to increase awareness in employers regarding their obligations post the amnesty, highlighting that Superannuation Guarantee Charge (SGC) statement lodgment is critical to avoid the Part 7 penalty.

Members' comments

Members supported the increase in education for employers and increasing awareness within the tax profession regarding the importance of lodging the SGC statement and the consequences of not doing so or lodging late.

Meeting SG obligations to avoid part 7 penalty

Each year the ATO receives in excess of 30,000 employee notifications lodged, with the majority resulting in an SGC liability. Historically the ATO has seen a very low percentage of SGC statements lodged by the due date, and late lodgments are often in response to engagement from the ATO or audit action. ATO auditors noted that a lack of awareness regarding the lodgment obligation and the significant penalties that can apply exists not only across employers but also within the tax professional community.

From the ATO perspective, the main objective of our engagement is to influence employer lodgment behaviour. It is important to differentiate that the penalty is about the failure to lodge a statement as opposed to a direct penalty for failure to pay SG to the fund on time. We want to encourage employers to lodge their SGC statement by the due date, even if they are not able to pay the SGC in full. Payment plans are available. On time lodgment of the statement reduces the interest component of the SG charge and avoids Part 7 penalties.

It is important to note that the Part 7 penalty will not apply if, when the employer realises they have not paid the correct amount, paid it on time or paid to the correct fund – they then lodge the SGC statement by the due date, which is the 28th day of the month after the quarterly due date for payment to the fund.

Where a statement is lodged late the law applies a 200% penalty. The ATO can remit that penalty subject to legislative restrictions. Where the lodgment occurs after the commencement of compliance action, the ATO’s ability to remit the penalty is restricted to no lower than 100%.

The communication strategy includes:

• focused messaging through various channels prior to the quarterly due dates reminding employers of the upcoming due date
• an email due date reminder nudge program where ATO data indicates an employer has a higher risk of paying late
• post due date messaging about the need to lodge, even if you cannot pay, if you have not been able to meet that original payment due date.

Members' comments

The tax professional community would benefit from being included in the nudge campaign or having visibility of the employers’ SG obligations and status. This includes BAS agents, as payroll and super administrators for their clients. The ATO should also explore the potential to educate business owners/directors through the director identification roll out.

Members encouraged the ATO to rethink the SGC statement form as it remains too hard in its current format. This could be improved by utilising single touch payroll data.

Members requested a fact sheet on the outcomes and insights from the amnesty to support understanding of obligations be circulated to the industries. This should include clear and concise content of the penalties that will be incurred that are avoidable with examples.

SG amnesty and the impact on contribution caps

Where an individual’s employer has lodged SG statements under the SG amnesty with the ATO, any concessional contributions that are remitted to the individual’s fund by the ATO as a result will be disregarded and will not count towards their concessional cap in that year.

• The ATO will disregard those payments for individuals. Tax practitioners and clients do not need to do anything. The ATO will action and place a note on client accounts.

Discretion only applies for payments made to the ATO under the amnesty that have been remitted out to the individual accounts. For employers that made late payments directly to super funds for either current or former employees, the discretion will not apply.

If an individual’s employer made contributions directly to their super fund and claimed these amounts under the SG Amnesty then, in these circumstances, the individual will still need to apply to the ATO to have the contributions disregarded in calculating whether they have exceeded their concessional contribution cap.

In online services for agents and for individuals through myGov, the contribution will still appear as a concessional contribution and it could appear to individuals that they have breached the cap. The ATO cannot disregard the contribution for the purposes of it being a contribution; only for the purposes of calculating an excess amount.

The ATO are looking at how best to communicate to those who will be impacted and are finalising a communication strategy to ensure broader community awareness.

Members' comments

For those individuals where payment has been made to the fund and need to seek the ATO discretion manually, can the ATO please ensure that it is highlighted in communications to engage early with the ATO, prior to the excess contribution of tax assessment being raised and rather than waiting for those assessment notices to arrive?

Members would appreciate the opportunity to provide feedback on proposed communications.

Transfer balance cap indexation

The transfer balance cap which is currently set at $1.6 million for all individuals will be indexed as of 1 July. Whilst it is indexing to $1.7 million, that does not mean that each individual will have a cap at $1.7 million. It is proportionate indexation, meaning that an individual’s cap will be dependent on their highest ever transfer balance cap to date.

The ATO will calculate what the transfer balance cap will be for that individual and provide to agents via online service for agents (OSfA) and directly to individuals via myGov, however, that calculation is based on the information that is reported to the ATO by the funds including self-managed superannuation funds (SMSF).

The challenge is for individuals who have an SMSF or a combination of an SMSF and an Australian Prudential Regulation Authority (APRA) fund, particularly those who only report to the ATO once a year. If they report late, the ATO can only calculate based on the information available which may result in a lower transfer balance cap being calculated than is actually the case. This is a risk for those close to $1.6 million who may then breach the cap.

Members are encouraged to share the information available on ato.gov.au which includes a webinar, examples and instructions, to assist with calculation of the individual cap.

Members' comments

Members noted outside factors that cause issues including individuals with multiple funds and fund reporting schedules. If a client has more than one fund by the time the tax agent receives the balance information from all parties, it may be well into the new financial year.

The ATO are asked to give consideration to communication regarding redundancy and termination payments for individuals displaced at the end of March when JobKeeper ends.

Intermediary Assurance Strategy

In late 2019 and early 2020 the Intermediaries Assurance strategy was shared with members for feedback.

The purpose of the strategy is around transparency of the ATO’s interactions with tax practitioners and risks seen in their client base. Central to the strategy is the risk or ‘tear drop’ model used to differentiate practitioners based on previous behaviours informed through data analytics and risk modelling. The ATO is looking at tax practitioners from a holistic view including client base and agents’ own affairs.

Positive outcomes have been achieved through early intervention with practitioners with correspondence and conversations held around the risk model through the Black Economy work as well as risk management for the stimulus measures.

Through the Black Economy strategy, the ATO is engaging with practitioners with targeted communication to reinforce compliance action. There is an escalating range of tactics that start out with education and communication to reinforce positive behaviours and create more awareness of the outcomes of interventions. The early intervention program is about engaging with agents who are showing a risk of escalating up the tear drop, to create awareness of risk and to provide the opportunity to strengthen their controls and practices.

Firmer action will focus on high risk practitioners and the scrutiny will focus on the agent’s practice, client base, and agent's own affairs. Wherever a risk is identified within those three areas, the information may be shared with the Tax Practitioners Board (TPB).

The ATO team is now looking at how best to share the tear drop model and how we use it in our risk profiling work with the community.

Members' comments

Members commented that anything that gives a practitioner insight into their practice is useful and assists with managing practice staff as well as clients. It allows the practitioner and client to have engagement with the ATO on key risk areas prior to advancing to the audit stage.

Avoiding an audit is better for the ATO, the community and for practitioners. By making this data available it will help with compliance, hopefully avoiding the need for an audit. The observation was made that practitioners would like to know where thresholds within the tear drop model are to try and stay under them.

A further discussion with a subset of the Tax Practitioner Stewardship Group (TPSG) members would be useful to understand what role the professional associations could play in this exercise as there have been challenges in the associations in assisting members with audit cases, given the constraints on authorisation to speak with the ATO or TPB.

Tax Practitioners Board update

TPB webinar participation rates have increased over 400%, averaging over 6,000 registrations per event. This has partly been attributed to the COVID-19 environment.

The TPB will be holding a webinar in conjunction with the ATO on 20 May 2021.

Each year the TPB is seeing an increase in TPB register searches. Some of this may be attributed to a targeted communication campaign to both taxpayers and small businesses advising them to ensure their tax agent is registered.

The TPB has approximately 90 active cases investigating potential COVID-19 stimulus measure fraud as well as incorporating broader risks. There have been approximately 75 finalised cases relating to COVID-19 matters where no sanctions were applied or insufficient evidence was available to pursue the case.

Key outcomes from the Tax Agent Services Act 2009 (TASA) review included:

• preference for a more effective and independent TPB
• reduction in red tape for tax practitioners
• enhance community confidence and support the high standards in the tax profession
• the TPB to be more independent from the ATO, and a formal agreement to be established between ATO, Australian Securities and Investments Commission and TPB for information sharing
• recommendation for increased consultation.

Supporting the tax profession

This program of work began with the TPSG 12 months ago with consideration being given to potential scenarios of what would be considered a crisis situation and what action could be taken in response. We are looking to have key deliverables in place by 1 July 2021 which will be an overarching framework with a communications plan and a mental health strategy, that can be referred to when a crisis situation occurs.

The ATO has its own internal business continuity management area which will tie into this program of work, guiding how the ATO interacts and treats agents during a time of crisis, and also recognising the support practitioners offer to their clients.

We want to ensure we are responding appropriately in the short term whilst recognising there are things in the longer term we needed to consider.

The co-chairs of the three individual project groups supporting this strategy provided an update to members.

Single Touch Payroll (STP) update

Following consultation held in late 2020, the Commissioner has now issued a mandatory start date of 1 January 2022 for STP phase 2. The ATO recognises there will be some digital service providers and employers that, despite all best efforts, may not be able to meet the 1 January 2022 date. The ATO is currently reviewing the approach for deferrals for these two segments, which will be a similar framework to phase 1, and will publish this framework on ato.gov in the near future.

The STP phase 1 compliance activity was impacted by COVID-19. The ATO is now commencing compliance action for substantial employers who have not yet transitioned across to STP reporting. The ATO has contacted those substantial employers and their agents on multiple occasions to discuss making the transition. Where an employer has a registered agent, the agent has also received a copy of the penalty warning notice received by their client.

Members were provided with an overview of the key reporting changes in phase 2 including:

• a requirement for employers to report a country codes about the home country of employees who are either inbound assignees or working holiday makers, or the host country of an employee who is an Australian resident working overseas
• new fields in STP will replace some of the fields on the tax file number declaration form, removing the requirement for the employer to separately send the tax file number declaration form to the ATO
• disaggregation of gross amounts, reporting Lump Sum E by financial year, adding new cessation type reasons and separately reporting salary sacrifice amounts.

Closely held payees have been provided with an exemption for STP reporting until 30 June 2021. Targeted information for this segment will be available on ato.gov.au to assist employers with reporting options.

Members' comments

A member noted that, based on feedback received from the community regarding the 1 January 2022 cut over date, information on pre-reporting prior to the new year using STP 1 and the deferral approach for phase 2 needs to be shared as soon as possible.

Members raised concerns around the practice employers with closely held payees have been given with regards to year end reconciliation, and that it may be hard for agents to now curb these expectations and get them to engage with accurate STP reporting. It is timely to provide this guidance now.

Small business

Overview on strategic initiative – Improving Small business tax performance

The intent of the initiative is to integrate digital services that small businesses use with ATO systems and ensure an efficient tax system, improving performance while reducing the cost of compliance and helping businesses to grow and be more profitable.

Indicators of small business tax performance may include components of the tax gap program and work has been done to better understand:

• the profiles of the different client segments of the small business market
• the characteristics of businesses that get it right, such as obtaining good advice, managing cash flow and debt, record keeping and having good digital systems in place.

This initiative is not directly addressing black economy behaviours but focuses on improving the use of data and digital services to reduce complexities in the tax system and having a level of engagement to assist small businesses to get it right.

The ATO will partner with identified key stakeholders such as digital service providers and engage with both TPSG and Small Business Stewardship Group members to assist in further defining the problem areas and finding solutions to the problem statements. This co-design will commence later this year.

The intent is not to identify policy or law change, although potential areas of change may be found when examining solutions to the problem statements; the focus is on administration, data and digital improvements.

Members were invited to provide initial feedback on the problem statements noting that there is no urgency as this group will be consulted with throughout development of this initiative in the coming year.

Members' comments

Members supported the concept and supported engaging the TPSG early in consultation and co-design.

Members appreciated seeing the demographics provided in the small business profiles and are interested in how they will be utilised in the approach.

Members were interested if the modernising business registers project may impact the demographics identified for this initiative and if business structures may change.

Small business income tax random enquiry program

A review of random businesses was conducted across the 2014–15, 2015–16 and 2016–17 years, and highlighted a range of behaviours that impacted the tax gap for small business, including black economy behaviour such as operating outside of the system, often by omission or reduction of income.

Behaviours identified in the analysis where businesses were getting it right included having good recordkeeping practices, use of technology or point of sale software and seeking advice from tax professionals regularly, especially before making important decisions or making changes to their business structure or buying or selling assets.

It was highlighted that tax practitioners continue to have a positive impact on small business compliance.

• 94% of entities use agents to lodge, of which 82% that use an agent were compliant which was significantly higher than self-preparers.
• Small businesses that are getting it right regularly seek support and advice from a tax practitioner that understands their business and business model.
• Good record keeping practices are being encouraged by tax practitioners assisting with accurate reporting.
• In cases where shadow economy behaviours were identified, there was deliberate behaviour demonstrated by tax practitioners in not meeting professional standards or reporting the actions of the small business, or indeliberate issues with records not being adequately sighted.

Overall, the findings showed two key areas affecting taxpayer compliance:

• irregular contact with tax professionals
• lack of reasonable care.

Findings show that record keeping is a consistent problem and the ATO wants to explore how to work together to increase the focus on good record keeping practices within small businesses.

Members' comments

Members queried what the ATO defines as record keeping. The ATO responded that it means a wide range of things including actually having a record, separation of business and personal use and cash transactions, explanation of discrepancies in Business Activity Statement (BAS) to Income Tax reconciliations and substantiation of expenses and assets.

Members provided feedback that the that term ‘record keeping’ implies keeping something in a filing cabinet and suggested the use of another term indicating the ability of a business to substantiate compliance.

The expectation on practitioners to sight all source documents is not always practical. The ATO clarified that practitioners need to remind the client of their responsibilities to retain all source documents and not just examples.

Referring to sighting records should be reworded to say sighting the correct records and practitioners advising clients what documents should be kept.

Member noted that preparation of returns and lodgments are not audit or assurance activities. Often tax agents will delegate those responsibilities to staff in the practice, but it is good to reiterate the practical things that tax agents can do as part of their role when working with clients.

A member commented that it is good to hear that this program is working in conjunction with the Agent Assurance Strategy and highlighted the importance of coherent messages that are aligned. The ATO responded that they are conscious of wanting clear messages that are aligned and coordinated.

Lodgment program

In response to previous requests, members were provided with a report providing lodgment program performance statistics and details of the ATO’s response to falling lodgment program performance.

Year to date lodgments are steady with similar lodgment figures being seen each year. The 85% benchmark is utilised as a support mechanism to assist the ATO to understand where agents may be struggling. This benchmark is only for individual tax returns and fringe benefits tax returns.

Agents whose lodgment performance either decreases by 20% or more from the previous year or who achieves below 75% will be contacted by the ATO to better understand their circumstances. These agents will be advised of the different support measures available that may be of assistance.

The ATO has seen an increase in lodgment performance in response to the introduction of the lodgment program, but there has also been an increase in deferrals over the years. In response the ATO is proposing to review the lodgment program and assess its appropriateness, and the strategies supporting it.

The ATO proposes to establish a lodgment working group to determine if there are any issues being heard from the community such as timing of due dates affecting agent lodgments and if the support and compliance mechanisms being applied are appropriate.

The ATO will ask for nominations, initially for a small group of stakeholders to participate in the design process, followed by broader community consultation. The consultation will assist to bring together the views of the ATO, professional associations and tax practitioners to assist with the effective administration of the system. The lodgment working group will provide updates at the quarterly TPSG meetings where all members will also have the opportunity to provide feedback.

Members' comments

Members support the re-creation of a lodgment working group and it should be coupled with the Intermediaries Engagement Model as key resources for assessing and managing the agent environment.

Members highlighted that even if a program is working well it is still beneficial to review at intervals to assess effectiveness and potential improvements.

Members would like to see a tiered system of concessional due dates based on performance measures.

Members queried whether there is a pool of clients that have been removed from agent lists that need to be re-engaged by the ATO. The importance of cleaning up client lists was discussed, and members again highlighted the need for a bulk deletion function in OSfA.

A point was raised that agents may remove clients from their client list to improve their performance statistics, but this may in turn risk their internal practice processes where the client is then missed from their re-engagement activities.

The working group should leverage off the professional standards expectations of the major professional associations that include the obligation to maintain a level of lodgment performance and manage their clients.

Online service for agent lodgment widget review

The intent of the widget is to present to the profession accurate data that positions agents to best understand their lodgment performance at any point across the year. Mixed feedback has been received from the community regarding the current lodgment widget.

Following on from the lodgment program discussion, further consultation will be undertaken to identify:

• what information, additional data and functionality would be helpful to practitioners (identified from the lodgment program review work)
• how the ATO can best present this information and functionality to practitioners.

Members' comments

Members suggested more education on the purpose of the widget would be helpful and increase understanding that the widget is to be used as a guide only, and guidance to assist with interpreting the widget information and why information showing on the widget changes.

This review might benefit from more clarity around what the performance measures will be and what the lodgment program may cover to ensure what is designed is relevant and aligns with any changes to the lodgment program.

It would be helpful to have some more information on how to request reports and how to navigate the widget. The widget should contain real time data which integrates with practice lodgment software.

Debt and lodgment program of work update

The ATO paused Outbound interactions in November 2019 in response to bushfires and more broadly in response to COVID-19 in March 2020.

This recommenced with the Help and Assist approach in July 2020.

ATO approach

We continue to help and assist clients to get back on track.

We make purposeful calls, seek to understand the client circumstances and work with the client to get them back on track.

We are introducing warnings to advise potential next actions if the client does not meet their obligations or engage with us.

People that engage with us and lodge are NOT the ones we are looking to penalise; they are the population we will go out of our way to help and assist, providing deferrals/payment plans and other support.

We will commence imposition of failure to lodge penalties from the end of March

Where appropriate we will start to take firmer action including legal action. This includes:

• issuing firmer action warning letters
• issuing garnishees, director penalty notices and statutory demand (s459e) notices and summons
• issuing bankruptcy notices and wind up notices.

We will generally take firmer or stronger action where:

• we have sufficiently attempted to contact and engage the client to resolve through help and assistance
• reasonable time has passed to allow the taxpayer to reach out for support if they need it, either with us directly or with their tax professional
• we have provided the taxpayer with advance warning – the aim being to encourage the taxpayer to engage with us first, which is our preferred alternative as opposed to pursuing other actions.

Additional safeguards in place:

• firmer and stronger actions are only undertaken by experienced staff – new recruits do not undertake this type of work
• delegation and authorisation levels restrict the extent to which activities can be done without requiring additional senior approval
• quality assurance (QA) reviews are completed on a regular basis by an independent team. Also, the volume of QA assessments undertaken for these work types is higher than the volumes undertaken for other activities, thereby providing an additional layer of oversight and assurance.

What do we need from agents?

Lodge even if you cannot pay – we will work with you and your clients on a payment solution.

Do not ignore our letters – it is important to talk to us about the client’s position.

Failure to lodge penalties will start being imposed from 31 March.

Tailored payment plans are available through online services, including the ability to vary the payment plan and opt in for payment reminders.

Members' comments

Tax professional members would like the ATO provide communication regarding the re-commencement of firmer action activities for outstanding obligations so that the community is aware of what is coming.

A description of the ATO process and approach is what tax practitioners and the professional associations would like to assist them when dealing with client queries or angst received regarding the perceived behaviour of the ATO.

Other

Guidance has been published on voluntary repayments. These payments cannot be paid to usual payment channels. Contact needs to be made to obtain a special payment reference number.

Attendees

Attendees list

Organisation	Attendee
ATO	Hoa Wood (Co-chair), Individuals and Intermediaries
ATO	Adam Kendrick, Individuals and Intermedia
ATO	Andrew Watson, Small Business
ATO	Audra Paskevicius (Secretariat), Individuals and Intermediaries
ATO	Ben Spargo, Individuals and Intermediaries
ATO	Dana Fleming, Superannuation and Employer Obligations
ATO	Deborah Jenkins, Small Business
ATO	Donna McArthur, Superannuation and Employer Obligations
ATO	Gary Holland, Superannuation and Employer Obligations
ATO	Grant Brodie, Client Account Services
ATO	Jason Lucchese, Client Engagement Group
ATO	Jo Dance, Small Business
ATO	Kathrina Weinhonig (Secretariat Support), Enterprise Strategy and Design
ATO	Ken Kua, Individuals and Intermediaries
ATO	Kerry O'Loghlin, Individuals and Intermediaries
ATO	Michael Karavas, Client Engagement Group
ATO	Peter Holt, Small Business
ATO	Phillip Jones, Superannuation and Employer Obligations
ATO	Siobhan Spencer-Arnell (Secretariat), Individuals and Intermediaries
ATO	Sonia Corsini, Superannuation and Employer Obligations
ATO	Sylvia Gallagher, Individuals and Intermediaries
ATO	Tina Ford-Doe, Individuals and Intermediaries
ATO	Vivek Chaudhary, Debt and Lodgment
Australian Bookkeepers Association	Peter Thorp
Chartered Accountants Australia and New Zealand	Michael Croker
CPA Australia	Elinor Kasapidis
H&R Block	Mark Chapman
Income Tax Professionals	Scott Bailey
Institute of Certified Bookkeepers	Matthew Addison (Co-chair)
Institute of Public Accountants	Irwin Bushnell
National Tax and Accountants Association	Rodney Wilson
Tax & Super Australia	Neville Birthisel
Tax practitioner	Gavin Swan
Tax practitioner	Keith Clissold
Tax practitioner	Ken Thomas
Tax practitioner	Mark Morris
Tax practitioner	Phil McCann
Tax practitioner	Shanna Hunter
Tax practitioner	Steven Inglis
Tax practitioner	Warren Seeto
Tax Practitioners Board	Debra Anderson
The Tax Institute	Robyn Jacobson

Apology

Apologies list.

Organisation	Member
ATO	Alex Adams, Enterprise Solutions and Technology
ATO	Michelle Crosby, Commonwealth Business Registry Service
Institute of Public Accountants	Tony Greco

Summary of key topics discussed at the Tax Practitioner Stewardship Group meeting 12 March 2021