National Tax Liaison Group
Minutes for the Meeting of 6 September 2001
Venue:
Australian Taxation Office
Conference Room 2, 5th floor, East Tower,
2 Constitution Ave, Canberra.
Attendees:
|
Garry Addison |
CPA Aust. |
Paul Hockridge |
CPA Aust. |
|
Mike Buckley |
Treasury |
Gil Levy |
TIA |
|
Michael Carmody (Chair) |
ATO |
Alice McCleary |
TIA |
|
Keith Clissold |
ATMA |
Margaret MacDonald |
ICAA |
|
Michael D'Ascenzo |
ATO |
Peter McDonald |
TA |
|
John DeWijn |
LCA |
Brian Sheppard |
ICAA |
|
Michael Dirkis |
TIA |
Tony Stolarek |
ICAA |
|
Andrew Gardiner |
NTAA |
Bill Thompson |
LCA |
Apologies:
|
Paul Drum |
CPA Aust. |
Tony Jones |
NTAA |
|
Bob Duncan |
ATMA |
Barry Low |
TIA |
|
David Green |
NIA |
Gavan Ord |
NIA |
|
Rob Heferen |
Treasury |
Ross Seller |
LCA |
Secretary:
|
Denise English |
ATO |
||
|
John Lindell |
ATO |
Guest Speakers:
|
Frank Curio |
ATO |
Professional bodies represented:
|
ATMA |
Association of Taxation and Management Accountants |
|
CPAA |
CPA Australia |
|
ICAA |
Institute of Chartered Accountants in Australia |
|
LCA |
Law Council of Australia |
|
NIA |
National Institute of Accountants |
|
NTAA |
National Tax and Accountants Association |
|
TA |
Taxpayers Australia |
|
TIA |
Taxation Institute of Australia |
Agenda Summary
1 Introduction and confirmation of minutes of the 6 June 2001 Meeting. 4
2 Running Balance Accounts (RBAs) 4
3 ATO Administration of Taxation Rulings 6
3.1 Private Binding Rulings (PBRs) 6
3.2 Public Rulings 9
4 Mass Market Schemes and General Interest Charge (GIC) reduction 10
5 Payne’s Case 12
6 Non-commercial loans and Entity Tax 13
7 Withdrawal of Taxation Determination TD 94/20 13
8 Division 243 and education activity 15
9 Tax Reform update 15
9.1 Status of implementation 15
9.2 Levying of penalties 16
10 National Review of Standards for the Tax Profession 17
11 Ultimate Beneficiary Statements (UBS) 18
12 ATO and funding its operations 20
13 Timing of the release of ATO press releases 21
14 ATO risk reviews 22
15 ATO Pre-audit Questionnaires to Barristers 24
16 Alienation of Personal Services Income (APSI) 26
17 ATO Compensation Guidelines and Policy and Defective Administration 28
18 ATO Access Manual and Legal Professional Privilege 29
19 NTLG work Program and Management Issues 31
19.1 Report on Action Items from 6 June 2001 31
19.2 ATO Tax Practitioner Forum Report 40
19.3 CGT Subcommittee Report 41
19.4 Electronic Commerce Forum Report 42
19.5 FBT Subcommittee Report 44
19.6 Foreign Source Income (FSI) Subcommittee Report 45
19.7 GST Rulings Panel Report 47
19.8 PAYG working Party Report 48
19.9 Transfer Pricing Subcommittee Report 50
19.10 International Tax Rulings Panel Report 51
19.11 Litigation Panel Report 52
19.12 Part IVA Panel Report 52
19.13 Public Rulings Panel Report 52
19.14 Tax Treaties Panel Report 53
19.15 Tax Practitioner Industry Partnership Report 54
20 Other Business 56
20.1 Deductibility of foreign exchange losses on offshore borrowings 56
20.2 Independent Contractors, bicycle couriers and Hollis v Vabu 57
20.3 Technical Corrections Register 57
20.4 Reasonably Arguable Position 58
20.5 Information from subcommittees 59
21 Next Meeting 59
Summary of Attachments
Attachment 1 - Action Item Summary 60
Attachment 2 - Where the ATO is at with the Transition to ANTS 62
Attachment 3 - Tax Reform Update 63
Attachment 4 - Commissioners ATOlive broadcast 69
Attachment 5 - Tax agent broadcast of 17 April 2001 71
Attachment 6 - Tax agent broadcast of 13 July 2001 73
Attachment 7 - Common arguments concerning ‘Reasonably Arguable Position’ (“RAP”) 76
Attachment 8 - Extracts from the ATO Receivables Policy defining ‘serious financial hardship’ 81
Attachment 9 - Assistant Treasurer's Press Release 1 August 2001 83
Attachment 10 - Extract of NTLG minutes of March 1997 84
Agenda Items
[Agenda items are provided by the professional bodies and the ATO, including the many joint ATO/practitioner/taxpayer liaison forums operating across Australia. They are set out with the description of the item and the status/response from the ATO or the professional bodies.]
[_Toc476373035][_Toc528466548] 1 Introduction and confirmation of minutes of the 6 June 2001 Meeting.
Meeting Discussion: Introductions and apologies:
Garry Addison attended for Paul Drum (CPA Australia)
Keith Clissold attended for Bob Duncan (ATMA)
Andrew Gardiner attended for Tony Jones (NTAA)
Mike Buckley attended for Rob Heferen (Treasury)
Gil Levy attended for Barry Low (TIA)
Reece Agland attended for Gavan Ord (NIA)
John DeWijn attended for Ross Seller (LCA)
David Green (NIA) was an apology.
The minutes of the 6 June 2001 meeting were endorsed without change.
[_Toc528466549] 2 Running Balance Accounts (RBAs)
Representatives from the professional bodies are increasingly concerned about the Running Balance Accounts (RBAs). Whilst it is appreciated that the ATO has considered administrative anomalies and difficulties with the operation of RBAs at the ATO/Tax Practitioner Forum and other consultative meetings, the professional bodies are concerned that the problems occasioned by the operation of the RBAs are symptomatic of fundamental flaws in the system beyond mere administrative processes. A number of cosmetic changes were made to the administration of RBAs in December 2000, and it is anticipated that we will have to wait at least a further 12 months before a more comprehensive tranche of changes are put in place. There seems to be little reassurance that the system will be corrected in the near future. This raises doubt about whether in fact the RBA system is working effectively at all. Would the ATO please provide:
a. A summary of the key operational and administrative issues arising from the operation of the RBA system.
Response: Through feedback from various professional associations and, more particularly, through meeting with the Accounting Working Group (AWG), the following four key operational and administrative issues have been identified:
· RBA Statements;
· The offset of refund credit against other tax or Commonwealth debts;
· General Interest Charge (GIC); and
· The availability of a dedicated resource in the ATO to respond to RBA queries.
There are a number of concerns raised by practitioners in relation to the RBA Statements. These concerns include the written description of transactions included in the statement, the format of the statement and the frequency with which the statements are issued to taxpayers.
Refund offsets can occur when a refund request (eg through lodgment of a BAS, IAS, Income Tax return) is received from a taxpayer who has debts on other accounts. These accounts may be administered by the ATO or other Commonwealth Agencies, such as the Child Support Agency or Centrelink. The issue that has created difficulties is that the information provided on RBA Statements or other system generated correspondence does not provide sufficient detail about the offsets to enable reconciliation of the taxpayer’s affairs.
The concerns around the GIC arise mainly because of the compounding nature of the charge. When an automated RBA Statement is issued to a taxpayer, it includes an amount of GIC calculated and imposed up to the date the statement is produced. There is an inevitable delay in the taxpayer receiving the statement, given printing and postage lead times, including the time taken for on-forwarding by their tax agent. This results in a further amount of GIC accruing on the outstanding balance by the time the taxpayer makes a payment.
Given the above issues and a more general need for information about the RBA, practitioners and taxpayers have expressed frustration that the standard enquiry mechanisms established by the ATO have not been able to adequately respond to their specific queries.
b. Details of its strategies for implementing changes to the RBA system.
Response: As referenced above, the ATO has sponsored the formation of the Accounting Working Group (AWG), a sub-group of the ATO Tax Practitioner Forum. The AWG brings together both representatives of the ATO and tax practitioners to examine and discuss RBA issues. In discussing these issues, the ATO hopes to provide a better understanding of the operational aspects of the RBA as well as working with practitioner representatives to identify areas where improvements need to be made.
In addressing identified RBA issues, consideration is being given to whether the issue is one that can be resolved through the provision of educational material or whether system changes will be required. In some circumstances, the extent of change required means that improvements cannot be achieved in the short term. Where this is the case, other avenues such as educational material will be provided in the interim.
In consultation with the AWG, the ATO has identified a number of areas where the provision of educational material would assist practitioners in understanding RBA processes. These areas include an overview of the account structure, and the circumstances under which refund offsets would occur overlaid by a flowchart depicting activity statement and income tax return processes. These documents will be made available on the ATO website.
Again, through consultation with the AWG, possible system enhancements have been identified, particularly in relation to the RBA Statements and refund offsets. The timetable under which these changes are implemented will depend on the extent of the development work required and the availability of resources to deliver the changes. In the shorter term, for example within the next 6 months, the ATO intends to make changes in relation to statement descriptions, extended GIC payout amounts and refund offsets. In the longer term, issues around the design, frequency and delivery mechanism of statements will be addressed, including the possibility of making statements available via the internet.
The ATO, in response to requests, is also intending to trial an improved practitioner enquiry service allowing particular focus on queries arising from RBA statements. Arrangements are currently underway to set up the service, including staff training. Improvements to this service are to be in place in advance of the next RBA statement run scheduled for September.
c. Confirmation of the final date when we can expect current administrative and system faults to be corrected?
Response: There are a number of different processes underway to address the identified problems of the RBA. Solutions will be progressively implemented. Educational material is expected to be available before the end of August whilst system changes are expected to be implemented across the next 12 months. Given the broad range of activities being undertaken, it is not possible to provide a final date when all problems will be resolved.
d. Tax agents are increasingly being told that the ATO will not provide information either verbally or in writing about RBA balances, and that 'it is up to taxpayers to keep adequate records regarding their RBAs'. Would the ATO please advise why these instructions have been given and provide an explanation how these responses accord with the letter and spirit of the Taxpayers’ Charter.
Response: The ATO acknowledges recent problems with the non-provision of information about taxpayer’s RBA balances. Call centre staff now provide verbal advice in relation to account balances and certain account transactions, and will also be able to arrange for an RBA or payout statement to be issued.
Meeting Discussion : The professional bodies expressed concern over what they believe are fundamental problems with RBAs, including their capacity to support the PAYG system. Professional bodies are trying to understand the source of the issue, is it within the RBA system? the PAYG system? or the interaction of various systems? The professional bodies acknowledged some practical changes had occurred as a result of the Accounting Working Group.
Action Item NTLG0109/1 : The ATO will provide NTLG members with an outline of major milestones and timelines for RBA changes and support initiatives.
[_Toc528466550] 3 ATO Administration of Taxation Rulings
The representatives at the NTLG request feedback from the ATO on the following matters arising from the Australian National Audit Office’s (ANAO) Audit Report No. 2001-2002 into the ATO’s administration of Taxation Rulings.
[_Toc528466551] 3.1 Private Binding Rulings (PBRs)
It was noted by the ANAO in paragraph’s 4.101 and 4.102 of the above Audit Report that the ATO has taken significant steps to redress a number of problems which impede the achievement of the ultimate objective of providing certainty to taxpayers in a PBR.
a. Would the ATO please provide a progress report on the work of the Provision of Advice (PoA) project in relation to PBRs and its strategies for acting on recommendations by the ANAO for bringing about a more efficient and effective PBR system?
Response: Enhancements to the existing systems and procedures have been instigated to specifically refine provision of advice processes and integrate existing workflow and case management systems. These enhancements cover the end-to-end process from receipt and registration to dispatch of written binding advice.
Enhancements to date include:
· a unique sequential identification numbering system, which identifies the case and authorised approving officers;
· tracking processes to ensure existing authoritative decisions are followed, and where new decisions are made and appropriately authorised, an ATO Interpretative Decision (ATO ID) is created and added to the database;
· tighter anti-fraud measures whereby the system now ‘locks’ the authorised written binding advice to prevent alteration;
· accounting for all authorised numbers on the Register of Private Binding Rulings to enhance integrity;
· issuing of Practice Statement PS 2001/4 explaining the different forms of written technical advice, the circumstances in which such advice is provided, and the extent to which such advice can be relied upon.
To further assist taxpayers and ATO staff to understand the Commissioner's view of the interpretation of the law on particular issues, the publishing of ATO Interpretative Decisions (ATO IDs) began in May 2001.
This aims to continue to improve the accuracy, consistency and timeliness of decision making by building a database of views on issues. Where appropriate, ATO IDs will be converted to Public Rulings.
· ATO IDs replace the Case Decision Summaries service. Previously available Case Decision Summaries that continue to provide current guidance are being progressively converted to ATO IDs;
· the currency of ATO IDs is shown in each instance. Cautions indicate the extent to which each ATO ID may be relied upon;
· in respect of general income tax matters, it is made clear by way of a caution that ATO IDs may not include a complete statement of all facts in summarising the application of the relevant provision of the law to complex circumstances;
· Practice Statement PS 2001/8 provides the framework for the production of ATO IDs.
Publication of written binding advice has commenced. All ‘income tax’ written binding advice requested from 1 April 2001 and all GST private rulings requested from 1 July 2001 are published on the Register of Private Binding Rulings. This register appears on the ATO at http://www.ato.gov.au/rba/content.asp?doc=content/individuals/rba/htm .
Some of the initiatives to support publication are:
[_Hlt523113956]· Practice Statement PS 2001/7 Publication of ATO written binding advice, provides guidance on the requirement to publish written binding advice, editing written binding advice for publication and the review mechanisms available for taxpayers on versions intended for publication.
· An on-line Learning and Resource Site to assist staff.
· The ATO Advice Manual (ATOAM) has been reworked and updated to incorporate the Provision of Advice processes. All officers involved in providing advice to the community must comply with the policy and procedures contained therein.
· A professional accreditation program has been developed for those officers authorised to approve written binding advice. Practice Statement PS 2001/5 defines officers who are authorised to issue private rulings. The accreditation program will be delivered during this financial year.
· Enhance ATO internal systems and reporting mechanisms.
The ATO is currently developing strategies to address the ANAO’s recommendations that and they will be revealed at a future NTLG meeting.
It is worthwhile noting that the ANAO fully supports the PoA project. As the ANAO noted: “These initiatives should address many of our concerns about private rulings particularly regarding integration, usefulness and reliability of IT systems, performance information and data quality.”
b. On the matter of the publication of PBRs, it is noted that the Register of Priv[_Hlt522690798]ate Binding Rulings, as accessed from the ATO Assist web site, currently contains 85 or more pages of listings of PBRs (some 4,500 to 5,000 PBRs), most of which have been not published as yet. Would the ATO please advise on the timetable for the publication of these PBRs?
Response: All written binding advice issued from 2 April 2001, irrespective of when it was received in the office, has received an authorisation number, and is published on the Register of Private Binding Rulings (for integrity purposes). Many of these authorisation numbers will not have any content, as only binding advice in respect of applications received from 1 April 2001 (income tax) and 1 July 2001 (GST) will be published.
Practice Statement PS 2001/7 sets out the periods allowed for recipients to comment and/or referral to a Publication Advisory Committee. Once the period of time has elapsed and the edited version is cleared, publication occurs.
c. Once a PBR is allocated an identification number, is it possible to indicate in the Register what the subject matter of a PBR will be pending the publication of the content of the PBR in this Register?
Response: The ATO considers that in the interests of privacy and confidentiality, no contents of a private binding ruling, including the topic, should be published until the processes outlined above are finalised. The ATO will consider this proposal if the need becomes evident.
Meeting Discussion : The professional bodies recognised the ATO’s progress to implement the provision of advice project.
The professional bodies commented their members found the Register of Private Binding Rulings (the Register) a valuable source of information and understood the limitations of the information which could be disclosed. The bodies expressed concern that it is difficult to search through these rulings.
Second Commissioner D’Ascenzo noted that the publication of PBRs in the Register is, and was only ever planned to be, an ATO integrity measure for the rulings process. The information cannot be updated when case law or legislation changes. The ATO view is that a ruling is the only written advice which can be wholly relied upon for a specific set of circumstances.
To complement the Register, the ATO is developing a more sophisticated database for ATO interpretive information, called ATO Interpretive Decisions (ATOIDs). This database includes common issues arising from the rulings process and other ATO enquiry services, and is designed to contain the ATO’s view of the application of the law to various sets of circumstances.
The professional bodies questioned how the Register is an integrity measure. The Commissioner explained it is an integrity measure for the applicant, as every ruling has a number and the applicant can view their ruling on the ATO’s web site, confirm that the ruling is theirs, and is consequently validated as an ATO ruling. In summary, PBRs are designed to only apply to the specific applicant.
The professional bodies explained the value to their members of being able to search the Register to examine rulings issued on particular aspects of the law relating to various sets of circumstances. They noted it is useful for their members to know where rulings have been made in similar circumstances, or where a similar position exists, as this helps practitioners understand the possible range of issues involved in determining the correct application of the law. The professional bodies also advised that this facility would give them the capacity to clarify any possible inconsistencies in rulings given in similar circumstances and application of the law.
The Commissioner advised the ATO had consciously tried to segment the register away from the interpretive database with ATOIDs being a more reliable source of information. The Commissioner cautioned that private rulings only had application at law to the applicant and that ATOID’s were not public rulings.
[_Toc528466552] 3.2 Public Rulings
Paragraph 27 of the Key Findings in the ANAO’s report acknowledges that the NTLG has significant input into the identification of public rulings topics, noting that the ATO does not use a documented process to determine the priority of competing TR, TD, GSTR and GSTD public rulings topics.
a. In the absence of the publication of any documented process referred to above, what other means have been setup by the ATO to ensure that public rulings are prioritised and released on a timely basis (in addition to any input provided by representatives at the NTLG)?
Response: While the ATO agrees that it could articulate more clearly its approach to prioritising topics for the Public Rulings Program, there are processes for prioritising topics, and these include the NTLG and business community input.
The ATO uses various processes for identifying and escalating significant issues (and risks to the health of the tax system) which can, consequently, indicate the need for public rulings. These processes are already explained in the ATO Advice Manual and published in CCH and ATP publications. These processes include seeking input from community, industry and professional bodies, as well as the ATO’s consultative forums and technical groups. Whether an issue is significant is determined by reference to the significant issues criteria, publicly available in Practice Statement PS 2000/7 . Once an issue has been identified as a significant issue, it is given a high level of priority, and managed accordingly.
The application of the significant issues criteria depends upon various factors, including:
· the need to explain complex areas of the law to enable taxpayers to comply;
· the amount of revenue that may be at risk because of non-compliance with the law; and
· the number of taxpayers who may be affected.
The NTLG monitors the Public Rulings Program to ensure that matters of significance relevant to the community are on the program and are given the appropriate priority.
b. Does the ATO intend publishing any documented processes to determine the priority of competing Rulings?
Response: To complement the existing documentation of the public rulings process, the ATO will make further comment on prioritisation in the ATO Advice Manual, as recommended by the ANAO.
c. The ATO has engaged in consultations with the professional bodies and interested parties in respect of recommendations arising from the Ralph Review of Business Taxation impacting on public rulings, as well as consultations to discuss a more formal process for GST rulings. Would the ATO please advise what has happened to the outcomes from these consultations in light of the ANAO report?
Response: As the ANAO noted in its report, the Government has not yet responded to the recommendations made in the Review of Business Taxation Report in relation to both public and private rulings. Consequently, the ATO is unable to make any comment about those recommendations.
Meeting Discussion : The professional bodies offered to assist the ATO with prioritising public ruling topics. Second Commissioner D’Ascenzo advised the ATO is refining the prioritising process with a view to making it more open. He went on to explain the range of possible sources for public ruling topics. The Australian National Audit Office (ANAO) has requested the ATO to document the process. The ATO offered to make this document available to NTLG members prior to it being finalised.
Action Item NTLG0109/2 : ATO to provide a copy of the draft document to the NTLG outlining prioritisation of topics in the public ruling process.
[_Toc528466553] 4 Mass Market Schemes and General Interest Charge (GIC) reduction
In Media Release Nat 01/58 , dated 23 July 2001 the ATO released Guidelines on how eligible investors will be entitled to a reduction in interest from the current full GIC rate of 11.89% to 4.72%.
These Guidelines indicate three categories which are excluded from this concessional reduction. The first two exemption categories embrace promoters, tax advisers and financial planners, all of whom in some way are directly associated with an investor’s participation in a mass marketed scheme. The 3rd excluded category applies to tax agents and others who give advice for a fee on a regular basis.
Representatives on the NTLG are concerned about this 3rd excluded category which is too broad and could lead to the inequitable exclusion of tax agents from the concessions set out in these Guidelines. Tax agents should not be linked with the promoters, tax advisers and financial planners directly associated with an investor’s involvement in a mass marketed scheme simply because tax agents charge a fee on a regular basis and so “could be expected to be aware of the taxation issues associated with their investment”. Such a broad sweeping assumption is unfortunate and unacceptable.
a. Would the ATO please provide an update on how and to what extent these Guidelines have been applied to date?
Response: All investors, except for those in the excluded categories, in mass marketed 'tax effective' schemes, will be entitled to the interest reduction. That is:
· investors who have paid in full, have settled or entered a payment arran g ement can apply for the interest reduction now;
· investors can apply when they are ready to pay, settle or enter into a payment arrangement;
· investors who do not want to do anything now, for example pending the outcome of the test cases, can wait and apply later.
For the period 27 July - 15 August 2001 the ATO has received 3235 applications for the concessional rate of interest.
b. The Guidelines do not mention any time limit on the availability of this concession. Is it intended to make the concession available indefinitely?
Response : Interest remissions occur when the investor is ready to either pay, enter a payment arrangement or settle. Some may wait until the test cases are finalised. At that time the ATO will seek payment, and people can still get the interest reduction from the original due date of the original assessment. The reduced rate is applicable for the period the debt is outstanding subject to the investor meeting the requirements of the guidelines and any payment settlement agreement.
c. It is requested that the ATO consider deleting the 3rd excluded category altogether from the Guidelines, or consider amending it to ensure that the ATO must be able to substantiate that the tax agent was actually aware of the taxation issues associated with the investment before being excluded from the concessions.
Response : Interest reductions will apply to investors in these schemes because many investors lacked full knowledge of the scheme arrangements and the operation of the tax system. They were often subject to aggressive and sophisticated marketing techniques; they generally have a good tax record and typically they took advice from people expected to have the necessary knowledge. In the end, many appear to have suffered a real financial loss.
It is this combination of circumstances of typical investors in these schemes that constitute special circumstances warranting an interest reduction.
Tax agents and others who give tax advice for a fee on a regular basis could be expected to have been aware of the taxation issues associated with their investment, including an understanding of the self-assessment system.
It is difficult to see how they would satisfy the special circumstances outlined above to warrant an interest reduction, however, if such an investor can objectively demonstrate special circumstances, these will be considered on a case-by-case basis.
Meeting Discussion : The professional bodies were concerned that tax agents who were participants in mass marketed schemes were specifically excluded from interest rate reductions. The bodies believed the ATO was not standing by the Taxpayers’ Charter principle of treating all taxpayers the same and were also concerned about the categorisation of participants.
The Commissioner noted taxpayers were treated equally, based on their levels of knowledge and experience. Most participants were given interest rate reductions for reasons including that they were not fully aware of the self-assessment system, the private binding ruling system nor did they have a broad knowledge of tax law. Tax agents were excluded on the basis that the ATO expected they would have a knowledge of both the self assessment and private binding ruling systems and would have more than a broad knowledge of tax law.
While tax agents had been excluded from this broad interest rate reduction, the Commissioner advised the ATO would consider any special circumstances a tax agent may put forward to warrant similar treatment.
The Commissioner suggested the ATO could consult with a representative group of tax agents, if there were sufficient numbers, to discuss issues affecting this particular group of participants. He also noted the ATO had staff to deal with individual participants’ debt issues and staff would be made aware that tax agents may have other circumstances that could lead to an interest rate reduction.
[_Toc528466554] 5 Payne’s Case
In the final minutes from the NTLG meeting held on 9 March 2001 at agenda item 8.5, the ATO advised that it was proposing to withdraw the relevant extracts from the public occupation rulings (for example, TR 95/8 to TR 95/22) with effect from 1 July 2001 to reflect the decision in Payne’s Case. It was indicated by the ATO that “earlier withdrawal, two-thirds of the way through the tax year would cause confusion and unreasonably add to taxpayer compliance costs”.
Would the ATO please provide an update on the progress to amend the occupation rulings?
Response: Payne's decision is still under consideration. The ATO's current rulings remain in force until withdrawn, and may be relied upon by taxpayers.
Meeting Discussion : The professional bodies raised concerns about the impact of the case on current rulings and law, suggesting new case law might over-ride them. The Commissioner agreed to examine the situation and advise the NTLG.
Action Item NTLG0109/3 : The ATO to examine the impact of the decision in Payne’s case on the current rulings and legislation and advise the NTLG.
[_Toc528466555] 6 Non-commercial loans and Entity Tax
The professional bodies seek clarification of an issue of concern about non-commercial loans in the context of the Government’s proposed Entity Tax measures. In particular, reference is made to the Treasurer’s press release in February 1999 concerning the treatment of non-commercial loans to trusts.
With the indefinite deferral of the Entity Tax measures, the status of the Treasurer’s press release has yet to be clarified. Verbal indications from both the ATO and Treasury indicate that the issue of backdating this treatment of non-commercial loans to February 1999 is still on the agenda and could be a feature of the entity rules when they are reintroduced.
Vague pronouncements, in respect of so-called “suspect” arrangements, which are unresolved after the lapse of two years, with no clear articulation of the purported evil nor an agreed solution, do not further the causes of clarity, equity and certainty of the tax system.
a. Would the Commissioner advise what action the ATO will take to escalate the resolution of the status of the Treasurer’s announcement on non-commercial loans to trusts? Is this issue still an open one?
b. Is there any intention to extend the proposed treatment of non-commercial loans to trusts, to non-commercial loans to companies?
Response : The ATO is currently waiting on advice from Government.
Meeting Discussion : The professional bodies expressed confusion as to who will determine the applicability of the February 1999 date in relation to treatment of non-commercial loans.
The Commissioner noted there had been no suggestion that the February 1999 statement had lapsed but agreed to make enquiries with the Treasurer’s office. He also advised the Board of Taxation has been asked by the Treasurer to examine the trust rules matter. The Board has asked for briefings and will be looking at the range of issues involved.
Action Item NTLG0109/4 : The ATO to enquire with the Treasurer’s office in an attempt to determine the relevance of the February 1999 date in relation to the treatment of non-commercial loans.
[_Toc528466556] 7 Withdrawal of Taxation Determination TD 94/20
Taxation Determination TD 94/20 (Income tax: is a lease acceptable if it is based on a $1 residual value or if the lease is for the useful life of the asset?) has been withdrawn with effect from 1 July 2001. The professional tax and accounting bodies are of the opinion that TD 94/20 was the only clear ATO announcement that “non-genuine” leases (being for the life of asset in the situation discussed in TD 94/20) are treated as sale and loan.
The reason given for the withdrawal is the introduction of the Uniform Capital Allowance (UCA) provisions in Division 40 of the Income Tax Assessment Act 1997. However, it is now not clear whether, if at all, Division 40 is drafted in such a way as to capture the ATO’s opinion on “non-genuine” leases set out in TD 94/20. It is not clear why the comprehensive review of the capital allowance provisions didn't address this issue but has now in fact confused existing treatment without providing legislative certainty.
a. Would the ATO please identify what aspect of Division 40 resulted in the vitiating of the existing practice in TD 94/20?
b. What treatment is the ATO applying in the interim until it clarifies the interpretation of Division 40 in the absence of TD 94/20?
c. When can we expect a clarification of the ATO's view on a go forward basis?
Response: TD94/20 is an interpretation of the law contained in the former depreciation provisions of Division 42 of the Income Tax Assessment Act 1997. Division 42 was repealed with effect from 1 July 2001 and replaced by Division 40 (NBTS (Capital Allowances) Act 2001, Schedule 1).
Division 42 depends on the taxpayer being the 'owner' or 'quasi-owner' of plant (section 42-15). While the term 'owner' is not defined, the Courts have consistently confirmed its primary meaning as legal ownership but have also, in some limited cases, extended its meaning to include 'in-substance' ownership (see, for example, the discussion on ownership in Bellinz). 'Quasi-owner' is defined to include some specific 'in-substance' owners (subdivision 42-I).
TD 94/20 adopts the judicial view that where a lease is wholly or substantially for the term of an asset's useful life the lease payments have a substantially capital character and to that extent are not deductible (an application of Sun Newspapers). The TD goes on to say that the lessee in this situation will be treated, for the purposes of Division 42, as the owner of the leased plant thereby entitling the lessee to claim depreciation. The lessor is said to be excluded from claiming depreciation.
In contrast, Division 40 allows a deduction for the decline in value of a depreciating asset to the 'holder' of the asset (section 40-25). The meaning of ‘holder’ is extended in a number of specified circumstances and, in the absence of any of those specified circumstances, there is a general rule that the holder is the legal owner where there is both a legal and equitable owner (section 40-40). The range of holders contained in the table reflects the Government's decision to accept the recommendations of the Ralph Review in relation to entitlement to write-off depreciating assets (Recommendation 8.3).
It should be noted that Division 40 transitional measures preserve in the hands of a taxpayer who is entitled to depreciation deductions under Division 42 the taxpayer's entitlement to a deduction by way of decline in value under Division 40 provided, of course, circumstances continue unchanged (NBTS(Capital Allowances – Transitional and Consequential) Act 2001, section 42-10).
Note also the Ralph Review recommendations on leases and rights over depreciating assets for which the Government has given 'in principle' support (Recommendation 10.8). The question of what is a genuine lease (or a sale and loan) are the subject of these recommendations.
Meeting Discussion : The professional bodies are looking for a clearly articulated ATO view as the withdrawal of TD 94/20 has removed the clarity that previously existed.
Second Commissioner D’Ascenzo advised that taxation determinations applicable to old law were no longer relevant and therefore must be withdrawn. He recognised the current situation was not ideal for taxpayers and advisors, and asked the professional bodies to identify specific issues and advise the ATO.
Action Item NTLG0109/5 : Professional bodies to advise the ATO of issues in relation to ‘non-genuine’ leases previously covered by the withdrawn TD 94/20.
[_Toc528466557] 8 Division 243 and education activity
Division 243 has been introduced belatedly to deal with limited recourse debt in capital-allowances situations, and Div 240 has been introduced to deal with hire purchase. The law was first tabled in 1997, is effective broadly from 27 February 1998 and was reintroduced in 1999 and was passed, with amendments (excising the sales tax portion) in June 2001 - some 3-1/4 years after announcement. With the dates of effect of the measures being from 1998 and 1997 respectively it is likely that there will be many taxpayers with technical exposures under the rules who did not comply with the rules earlier, because they might have expected that the measures might not be proceeded with.
Is the ATO planning any particular educational or other activity to ensure there is awareness of the impact of these rules (esp Div 243) or any penalty remissions for taxpayers which might inadvertently find they have not complied with the detail of the law.
Response : The ATO is currently considering its position in relation to the issues raised and expects to respond prior to the December meeting.
Meeting Discussion : The professional bodies noted that well advised larger firms would be aware of the issues in relation to the application of Division 243, however, some smaller taxpayers are likely to be unwittingly impacted by the legislation.
The ATO agreed to follow-up on possible wider dissemination of material in relation to Division 243 and the application of any penalties, and advise the NTLG at the December meeting.
Action Item NTLG0109/6 : The ATO to advise the NTLG at the December meeting on possible wider dissemination of material and application of penalties in relation to Division 243.
[_Toc528466558] 9 Tax Reform update
[_Toc528466559] 9.1 Status of implementation
Would the ATO please provide a general update on the current status of the delivery and implementation of the elements of the tax reform package?
Response: Information about delivery and implementation of the Tax Reform to 30 June 2000 is summarised in the Commissioner of Taxation Annual Report 1999-2000 at Chapter 4 Tax Reform and Its Implementation (pgs 53-61 refer).
Attac [_Hlt523711507] hment 1 and Attachment 2 provide an update on implementation for 2000-2001.
Meeting Discussion : The professional bodies noted a number of reform measures have a 1 July 2002 commencement date and are keen to be involved in consultation as early as possible prior to enactment of legislation. Professional bodies were also concerned that, in some cases, more than 12 months had elapsed from the latest consultations.
Action Item NTLG0109/7 : Professional bodies to provide the ATO with a list of reform measures likely to have the greatest practical impact and due to be implemented on 1 July 2002.
[_Toc528466560] 9.2 Levying of penalties
The Commissioner has gone on record on a number of occasions indicating that the ATO would adopt an approach of “leniency” in administering changes to the tax system during the “implementation phase” of the tax reform period, particularly in relation to the levying of penalties. Tax payers and tax agents alike are confused about the meaning and impact of these statements and clarification is required.
a. Would the ATO please provide clarification of what time frame is encompassed by the term “implementation phase”?
b. How will “leniency” translate into practical terms in the administration of the new tax system?
c. What will be the ATO’s policy on the levying of penalties during the next 12 months and for whatever additional period of time is encompassed by the “transitional period”?
Response: The ATO intends to release a new practice statement to complement Practice Statement PS2000/9 to document the approach to administrative penalties during the 2001-02 year. Professional bodies and tax practitioners represented on the ATO Tax Practitioner Forum (ATPF) were invited to submit comments at the ATPF meeting of 3 August 2001.
The Commissioner's view is to continue to apply the general approach outlined in PS 2000/9 throughout the 2001-02 year. In this regard, taxpayers who have made a genuine or reasonable attempt to meet their obligations will have any penalty remitted in full, but will remain liable for any shortfall amount resulting from an error and the relevant general interest charge (GIC) payable. Penalties will not be remitted where there is clear evidence that the taxpayer has intentionally disregarded the tax laws or that the taxpayer has recklessly approached their tax obligations.
Taxpayers and practitioners can expect an increase in the number of verification checks in the 2001-02 year.
It is expected that the practice statement will be released by 31 August 2001.
Meeting Discussion : Professional bodies acknowledged the ATO’s work under GST law and indicated they are looking for a comprehensive remission policy similar to those that existed under previous penalty regimes. The bodies again raised concerns over the meaning of the term ‘leniency’ and suggested that the practice statement PS2000/9 did not provide the comprehensive guidance sought by the profession.
The Commissioner commented the ATO has been taking a particularly lenient approach with failure to lodge penalties, except where poor lodgement behaviour is being carried over into the new tax system, or patterns of poor lodgement behaviour are emerging.
In light of the professional bodies’ comments, the Commissioner agreed to follow up the practice statement which will be applicable to the second transition year of the new tax system. He also noted the ATO would benefit from feedback in relation to typical misunderstandings where the application of the law in particular circumstances may generate a penalty. This feedback will also be valuable for the development of future penalty policies and for educational material.
Action Item NTLG0109/8 : The ATO to follow up the development of a subsequent practice statement about imposition of penalties applicable to the second transition year of the new tax system.
Action Item NTLG0109/9 : The NTLG members to provide feedback in relation to typical misunderstandings where the application of the law in particular circumstances may generate a penalty.
[_Toc528466561] 10 National Review of Standards for the Tax Profession
At a recent Tax Practitioner Industry Partnership meeting there were general discussions about the high volume of BAS forms lodged manually. Following on from this discussion it was indicated by an ATO officer that it would be a compulsory requirement in the National Review of Standards for the Tax profession that tax agents deal electronically with the ATO.
Response: The National Review currently contains no recommendations supporting a compulsory electronic regime. However the NTLG's comments on the desirability of such a requirement (in exchange for a specified level of service) would be appreciated.
a. Would the ATO please provide an update on the implementation timetable for the National Review, including the anticipated date for the release of draft legislation?
Response : The implementation of the recommendations of the National Review were placed on hold, by joint agreement with the professional associations, on 10 March 1999. The reason at that time was the anticipated additional workload practitioners would face due to GST and other tax reform initiatives.
A timetable to resume the National Review process has been under consideration since March this year. To date, the restrictions imposed by the Government's legislative timetable and the further commitment needed to review the recommendations in light of the passage of time has meant that no draft schedule has yet been formulated.
b. Would the ATO please provide an update on what consultations to date have been conducted on this Review and who has been included in these consultations?
Response : Consultation on the National Review, including the ATO, has consisted of:
· the Attorney-General's Department (92 - 94)
· CPA Australia (92 - 99)
· Australian Taxpayer's Assoc (92 - 99)
· Federation of Ethnic Communities’ Councils of Australia (92 - 94)
· H & R Block (92 - 99)
· ITP (92 - 99)
· Institute of Chartered Accountants in Australia (92 - 99)
· Law Council Of Australia (92 - 97 [further irregular consultation to 99])
· National Institute of Accountants (92 - 99)
· Taxation Institute of Australia (92 - 99)
· Association of Tax and Management Accountants (92 - 99)
· Tax Agents' Board (92 - 99)
· National Tax and Accountants Association (97 - 99)
Subsequent to the release in 1994 of the draft report "Tax Services for the Public" which involved contributions from all of the above, a smaller working party was formed to refine the original draft recommendations. The working party consisted of single representatives of the above bodies and associations showing years later than 1994.
Following the Discussion Paper publicly released in 1993, a further discussion paper titled "Legislative Proposals for Tax Agent Services" was publicly released in 1998.
c. Would the ATO provide in writing any revised recommendations of the National Review and identify their priority for implementation?
Response: The congestion of the Legislative Timetable has meant that an amendment to any Act with category 2 legislation is currently too remote to be useful.
Consideration is currently being given to what can be achieved through amendments to the Regulations (subject to a different introductory process). A proposal is being drafted to reflect recommended changes to the prescribed qualifications for registration as a tax agent. If a useful draft proposal can be developed, a consultative process will be undertaken with relevant bodies and associations.
Meeting Discussion : Professional bodies noted a document had been submitted to the ATO indicating their priorities but as yet the ATO had not indicated how the matter would be progressed. The Commissioner advised the ATO considered the code of conduct to be the seminal issue and noted the professional bodies’ submission did not include this matter. The professional bodies advised they are prepared to negotiate further about a code of conduct.
The Commissioner agreed to write to professional bodies and ATPF members proposing a way forward.
Action Item NTLG0109/9 : ATO to write to professional bodies and ATPF members to propose a way to progress implementation of recommendations from the NRSTP.
[_Toc528466562] 11 Ultimate Beneficiary Statements (UBS)
The professional bodies are concerned about the inordinate amount of time being taken to resolve the uncertainty surrounding the status of the UBS.
a. Would the ATO please provide an update on the status of the resolution of this matter, indicating when it is expected to be settled?
Response : For the majority of trustees, Media Release 2000/107 of 27 November 2000 provided relief from the requirement to lodge a UB statement. The ATO has, after consultation with representatives of the NTLG, developed administrative guidelines in respect of the Media Release. These guidelines have been finalised and will be issued as a Practice Statement.
b. The overriding rule in the resolution of this matter must surely be that if the correct amount of tax has been paid at all levels, then no UBS should be required. Can the ATO provide an assurance that the final Practice Statement affecting UBSs will achieve this result?
Response : Media Release 2000/107 of 27 November 2000 achieves this. If the correct amount of tax has been paid at all levels there will not be a UBNT liability and therefore no requirement for a UBS. The Practice Statement due to issue shortly provides guidance to ATO officers in respect of administration of the general extension contained in Media Release 2000/107. It specifically addresses concerns raised in respect of minors and charitable trusts who have not applied for nor been notified of their TFN.
c. If a trustee is required to lodge a UBS, how does the ATO propose to deal with unresolved trust law matters? For example, what will be the position of a trustee under trust law where the trustee distributes all of the trust income and then finds at a later date that there is a UBS obligation which is not identified/determined until after the income was distributed?
Response : The legislation specifically deals with this situation. It provides trustees of closely held trusts with a power to sue the relevant ultimate beneficiaries, trustee beneficiaries and interposed trustees or partnerships for damages recovering the ultimate beneficiary non-disclosure tax (and any general interest charge) where the trustee beneficiary has received the full distribution.
d. If the Commissioner has a discretion about whether or not to require a UBS, has the ATO considered the substantiation difficulties confronted by a trustee in having to meet the information requirements of a UBS after the event? Can the ATO provide an assurance that the Practice Statement will address this type of issue?
Response : This issue is covered by trust law. Distributions made by the trustee will be a question of fact and would be evidenced in the minutes, the resolutions and the financial records of the trust and trustee beneficiary.
If the trustee of a closely held trust is prevented from making a correct UB statement because a trustee beneficiary or ultimate beneficiary refuses to provide information or provides incorrect information, the trustee can recover as outlined above in answer to c.
Meeting Discussion : Practice Statement PS2001/12 Lodgment of Ultimate Beneficiary Statements was released to the professional body members at the meeting and was to be available on ATOassist within the week.
The practice statement is available at: http://law.ato.gov.au/atolaw
12 [_Toc528466563] ATO and funding its operations
In recent times, there have been reports in the community at large that the ATO is facing budget cuts which will impact on its level of resources, requiring a rationalisation of business operation methods to administer the tax system. For example, in an article by Katherine Murphy in the Australian Financial Review on 19 July 2001, it was reported that some ATO managers have been asked to consider identifying how they would adjust resources and programs if their areas took funding cuts of between 20%-30%, and that the ATO was looking to eliminate 1,000 current positions. Given that the tax system continues at present to progress through a period of considerable change:
a. Would the ATO please advise what steps it is taking to secure the necessary levels of funding to ensure that it is able appropriately to administer the tax system?
b. What functional areas of the ATO will be most affected by any budgetary cut backs?
Response: The ATO is facing reduced funding for the 2001/02 year. An intensive planning process has been used to work through the budget allocation process and the organisation has identified:
· work that is not excess; and
· work that may be potentially excess because of:
-reduced risk/priority;
-eliminated due to automation;
-reassignment/realignment;
-redistribution of job/tasks;
-reduction in business demand;
-functions being reengineered; and
-moved to a different location.
In addition the ATO has examined ways to reduce expenditure and maximise the retention of ongoing staff. Supply costs, for example travel, postage, printing, consultants, etc. will also need to be capped.
Last year, the ATO shifted people and work to meet fluctuating demands and to deliver services for the community. The organisation will also need to maintain and enhance this capacity as needs vary over the year.
As the Business Lines evaluate what work is potentially excess and not excess, redeployments will be the first option for handling a mismatch of resources.
These moves will happen to:
· minimise disruption to services;
· move the labour hire and non-ongoing employees from the organisation from the end of August;
· start training those ATO staff who move as soon as possible; and
· give certainty to as many people as soon as possible.
It is the ATO’s objective to keep redundancies to a minimum and consequently has announced 1300 redundancies nationally and will use the redundancy process as per Clause 109 of the Agency Agreement.
A copy of the Commissioner's ATOlive broadcast is at Attachment 3.
Meeting Discussion : The professional bodies expressed concern about the ATO’s current funding and advised they would be writing collectively to the Prime Minister to express these concerns.
The Commissioner advised the ATO is currently involved in a funding review process, termed a ‘pricing review’, which will determine the funding base for the 2002-3 and future years. The professional bodies offered their assistance if the ATO needed advice or information about the real expectations of the professional bodies and their members.
[_Toc528466564] 13 Timing of the release of ATO press releases
There is an increasing indication that the ATO is releasing its press releases to the media well before the same press releases are being released to the professional bodies. For example, the recent the ATO National Office Press Release 01/63, concerning the ATO’s controversial position on the application of concessions in the film industry, dated 3 August 2001 was not forwarded to the professional bodies until 6 August 2001. Similarly, National Office Press Release 01/62 on the jail sentence for operating in the cash economy was released with a time lag the same as Press Release 01/63, and Press Release 01/60 concerning people using Phoenix companies was released to the media on 27 July 2001 and was not forwarded to the professional bodies until 30 July 2001.
Will the ATO please advise why these press releases are not forwarded to the professional bodies at the same time as they are being picked up by the media?
Response: Media releases come to PALU on the day they are released and, while PALU strives to make these available to the professional bodies on the day of release, this is not always possible. PALU's role is to ensure that media contact details are removed so that professional bodies can use the documents directly and practitioners do not have mis-directed enquiries to the ATO.
The ATO would also appreciate a reciprocal arrangement with professional bodies.
Meeting Discussion : Professional bodies noted that a number of ATO press releases have been issued late on Friday afternoons, making it difficult for professional bodies to be informed of issues if they are contacted by the media over the weekend. The ATO agreed to forward media releases to the professional bodies as soon as possible with the objective to forward them on the day they are released.
Action Item NTLG0109/10 : ATO to investigate quicker release of ATO media releases to professional bodies.
[_Toc528466565] 14 ATO risk reviews
It has come to the attention of the professional bodies that the ATO is carrying out prudential risk reviews of taxpayers, targeted mainly at large corporates. Would the ATO please clarify and provide feedback on the following issues:
a. Full details of the program, including but not limited to the following:
· The ATO division responsible for administering the program;
· The head of the project and whoever is responsible for its development and implementation;
· Selection criteria for Review entities;
· Entities currently subject to the Review process; and
· Timetable for implementation.
Response : Large Business and International Business Line (LB&I) is currently using a process called a Client Risk Review (CRR). The CRR is based on a process previously developed and used by a segment of LB&I and is currently being used by all segments of LB&I. The CRR is considered to be an important step in giving effect to the Cooperative Compliance Model (the model) outlined in “Cooperative Compliance Working with Large Business in the New Tax System” published in November 2000. The CRR is part of processes 1 and 2 of the model, Understanding Business and the Law and Assessing the Risks.
The CRR process involves:
· Understanding large business and the environment it operates in;
· Comparing to like businesses in the market;
· Analysing the information available;
· Developing hypotheses regarding significant issues;
· Visiting the taxpayer to further the understanding of the business and its environment and test the hypotheses;
· Assessing the risks associated with the issues; and
· If appropriate, recommending treatment strategies, including recommending policy or legislative change, issuing rulings, undertaking watching briefs or conducting audits.
Visiting the client is a key step. It directly addresses the concern of large business that audit activity can often be avoided or the issues limited if we discuss the issues with them first. In most instances the client visit will take no longer than one day. It should be noted, in some instances the visit will include inspection of some basic records such as director’s minutes.
Initially we have focused on the top 100 corporate groups and plan to extend this to the top 200 by December 2001. Eventually we would like to cover the top 600 on a regular basis. The process may be used for other LB&I clients where appropriate. Further expansion, however, will depend on the feedback we obtain from large business and our staff regarding the current CRR process.
The process is being further enhanced to ensure it continues to give effect to the model, is used consistently across segments and addresses Business Tax Reform. Development and implementation of the CRR process is being overseen by Assistant Commissioner Gordon McKimmie in conjunction with the Large Client Program project leader John Supple.
b. Are these Risk Reviews being treated by the ATO as tax audits?
Response : A CRR is not a Taxation Audit. Cooperative Compliance Working with Large Business in the New Tax System outlines the basic approach at page 24 as follows:
“The preliminary review is not an audit. It involves a quick, limited review with a business. In some cases, it might use small samples as a means of testing the accuracy and refining the hypothesis. In other cases, a discussion or interview might be sufficient to test and refine the hypothesis. The extent of verification will depend on the issues involved and the risk profile of the business.
Verifying the hypothesis will help identify issues that require further action, and what action might be, before committing more taxpayer or ATO resources. The ATO will ensure that the level of verification fits with the business’ overall risk level”.
The model was co-designed with members of the Corporate Consultative Committee (the Committee). During the co-design process the Large Client Program, including our thoughts on risk assessment, was presented to the Committee. In addition, at the last meeting of the Committee the risk assessment process was briefly discussed.
c. If the Reviews are not treated as tax audits:
· Will they be subject to the ATO’s Audit Guidelines?; and
· What will the ATO do with the information gathered from a Review?
Response : This will be discussed at the meeting.
d. If the ATO considers that the Audit Guidelines do not to apply:
· On what basis are the Guidelines considered not to apply?;
· In the absence of the Audit Guidelines, what controls are being exercised over the tax officers carrying out the Reviews?; and
· In the absence of the Audit Guidelines, are there any particular guidelines which the ATO is following when carrying out a Review.
Response: This will be discussed at the meeting.
Meeting Discussion : A professional body representative who had been involved in a risk review saw the reviews as a good initiative, however, was concerned the ATO had requested to tape some conversations. There was also concern expressed about whether the reviews were actually audits, particularly in relation to the application of the Audit Guidelines and the impact on any insurance the taxpayer might have against being the recipient of a taxation audit. Second Commissioner D’Ascenzo agreed to provide further advice on these issues to members.
The Commissioner advised that consultation about the project had taken place at the Corporate Consultative Committee (CCC). The project involves the top 100 companies and is being conducted by the ATO to gather background information and help the ATO understand that particular group of taxpayers. The Commissioner agreed to circulate a brochure tabled at the CCC which explained the project.
Action Item NTLG0109/11 : ATO to provide the NTLG with further advice in relation to the ATO’s risk reviews on taping of conversations and the relevance of the Audit Guidelines.
Action Item NTLG0109/12 : ATO to provide NTLG members with the ATO brochure tabled at the Corporate Consultative Committee.
[_Toc528466566] 15 ATO Pre-audit Questionnaires to Barristers
Recently some barristers at the Sydney Bar have been sent very onerous questionnaires by the Australian Taxation Office. The questionnaire is being sent out on a random basis and does not relate to any impropriety or alleged impropriety on the part of the individual taxpayers.
These questionnaires go beyond the normal pre-audit questions and delve deeply into the affairs of the taxpayer going back many years. It has been estimated that accounting fees of between $15,000 and $25,000 would have to be incurred for each taxpayer to answer the questions raised. Each taxpayer is given only 60 days to answer the questions.
It is considered that the questionnaire is unreasonable and should be withdrawn. It goes beyond fair and reasonable audit practice and is outside the Taxpayers’ Charter.
a. Would the ATO please provide background on the origin and purpose of these questionnaires? Are they part of a special audit program?
Response : The Commissioner has raised for community discussion the position of professionals who continue to practice in the community without meeting their tax obligations to that community. The ANAO in their report to Parliament in November 1999 specifically noted persistent tax debtors with high incomes as a problem and mentioned barristers as one of the groups.
In May 1999 an analysis of the compliance behaviour of 1690 barristers registered in NSW found a total debt of $43m in primary tax plus $15m in penalties and interest. A debt of $57.5m was owed by 363 barristers with the top 100 owing more than $30m. The average debt per barrister was $158,402.
On 15 June 2001 the Australian Taxation Office (ATO) wrote to all practising barristers in New South Wales outlining some new approaches that the ATO will adopt to assist barristers in meeting their taxation obligations. Fundamental to those approaches is a close working relationship with the New South Wales Bar Association which is determined to maintain public confidence in the Bar.
The ATO and the Bar Association have developed a range of measures to assist barristers. In particular, the ATO will conduct a series of presentations to barristers in several metropolitan and regional locations. The Association has also reorganised the Readers Program to include a regular session to be delivered by staff from the ATO on tax matters for new barristers.
For its part, the ATO announced that it would concentrate on:
· enhanced lines of communication between the ATO, the Bar Association and the legal profession;
· increased research and information gathering;
· a stronger focus on outstanding returns and overdue accounts; and
· audit activity in selected cases
The ATO has a strategy to improve compliance within this group of taxpayers and at the same time, establish a better understanding of the range and frequency of non compliant behaviour occurring within the group. One aspect of the strategy is to analyse the taxation affairs of NSW barristers to identify those who warrant audit action.
On 29 June 2001 certain barristers were issued with a letter requesting substantiation of claims made in their income tax returns. A smaller group was issued with a questionnaire that sought information on the taxation affairs of the barrister and other family members.
b. It would appear prudent for the Commissioner to liaise if necessary with the professions to design a suitable pre-audit questionnaire before it is sent out to the profession concerned. What are the processes for the preparation of such a questionnaire?
Response : The questionnaire covers a four year period and is not a pre-audit questionnaire. It is introduced as –
“You and your family have been selected for a review of your taxation affairs.”
The questionnaire is not unique to the legal profession as it is an adaptation of a letter used in the High Wealth Taxpayer's Project. The questionnaire was approved by senior external counsel.
A sixty day response period was considered reasonable and the Commissioner has afforded extensions of time to certain taxpayers where information cannot be provided within the specified period.
c. The Law Council is concerned that such detailed questionnaires should be reserved for special circumstances only and not be used for widespread random audit selection purposes. Does the ATO have any intention to extend the application of this type of pre-audit questionnaire to the broader legal community and to other professions.?
Response: The Commissioner agrees that such detailed questionnaires should be reserved for special circumstances and are not to be used for widespread random audit selection purposes. In this situation the questionnaire is supported by detailed research and analysis of the taxpayer group and is neither widespread nor random.
The Commissioner has used a similar questionnaire in the High Wealth Taxpayer's project and reserves the right to use a questionnaire where it is justified by relevant compliance strategies.
Meeting Discussion : The professional bodies expressed concern about the onerous nature of the questionnaires as they are lengthy and perceived as being particularly targeted. The professional bodies concluded that the recipients were already at the audit stage, rather than ‘pre-audit’ as suggested by the ATO.
Second Commissioner D’Ascenzo advised that these questionnaires have been targeted based on the ATO’s research into this group of taxpayers. Dependent on the responses to the questionnaires, the ATO may follow up with some recipients.
[_Toc528466567] 16 Alienation of Personal Services Income (APSI)
The ATO, practitioners and professional body representatives has been engaged in recent weeks in a number of consultations on the APSI legislation. Given the high profile controversial nature of this legislation and the latest fundamental changes to the operation and application of these provisions indicated by the Treasurer, the professional bodies are of the opinion that this legislation needs to be discussed at the NTLG level. Accordingly, the ATO is requested to provide the following feedback and information:
a. A report on the outcomes from these various consultations.
Response : The ATO has engaged in extensive consultation with industry bodies and the professions on the implementation of the new measures.
The consultations have assisted in identification and resolution of issues such as PAYG withholding obligations, attribution calculation for monthly PAYG(W) remitters, redesign of forms and instructions. Practitioner groups have also provided assistance in development of broadcast letters for tax agents. Industry groups have provided input on the design and distribution of information products.
More recently the ATO has sought comments from practitioner and industry groups on the two draft rulings. Much of the feedback has been taken into account in the preparation of the final versions of those rulings. Assistant Commissioner Tony Sullivan is co-ordinating these consultative processes.
b. When will the APSI provisions be amended to give effect to the Treasurer’s proposed changes?
Response : The Government intends to introduce its proposed amendments to Parliament in the current (Spring 2001) sittings.
c. How will the proposed changes impact on the APSI rulings, particularly draft Taxation Rulings TR 2001/D3 and TR 2001/D4?
Response : The proposed changes will have a confined effect on the law. For example, the changes announced in the Treasurer's Press Release No. 51 (about easing the compliance burden for independent contractors) will not change the content of the personal services business tests. Neither Press Release No. 47 (about certain agents) nor No. 51 announced any proposed change to the concept of personal services income. Consequently, the announced changes do not impede the Commissioner issuing rulings explaining the concept of personal services income and the tests for conducting a personal services business (including the results test). The Commissioner will review the rulings after the enactment of the proposed amendments (or if the amendments are not passed) so that they can be modified if necessary.
d. Will the ATO please clarify what it now considers to be the “transitional period” for the implementation of these provisions, particularly in light of the additional changes proposed by the Treasurer?
Response : The transitional period operates for the 2000-01 & 2001-02 income years.
e. What approach will the ATO be taking to the implementation of the APSI legislation in matters such as:
· How does the ATO proposed monitoring compliance with the APSI legislation?
Response : The ATO objective will be to assess the extent of compliance with the provisions. This will be done via a range of activities including analysis of return forms, gathering business intelligence and by verification work.
· Will Part IVA have an application to the ATO’s strategies to ensure compliance with the APSI legislation?
Response : Part IVA may be applied to arrangements entered into where the sole or dominant purpose for doing so is to obtain a tax benefit. Part IVA is specially referred to in the Ralph Review of Taxation (p292) and in the legislation itself (s 86-10 of the Income Tax Assessment Act 1997). The potential application of Part IVA to contractors is explained in Taxation Ruling TR 2001/8 and Income Tax Rulings IT 2121, IT 2330, IT 2503 and IT 2639.
· What will be the ATO’s policy in relation to the levying of penalties, particularly in cases when taxpayers have made a genuine attempt to comply with the law?
Response : The fact that a taxpayer has made a genuine attempt to comply with the law will effect the rate of penalty (if any) to be applied. Concessions on penalties have already been announced and were included in a broadcast letter to practitioners of 13 July 2001 (see Attach [_Hlt523295644] ment 5). The concessions are consistent with the current Practice Statement on penalties. Further information about what constitutes a genuine attempt will be included in a broadcast letter to tax agents scheduled for issue in the week ending 31 August 2001.
f. What assurance do genuine independent contractors who pass the APSI provisions have that they can split incomes, claim travel expenses and claim reasonable payments to associates? Will guidelines of acceptable practices in these areas be published? Such guidelines are necessary because of the strong inference in the APSI legislation (see for example section 86-1, and the diagrams in sections 86-5 and 87-5) that the APSI provisions are effectively a code on alienation.
If contractors who pass the APSI provisions are to be denied access to income splitting, travel expenses and reasonable associate payments, please explain the rationale behind the APSI. Also, please outline the public education program to advise genuine non-APSI independent contractors of their obligations outside APSI.
Response : The note to section 86-10 in Part 2-42 indicates that the provisions of Part IVA may still apply to cases of alienation of personal services income that fall outside that Division of the Act. The Commissioner's views on the treatment of personal services income can be found in Taxation Rulings TR 2001/8, IT 2121, IT 2330, IT 2503 and IT 2639.
Meeting Discussion : With the release of two rulings and further development of another two rulings, professional bodies were concerned about those taxpayers not affected by the new measures, but subject to existing law. The bodies consider the majority of taxpayers will not read the new rulings containing information about income splitting because they did not identify as being specifically affected by the new measures. The professional bodies warned the ATO there is likely to be a similar outcome on APSI as there has been on mass marketed schemes. The bodies reiterated the claim there remained substantial misunderstanding in the community about alienation issues, particularly income splitting.
Second Commissioner D’Ascenzo noted the ATO has provided information to the community through a wide range of activities, including presentations to industry and practitioner groups, as well as visits to individual practitioners.
Professional bodies suggested the ATO should give more priority to consolidating the old rulings and to provide, in this process, industry related information and specific examples.
The Commissioner considered the ATO is acting appropriately to disseminate information to all taxpayers affected by alienation measures. He also acknowledged there will need to be further judicial review of some issues to bring more clarity to legislative requirements.
[_Toc528466568] 17 ATO Compensation Guidelines and Policy and Defective Administration
The ATO has released its Guidelines and Policy on paying compensation (available on ATO Assist). The Guidelines cover the payment of compensation as a legal liability, under the compensation scheme and as an act of grace. Particular reference is made to those parts of the Guidelines which relate to identifying a case for compensation for defective administration and the calculation of this compensation.
In the case of an acknowledged claim for compensation for detriment caused by defective administration, there appears to be some confusion in the ATO’s practices as to who will be regarded as the correct claimant - the tax payer client or the tax agent of the client? If the correct claimant is the client rather than the tax agent, there is evidence which indicates the ATO is frustrating claims by seeking verbal assurances that any invoice to the client is free from any contingencies and the client specifically undertakes to pay the invoice regardless of compensation.
a. Would the ATO please confirm whether or not there have been any changes to the Compensation Guidelines, both generally and in relation specifically to claims for defective administration (particularly in relation to the matter outlined above)?
Response : There have been no changes to the ATO Compensation Guidelines. There have, however, been a number of issues raised recently where tax agents have been claiming compensation for defective administration in their own right rather than on behalf of their client. These claims have shown that the Guidelines are not sufficiently comprehensive on this issue. The ATO is preparing a draft practice statement to be referred to the Commonwealth Ombudsman, as requested, for comments prior to finalisation. It is expected the practice statement will be finalised in the near future.
If the defective administration relates to the tax agent's client then the client is the party who suffers the loss and it will be the client's claim for compensation. The damages to which they are entitled may include the amounts billed to them by their tax agent for rectifying the defective administration, or for preparing the defective administration claim. With respect to financial damage, the guidelines specifically state that:
"In respect of financial damage, the claim should be quantified, or readily quantifiable from the information provided, and supported by suitable evidence which is preferably objective. For example, direct financial loss resulting from loss of the use of money to which the claimant was entitled, or the costs of legal action could be quantified with a statement from a bank concerning lost interest, or a bill from a solicitor."
There is nothing in the guidelines advising ATO officers to seek verbal assurances that any invoice to the client is free from any contingencies and that the client specifically undertakes to pay the invoice regardless of compensation.
The Department of Finance recently issued Finance Circular No: 2001/01, Commonwealth Compensation 'Schemes', Debt Waiver and Write-Offs, (the Circular) dated 23 July 2001. The Circular updates and replaces the (then) Department of Finance Estimates Memorandum 1995/42. The Circular also states that there are no changes in the existing policy intent of any of the schemes covered in the Circular.
b. If the Guidelines are being revised:
· Who is responsible for drafting the changes?
Response : The ATO Compensation Policy and Guidelines are to be reviewed later in the year to ensure that they reflect the intent of the Finance Circular, Practice Statement, internal changes within the ATO and to remedy deficiencies that have been identified. The changes will be drafted by the ATO Legal Practice.
· When will the revised Guidelines be available?
Response : As already stated, the policy and guidelines will be reviewed later in the year. There is no specific timetable in place at this stage.
· Will there be any consultation on changes to the Guidelines, either now or at any time in the future?
Response : Any submissions NTLG members might like to put forward would be considered. These should be forwarded to:
National Practice Manager
ATO Legal Practice
PO Box 4889
SYDNEY NSW 2001
Any submissions should be submitted by 26 October 2001.
Meeting Discussion : The professional bodies noted one case where a tax agent had been asked by the ATO for assurance that the client’s account was payable, notwithstanding a successful compensation claim with the ATO. The professional body concerned agreed to write to the National Practice Manager, as suggested, to clarify the apparent conflict in ATO advice and practice.
[_Toc528466569] 18 ATO Access Manual and Legal Professional Privilege
Since the last meeting of the NTLG held on 6 June 2001, it has come to the attention of the professional bodies that Chapter 8 - Legal Professional Privilege – in the August 2000 edition of ATO’s Access Manual has been withdrawn. It is indicated in the Access Manual that this Chapter “is currently being re-written”.
a. The original Manual was drafted by the ATO in conjunction with extensive consultation with the professional bodies, particularly on the matter of legal professional privilege.
Would the ATO please advise why there has been (apparently) no consultation on this current revision of Chapter 8?
Response : Chapter 8 of the ATO's Access and Information Gathering Manual (the Access Manual) has been withdrawn pending substantial redrafting, with the exception of the Guidelines for Access to Lawyers' Premises and the Guidelines for Access to Professional Accountants' Working Papers, both of which remain in force. The ATO will consult with professional bodies as soon as it has a draft position on relevant issues, and this is currently dependent on emerging case law.
b. Would the ATO please advise who, in the ATO, is responsible for managing the current re-write of Chapter 8?
Response : The ATO Solicitor is responsible for managing the current re-write of Chapter 8. Contact officers are Mark Darmody in LB&I and William Day in the ATO Legal Practice.
c. Would the ATO please advise whether it intends to consult in the future on any further changes to this Manual, and if so, explain the processes that the ATO intends to follow in consulting with the professional bodies on an ongoing basis?
Response : The ATO will consult with professional bodies on significant proposed changes to the Access Manual.
d. The Manual is still not available on the ATO website. The only sure way to secure a copy of the Manual at present is to ask for the ATO to provide it on disc. Would the ATO please advise when the Manual will be available on the ATO website?
Response : The ATO is currently taking steps to publish the Access Manual on the ATO website in conjunction with the release of the amended Chapter 8.
Meeting Discussion : The professional bodies reiterated their view that the Daniels case has no effect on taxation matters. They also suggested the full impact would take some time to flow on to the ATO, if there was to be any impact at all. In the interim, the professional bodies called for the status quo to be maintained in terms of Legal Professional Privilege (LPP).
The Commissioner advised the ATO is testing claims for LPP more rigorously. Professional bodies wanted to confirm that LPP did apply in circumstances where it was reasonable to expect it should, and had done so until now. The Commissioner agreed to follow up the ATO’s view of LPP pending the rewrite of the ATO’s Access and Information Gathering Manual and advise the NTLG.
The professional bodies were keen to see the Manual posted on the ATO’s web site in the interim, with a disclaimer that it was subject to change and the rewrite of Chapter 8.
Action Item NTLG0109/13 : ATO to advise NTLG whether there has been any change to the ATO’s application of Legal Professional Privilege.
[_Toc528466570] 19 NTLG work Program and Management Issues
[_Toc528466571] 19.1 Report on Action Items from 6 June 2001
NTLG0106/1 Various amendments to the Minutes of 9 March 2001 to be expedited, particularly around Item 5.
Status: Completed.
Meeting Discussion: No discussion.
NTLG0106/2 ATO to report on response times to Private Binding Ruling requests to the December NTLG.
Status: This is being progressed for the December 2001 NTLG meeting.
Meeting Discussion: No discussion.
NTLG0106/3 ATO to report to NTLG on steps taken to promote understanding of all aspects of the impacts of the alienation measures.
Status: The ATO has utilised approximately 80-90 field staff to educate taxpayers, tax agents and other influential intermediaries.
Most of the education activities have been targeted to tax agents as nearly 90% of clients who will be affected by the alienation measures are believed to use tax agents.
At the time the APSI legislation was passed (30 June 2000) much of the media and public focus was on the GST and the BAS. Therefore, the ATO believed it appropriate to focus initially on tax agents whose clients may be affected by the APSI measure.
General Education Strategy
· From July 2000 to May 2001, 5181 tax agents were visited, representing 217,000 clients. The tax agents selected were those who were identified as having clients who may be impacted by the APSI measure.
· Agents who were too busy to accept a one-to-one visit, or who were in too remote an area, or who had a small number of clients were sent an e-mail providing a brief summary of the APSI measure, contact details for ATO staff and links to the ATO website. 633 agents representing 32,902 clients were contacted in this way.
· 36 agents who did not have access to e-mail were sent information packs through the Post.
· Field staff also provided presentations at local CPA Australia, ATPF and Business Enterprise Centre meetings.
· Phone enquiries by a dedicated call centre.
· Information included in the Complete Tax Guide for Small Business, Snapshot Guide for Tax Professionals, return form guides, BAS Basics.
· Presentations to new and intending small businesses through BIZStart.
· Articles in the ATO’s quarterly Small Business Newsletter and Tax Agent Newsletter and external publications such as Business News.
· 2 media releases by the Commissioner, one of which announced penalty concessions whereby taxpayers who make a genuine attempt to comply with their obligations under the alienation measure will not be penalised.
Targeted Education Strategy
· More refined taxpayer profiling was undertaken, and high risk industries identified during the targeted education strategy from March 2001.
· 1730 agents were visited and given one to one presentations and information about the APSI measure.
· E-mails with information kits were sent to 270 agents who were too busy for a one to one visit.
· 3 broadcast letters to practitioners; the first following passage of the APSI legislation, the second announcing the transitional PAYG arrangements and the most recent (in July 2001) covering the Treasurer’s proposed changes, penalty concessions and extension of the transitional arrangements by the Commissioner, and what the ATO will do to assist practitioners during the transition period.
· 2 Sky Channel broadcasts to approximately 12,000 tax practitioners.
· 25 presentations were made by ATO staff to tax practitioner professional bodies.
· Presentations were made by ATO staff to industry associations.
· Contact was made with the following industries and they were provided with information and offered assistance to help their members understand the APSI measures:
- finance and insurance
- labour hire
- education
- health
- construction
- information technology
- shipbuilding
- major service acquirers eg Government
- articles for industry newsletters
Further Strategies
The ATO Tax Practitioner Forum (ATPF) has been considering the APSI measure and a sub-committee of the Forum has been established to consider a number of administration issues in respect of the APSI measure.
Following feedback from practitioners on the Personal Services Business Determination application form, the ATPF sub-committee has been working closely on redesigning the form and associated documents. The sub-committee has also been working to simplify the monthly accounting for attributable income, and to develop practical solutions for end of year accounting to meet their obligations under the APSI legislation.
Industry has also been consulted extensively in the revision and streamlining of the application form, instructions and Self Assessment Guide. These documents are being market tested with taxpayers and practitioners before being released.
Nine fact sheets (available on the ATO Web site and from the ATO call centre) explaining the operation of the APSI measure are currently being revised to take account of the Treasurer’s announcements in July. A fact sheet on the results test has also been drafted. Industry specific products including Q&As are being developed in consultation with industry. These materials are expected to be available by the end of August 2001.
Public rulings
The ATO has significantly reworked the draft rulings released in April 2001 as a result of the Treasurer’s announced changes concerning commission agents and contractors. Extensive consultation has been undertaken with professional bodies and industry on these rulings. These rulings are currently being finalised and are now released as TR 2001/7 and TR 2001/8.
The ATO is also close to issuing two additional draft Public Rulings to further explain the APSI measure.
Meeting Discussion: Comment was made by the professional bodies that, while tax agents have been targeted in the ATO’s education campaign, there are a number who have been unable to pass this on due to the extent of GST and other BTR changes.
NTLG0106/4 ATO to articulate the policy on treatment of taxpayers who initially determined they would pass the necessary tests but, at the time of preparing their income tax returns discover they fail the necessary tests.
Status: The ATO understands that there will be cases where taxpayers have reasonably believed they would pass one of the Personal Services Business tests but find at the end of the year that they do not meet the necessary requirements. There are other circumstances where taxpayers may inadvertently fail to comply with their obligations, for example, under the PAYG provisions.
The ATO has outlined a concessional approach to the imposition of penalties during the transitional period to 30 June 2002 where the taxpayer has made a genuine attempt to comply with their obligations under the new measures. Details are in the ATO broadcast letters to tax agents dated 17 April 2001 and 13 July 2001 (see Attachm [_Hlt523564960] ent 4 and Attachment 5). A third broadcast letter which will provide further details of the ATO’s approach is planned for release by the end of August 2001.
Meeting Discussion: No discussion.
NTLG0106/5 Professional bodies to provide their views on the impact on the Code of Settlement Practice when a taxpayer has a ‘reasonably arguable position’.
Status: See Atta [_Hlt522689458] chment 6. The ATO is considering the Law Council response, but seeks clarification because it is not clear what point the Law Council in making.
Meeting Discussion: The professional bodies were concerned the ATO was not giving weight to a reasonably arguable position (RAP) when it differed from the ATO’s view. The Law Council’s paper was to generate discussion and provide some general examples. Given the ATO’s response, the Law Council agreed to ask the authors to refine the paper if required and provide it to the ATO.
The professional bodies also agreed to encourage members to provide examples where they believed their RAP was not taken into account when it did not reflect the ATO’s view.
Action Item NTLG0109/14 : The paper detailing ‘reasonably arguable position’ issues to be refined by the authors if necessary and provided to the ATO.
NTLG0106/6 ATO to review the remission policy for the GIC in the context of voluntary disclosures of honest mistakes in the transition period to ANTS.
Status: In addition to the general penalty remission approaches identified in Practice Statement 2000/9 , the ATO has introduced special arrangements for the correction of GST mistakes without the need to lodge revised activity statements for earlier periods. Where taxpayers meet the conditions contained in the revised 'Correcting GST mistakes ' fact sheet, which became available on the ATO website on 10 August 2001, GST shortfalls can be brought to account in a subsequent activity statement without incurring a GIC amount.
The ATO is in the final stage of consultation on similar arrangements (to apply in the 2001-02 year) for the correction of PAYG instalment income understatements. The ATPF and the PAYG Working Party are part of the consultation process. The feature of the PAYG arrangements is to allow instalment payment shortfalls within certain tolerances to be made up at the time the tax assessment becomes due without incurring the GIC on the shortfall amount.
Meeting Discussion: No discussion.
NTLG0106/7 The meaning of ‘serious financial hardship’ noted in the ATO response to be communicated to NTLG members.
Status: The term 'serious financial hardship' is defined in the ATO Receivables Policy in the context of release from payment of tax liabilities (Chapter and paragraph 24.6.1) and in the context of the collection of disputed debts (Chapter and paragraphs 28.4.17 - 28.4.20). The definitions have been written in their respective chapter to suit the purpose of that chapter, however, the underlying definition of serious financial hardship is consistent. Extracts from the ATO Receivables Policy can be found in Attac [_Hlt523713114] hment 7.
Meeting Discussion: No discussion.
NTLG0106/8 ATO to report to the NTLG on issues around credit offsetting. Professional bodies to provide any issues not addressed elsewhere to PALU.
Status: The ATO practice of offsetting income tax refunds from prior year assessments against current year PAYG annual instalment liabilities due but not payable is an automated response to the credit offset provisions contained in the Taxation Administration Act 1953. The tax law was amended in December 2000 to provide the Commissioner with a discretion not to offset a GST credit arising from a BAS lodgment against tax that is due but not payable, however, the Commissioner was not provided with a similar discretion for the treatment of income tax refunds. Tax practitioners were advised of this offsetting practice and of the options available to the taxpayer in a broadcast message dated 1 June 2001.
The ATO's offsetting policy and practice is being fully documented and will be a separate chapter of the ATO Receivables Policy (planned for 15 September 2001). As part of this process, the ATO is exploring options to prevent the interception of tax for offset purposes if the outstanding tax liability is of trivial size. This review includes working with other agencies (Child Support and Centrelink) to rationalise the offsetting process.
Meeting Discussion: No discussion.
NTLG0106/9 ATPF Accounting Working Group to consider the matter of credit offsets ASAP and report to the next NTLG meeting.
Status : This issue was discussed at the Accounting Working Group meeting. The following is an extract of the report from that meeting provided to the ATPF on 3 August 2001.
Meeting – 20 July 2001
AWG members considered the draft document prepared as guides to assist practitioners to better understand the ATO accounting structure and the operation of its offset functionality. Members made further suggestions for improvements in accessibility. These included the development of a flow diagram representation of the same material and the compilation of a set of common questions and answers in relation to RBA issues. These would then be accessed via the ATO’s website.
Meeting Discussion: No discussion.
NTLG0106/10 ATO to report to NTLG on GST verification visit program and strategies adopted to educate taxpayers.
Status: The GST verification program continues to provide assurance to taxpayers that they are meeting their obligations under the new tax system. Where an understatement of tax or overclaiming of a credit is detected and that error has resulted from a genuine mistake or misunderstanding, no penalty tax will be imposed. The GIC applies. Remission of the GIC is considered in accordance with ATO guidelines.
The verification program is just one of a number of products and activities designed to provide ongoing support and assistance to taxpayers. The one-on-one advisory visit program continues and has been now expanded to provide additional assistance to new businesses. This direct assistance complements industry specific publications, fact sheets and free record keeping software.
Meeting Discussion: No discussion.
NTLG0106/11 APRA to be invited to comment on the problem of some trusts wishing to be treated as Pooled Superannuation Trusts not being aware of the requirement to notify APRA before 31 October 2000. Particular comment on the APRA approach to dealing with this issue to be sought.
Status: Completed.
APRA Response
With effect from 12 July 2000, the definition of 'pooled superannuation trust' has been amended in the Superannuation Industry (Supervision) Regulations 1994 (SIS Regulations).
The amendment clarified the definition and classification of PSTs so that it is clear which particular unit trusts should be treated as PSTs. It also prevented certain unit trusts being unwittingly treated as PST's. The amendment required the trustee of an existing unit trust that wished to be a PST to give APRA written confirmation of intention to be a PST by no later than the time for lodgement of the 1999/2000 annual return. After that time, those existing unit trusts for which no confirmation of intention had been given to APRA would no longer meet the definition of a PST.
APRA has been advised that some unit trusts were unaware of the above amendments to the SIS Regulations and have therefore inadvertently failed to lodge their confirmation of
intention by the due date. APRA has, for some time, been liaising with Treasury to further amend the SIS Regulations to allow APRA to approve an extended time frame for lodging the confirmation of intention. APRA will continue to pursue this amendment.
While APRA would expect Approved Trustees in charge of PSTs to comply, at all times, with the applicable law by taking, where necessary, appropriate professional advice, it does not wish to see such unit trusts being penalised merely because they have failed to lodge confirmations as currently required. APRA has therefore resolved not to issue notices pursuant to section 40 of the SIS Act to the effect that the affected unit trusts are not PSTs for the purposes of the SIS Act. This would enable the unit trusts to be treated as PSTs for taxation purposes.
Meeting Discussion: No discussion.
NTLG0106/12 ATO to communicate the suggestion and offers of assistance from the NTLG professional bodies to the ATO’s Law Integrity Team.
Status: Completed.
Meeting Discussion: No discussion.
NTLG0106/13 Professional bodies to provide examples of other areas (for example through court and tribunal decisions) they consider impacting on the operation of the Commissioner’s discretions generally, and in particular s139E(1).
Status: Completed.
Meeting Discussion: No discussion.
NTLG0106/14 Professional bodies to provide ATO with information regarding any potentially unauthorised BAS preparers, for action by the ATO.
Status: To date no information received. Any information may be channelled through PALU.
Meeting Discussion: No discussion.
NTLG0106/15 ATO to liaise with the Department of Family and Community Services regarding the impact of the statement required for beneficiaries of trusts to relinquish any involvement in the trust and the ATO’s view of this in relation to trust resettlements.
Status: At the last NTLG meeting concerns were raised that the Department of Family and Community Service’s (FaCS) criteria for an acceptable resignation from a controlled trust may cause a resettlement of the trust. The ATO responded that it had arranged to meet with FaCS and discuss with them their administrative criteria, and the implications for affected beneficiaries.
As a consequence of these discussions, and consultations with other professionals, the ATO has produced Draft TD 2001/D7 ‘what are the capital gains tax consequences for a beneficiary of a discretionary trust who renounces their interest in the trust?’ which was released for comment on Wednesday 29 August 2001. The draft TD provides a two week period for comments to be received. These comments will be considered in the finalisation of the TD.
The draft TD states that a renunciation by a beneficiary of an interest in a discretionary trust would give rise to a CGT event C2 for the beneficiary, being an abandonment, surrender or
forfeiture of the interest. The draft TD outlines the CGT consequences in these circumstances. It also provides a detailed example which is typical of the cases being dealt with by FaCS.
Meeting Discussion: The professional bodies had expected a statement from the ATO containing the exact words to use by beneficiaries or trustees to avoid any resettlement issues and a ruling from the ATO to confirm that doing this did not cause a resettlement. Professional bodies also requested the ATO provide advice on any stamp duty implications along with the income tax advice.
Action Item NTLG0109/15 : ATO to further investigate the trust resettlement issues in line with the professional bodies’ request for specific information regarding Centrelink’s text for the withdrawal from a trust and stamp duty implications.
NTLG0106/16 ATO to provide NTLG members with web addresses for the Statement of Settlement Principles and ATO Access Guidelines
Status: The Statement of Settlement Principles can be found on the ATO website at http://www.ato.gov.au/content.asp?doc=/content/Professionals/Code_Settlement.htm
The ATO Access Guidelines are currently not available on the ATO website. These guidelines can be obtained by contacting PALU .
Meeting Discussion: No discussion.
NTLG0106/17 ATO to follow up on the NTLG suggestion that messages addressing aggressive tax planning issues are being circulated to regional and rural media.
Status: Completed.
Meeting Discussion: No discussion.
NTLG0106/18 Product Ruling Addenda progress to be tracked in NTLG Issues Log, with progress/changes to be reported to NTLG when they occur.
Status: Product Ruling Non Commercial Losses (NCL) Addenda is being addressed on a case by case basis. The NCL discretion has been exercised for nearly 90 Product Rulings. The ATO is consulting with associations and promoters.
Meeting Discussion: No discussion.
NTLG0106/19 ATO to contact professional body representatives (Michael Dirkis and Peter McDonald) regarding further issues around repayment of prior year amounts and resulting tax treatment.
Status: The Assistant Treasurer announced in a press release, dated 1 August 2001, (see Att [_Hlt535050877] ac [_Hlt17533542] hment 9) proposed legislative amendments to allow taxpayers who are required to repay income (except worker’s compensation or sickness allowance repayable as a result of a lump sum settlement), an amended assessment for the year in which that income was included in their tax return.
The Commissioner has decided to exercise his administrative powers to give immediate effect to the Government’s announcement, subject to the measure ultimately being passed by Parliament. This will enable affected taxpayers to obtain an amendment to their tax assessment for the year in which the income they have to repay was included as assessable income. In particular, former Australian Defence Force personnel will be entitled to apply for an amended assessment where they were required to repay a retention bonus.
Meeting Discussion: No discussion.
NTLG0106/20 ATO to clarify the PtIVA Panel report for the minutes.
Status: Item will be updated in the final version of the minutes and will read:
“Employee benefit arrangements - variation - no immediate loan back to contributing employer.”
Meeting Discussion: No discussion.
NTLG0106/21 ATO to consider the public availability of information in relation to tax treaty negotiations currently being conducted, in light of public availability of information on negotiating country’s web sites.
Status: The ATO will explore the possibility of releasing a status report similar to that which appears on the Canadian Department of Finance website. While the ATO is unable to disclose information relating to negotiating positions or strategies, consideration will be given to producing a report identifying which countries it is negotiating with and indicating the stage reached in those negotiations. This will enable interested businesses and organisations to raise with the ATO any particular issues that they have in relation to those countries.
The International Tax Agreements Act 1953, and the texts of Australia’s Double Tax Agreements (which are Schedules to the Act), are available on the ATO’s website (at http://law.ato.gov.au/atolaw/findleg.htm) .
The Tax Treaties Advisory Panel (TTAP) is the main forum for consultation with business on treaty issues. Draft consultation procedures for the TTAP have recently been established and provide for a more open way of disseminating the information forwarded by the ATO to panel members, and the minutes of panel meetings, to the respective constituencies of panel members.
Meeting Discussion: The professional bodies commented, and the ATO confirmed, that advisory panel members are subject matter experts, not representatives of any other organisation.
NTLG0106/22 Professional bodies to consider the Continuity of Ownership Test briefing note provided at the meeting with members and provide comments to the ATO through PALU.
Status: Completed. No comments received by PALU.
Meeting Discussion: Professional bodies have contacted the Losses Centre of Expertise (the Centre) following the ATO’s briefing note provided at the last meeting. A note covering the discussion will be provided by the professional bodies for the NTLG. The Centre indicated there were no specific rules, and matters will be dealt with on a case by case basis. Advice provided suggested a taxpayer could use the same business test, but this was only available if the continuity of ownership test failed.
Action Item NTLG0109/16 : Professional bodies to provide a note for the NTLG covering discussions about the continuity of ownership test with the ATO’s Losses Centre of Expertise.
NTLG0106/23 ATO to provide fuller explanation (in the minutes) of the ATO project involving visits to advisory firms.
Status: Completed. Refer to Minutes dated 6 June 2001 item 21.2.1.
Meeting Discussion: No discussion.
NTLG0106/24 ATO and professional bodies to liaise in relation to the content of s264 Notices and the ATO’s Access Guidelines and report to the next meeting.
Status: This matter is being progressed between the ATO Solicitor and the Law Council.
Meeting Discussion: The professional bodies did not believe the status of this item reflected the current situation and agreed to prepare an alternative report and provide this to PALU.
Action Item NTLG0109/17 : A revised status report for NTLG0106/24 to be prepared and provided to PALU.
NTLG0106/25 The current s264 notices to be referred to the Access network to ensure the ATO position is made clear and any necessary changes to the Access Guidelines to be made.
Status: Completed.
Meeting Discussion: No discussion.
[_Toc528466572] 19.2 ATO Tax Practitioner Forum Report
Meetings : Last meeting held on 3 August 2001.
Minutes : Minutes of the 18 May 2001 meeting have now been confirmed. Minutes and action items from 3 August 2001 are due to issue to members shortly in draft format.
Presentation:
Valerie Braithwaite and Yuka Sakurai from the Research School of Social Sciences (RSSS) at the Australian National University (ANU), Centre for Tax System Integrity, presented their research paper: "Working paper no. 5 – Taxpayers’ perceptions of the ideal tax adviser: Playing safe or saving dollars".
Summary of Significant Issues Discussed:
Compliance Plan
The ATO outlined the new planning approach for 2001-02 and noted there would be impacts on compliance activities. Members will be advised when the ATO’s Compliance Plan is available for discussion.
Levying and remission of penalties
The existing practice statement on remission of penalties under the new tax system, PS 2000/9 is to be revised for 2001-02. The theme of PS 2000/9 is to continue into the second year of the new tax system and provide greater clarity for penalty situations for failure to lodge and activity statement errors.
ATPF working parties Accounting Working Group
Running Balance Accounts (RBAs) continue to be of major concern for members, particularly the format of statements and ATO call centre advice. The ATO is investigating ways to provide better call centre support for RBA enquires but there will be only minor changes to statements in 2001-02.
Telephone tax return lodgment
The members raised concerns with the lack of communication prior to the telephone lodgement pilot in South Australia. The ATO acknowledged it could have done better and is keen to share with the forum the outcomes of the pilot evaluation and market research.
Family Tax Benefit (FTB)
ATO was made aware of the difficulty for tax practitioners with FTB claims due to limited information being made available through the Family Assistance Office (FAO). The ATO announced the introduction of an email facility for tax practitioners to obtain client information from the FAO.
ELS software issues
There are a number of issues related to the problems experienced this year with ELS software packages. The ATO has implemented a relationship management approach with software producers and agreed to refer member’s suggestions to the ATPF Technology Working Party.
Meeting Discussion: No discussion.
[_Toc528466573] 19.3 CGT Subcommittee Report
Meetings : The last meeting of the Subcommittee was held in Sydney on 13 June 2001. The next meeting is set down for 28 November 2001, in Melbourne.
Minutes : The draft minutes of the 13 June meeting will be circulated shortly.
Summary of Significant Issues Discussed
Issue 1: Role of the Subcommittee
The ATO stated that the subcommittee was not the forum to discuss policy matters. Professional bodies will be given the opportunity to put forward their views on alternative policy positions, noting that policy issues are a matter for Government that should be pursued through normal processes.
Issue 2: Effect of legislative announcements
The professional bodies raised concerns over situations where the Government announces a concessional measure and then decides at a later date not to proceed. ATO noted the issue and stated this is a matter for Government and the ATO cannot comment.
Issue 3: Issues relating to policy
The following issues were raised in relation to policy:
· Small business issues (eg: maximum net assets and controlling individual tests);
· Scrip for scrip issues; and
· Foreign exchange gains and losses and the interaction with CGT.
Issue 4: Technical issues raised
The following key technical issues were also raised:
· Background to the origins of treatment of bankrupts;
· Operation of the CGT discount and assessment under section 99A of the ITAA 1936;
· Interaction of Division 122-A rollover and GST;
· Losses tracing and same ownership test;
· Trust resettlements and the Commercial Nominees decision;
· Issues surrounding Family & Community Services changes to means tests; and
· Pending taxation determinations.
Other Matters: Robert Warnock of the National Tax & Accountants Association has recently joined the CGT Subcommittee. This follows a formal invitation to him from the Professional Associations Liaison Unit on behalf of the Commissioner.
Meeting Discussion: No discussion.
[_Toc528466574] 19.4 Electronic Commerce Forum Report
Meetings: The e-Forum is planning to hold its next formal meeting on 10 October 2001.
Focussing questions to be discussed at the next e-Forum:
Delegates have been forwarded focussing questions in advance of the meeting to allow wider consultation within their representative groups.
The e-Forum welcomes formal submissions to any of the focussing questions below. Submissions should be forwarded to the e-Forum Secretariat, Michael Atfield at michael.atfield@ato.gov.a [_Hlt523713817] u by Friday, 5 October 2001.
Session 1: Taxation of business profits:
Session purpose:
To discuss possible alternatives and/or improvements to the current treaty rules for taxing business profits, in particular the concept of permanent establishment.
To date, the focus within the OECD has been clarification on the application of the existing permanent establishment concept in an electronic commerce environment.
With this completed, the OECD is now moving to examine alternative concepts for taxing business profits.
Focussing questions:
· Are you experiencing problems in applying existing treaty rules for taxing the business profits of an e-business?
· How can we adapt the existing permanent establishment concept to better deal with electronic commerce?
· Are there any ideas you may have in regards to alternative rules for taxation of business profits to better address modern business models?
Session 2. Consumption tax:
Session purpose:
To discuss the application of domestic consumption tax systems to the international e-commerce environment, focusing on administration issues and collection mechanisms.
In the international environment, GST collection on Business to Business (B2B) supplies of services is dealt with by reverse charge mechanisms and Customs controls tend to deal with GST collection on imports of goods. The main area where collection mechanisms are deficient is for Business to Consumer (B2C) supplies of services. This represents a small concern in current economic terms, but the concerns are presently acute in some industries and B2C supplies of services have the potential for substantial growth to effect many more industries.
The commercial down side is that domestic suppliers face a higher tax burden than international competitors on the B2C supplies of services made to domestic consumers.
To date, four main collection models have been explored; consumer reverse charge, non-resident business registration, the tax and transfer model, and collection by intermediary. There is empirical evidence as to why the consumer reverse charge method is unsuitable.
The practical challenges are significant under any of the remaining three options with each leading to different administration measures. There is an international preference to get an understanding about the preferred option and then to move forward on administrative simplification around that option, rather than to uncouple the processes.
Focussing questions:
· What are the perceived pro's and con's of the three viable collection models from a business perspective? Is there a preference?
· Do business have other collection models that have not yet been considered?
· Is business aware of any collection solutions being developed or available in Australia? What are business' views on these types of systems? (There appears to be commercial collection initiatives by at least IBM, Vertex, RIA, Taxware, Transenda, Sabrix and the Sales Tax Clearing House. Many of these are related to intermediary options although some could support a tax and transfer model.)
Session 3:Technology issues:
Session purpose:
To discuss geolocation technologies with a focus on both business and taxation needs for the verification of jurisdiction (country) of customers.
For example, a number of companies including Quova; RealMapping (now part of Quova); BorderControl; Digital Island (now part of Cable and Wireless); Akamai; and NetGeo are promoting geolocation technologies. These use proprietary techniques to leverage the Internet traceroute utility to increase the accuracy of determining the physical location of a web user. Primary uses are for targeting online advertising and customising the views provided to users based on their location. Claims are being made of accuracy rates of up to 96-98%. From an OECD perspective, we have an interest in these technologies as a potential technique for online merchants to verify the jurisdiction (to the country level) of their customers for consumption tax purposes.
Focussing questions:
· Does anyone have any knowledge of the application of these technologies, especially the accuracy rates in practice?
· Are any Australian companies, either using these technologies or developing similar technologies that the ATO could speak to regarding their experiences?
Other work before the e-Forum:
As part of its work on taxation aspects of electronic commerce, the OECD has released a comprehensive set of reports and technical papers. e-Forum's delegates are encouraged to submit their views and comments to the following OECD papers:
· A Discussion Draft on Attribution of Profit to a Permanent Establishment Involved in Electronic Commerce transactions. This paper is available at: http://www.oecd.org/daf/fa/e_com/ec_3_ATTRIBUTION_Eng.pdf
· A Discussion Draft on The Impact of The Communications Revolution on the Application of "Place of Effective Management" as a TieBreaker Rule. This paper is available at: http://www.oecd.org/daf/fa/e_com/ec_4_POEM_Eng.pdf .
The e-Forum welcomes formal submissions from others to any of these papers. Submissions should be forwarded to the e-Forum Secretariat, Michael Atfield at michael.atfield@ato.gov.au by Friday, 5 October 2001.
Meeting Discussion: No discussion.
[_Toc528466575] 19.5 FBT Subcommittee Report
Meetings : A meeting of the sub-committee was held on 21 June 2001 The date of the next meeting is 16 August 2001.
Minutes: Issued on 9 August 2001.
Summary of Significant Issues Discussed:
Note: The significant matters discussed, as noted below, concerned the interaction of GST and FBT following the issue of Goods and Services Tax Ruling GSTR 2001/3.
Issue 1: Meal entertainment election in a GST Group.
This agenda item sought clarification under the A New Tax System Goods and Services Act 1999 (the GST Act) whether FBT entities which are part of the same GST group can make separate and different meal entertainment elections for GST purposes.
The ATO advised that both Divisions 19 and 69 of the GST Act use the term 'you'. The ATO explained how, for GST grouping purposes, the use of the term 'you' enables each entity in the GST group to make their own Subdivision 69-B election.
Issue 2: Operation of Division 71 of GST Act.
This agenda item sought confirmation that entertainment provided to employees will always be a remuneration benefit, as indicated in paragraph 56 of Taxation Ruling GSTR 2001/3. The ATO confirmed that Division 71 of the GST Act does not apply to acquisitions resulting in entertainment benefits to employees (and their associates).
Paragraphs 69 to 85 of GSTR 2001/3 explain the circumstances where Division 71 may apply to other acquisitions, such as for car benefits provided by input taxed suppliers.
Issue 3 : Input tax credit for credit card payments.
Further examples and clarification were sought at paragraphs 86-95 of GSTR 2001/3 to explain when reimbursements will give rise to input tax credits under Division 111 of the GST Act. This issue was appropriately addressed in the 22 February minutes of the sub-committee. The ATO provided further clarity in relation to entitlement to input tax credits for reimbursement of credit card expenses and reimbursement of Visa debit card expenses.
Issue 4 : Annual employee contribution.
This issue relates to smaller taxpayers who in the transition period of 12 months that spans 1 July 2000, i.e. the 1999/2000 FBT year, made an employee contribution to eliminate the FBT liability. The employer calculated the GST on the employee contribution according to the number of days pre and post 1 July 2000 and did not apply the formula in GST Bulletin GSTB 2000/4. The ATO provided guidance to taxpayers in this situation.
Issue 5: Determination of when a car fringe benefit is partly related to the making of input taxed supplies.
This issue raised questions as to what is required to substantiate the purpose for which the benefit is provided. The ATO advised the test is one of intended use at the time of making the acquisition and outlined how intended use could be established from employee agreements, industry awards, job requirements or other obligations re use of or restrictions placed on the use of the car.
Other Matters: A report on the FBT Reportable Fringe Benefits Review was provided to members.
Meeting Discussion: No discussion.
[_Toc528466576] 19.6 Foreign Source Income (FSI) Subcommittee Report
Meetings : The FSI subcommittee met on Wednesday 25 July 2001. The next meeting is scheduled for Thursday, 8 November 2001.
Minutes : The final minutes are not available and will be forwarded when completed.
Summary of Significant Issues Discussed
1: Double Tax Agreement issues.
US & UK renegotiations
The Chair informed the subcommittee that only very limited comments could be made due to the sensitive nature of discussions.
The Chair believed that the UK renegotiations will be a relatively long process due to differences in approach and the fact that it is shaping up to be a full treaty renegotiation. The renegotiations should be completed in three rounds of talks. The Chair expects the broad issues to be settled at the second round talks in November.
Initially it was hoped that the US renegotiations could be completed quickly as a short amending Protocol. Given the outcome of the second round talks, the Chair said that it may not be possible to agree a Protocol within a short timeframe. The Chair concluded that the Government was considering its various options.
Assistance in dealing with tax treaty country's revenue authorities
Discussions centred around solutions to various problems industry are experiencing when dealing with the revenue authorities of our treaty partners, such as:
· the possibility of making a list available of competent authorities as a means of locating the responsible person/area in the overseas revenue authority in circumstances where industry is unsure who should deal with the issue;
· use of the Mutual Agreements Procedures through the ATO when experiencing difficulty in obtaining a refund from the overseas revenue authority for incorrect withholding amounts; and
· notifying the ATO where countries are not abiding by the Treaty.
2: International High Level Design (HLD).
The subcommittee was given an overview of the ATO’s intention to undertake a HLD process of International. The HLD process would critically analyse:
· key client relationships;
· effectiveness of our structure;
· operational efficiency;
· our evolving international environment; and
· the value international adds to the organisation,
· making recommendations to build on our strengths, address our weaknesses and provide real benefit to our key stakeholders.
The subcommittee was encouraged to contact either the Chair or David Grecian via email expressing their interest in international HLD.
3: FSI review status.
The subcommittee was informed there had been no change in the status of the FSI review since our last meeting. Delegates expressed the view there is a real need for the FSI review to proceed sooner rather than later.
4: Technical discussion: Dismin decision.
The subcommittee discussed the background to and the implications of the Full Federal Court decision in Dismin Investments Pty Ltd v FC of T. In particular, the calculation of a gain under regulation 152B given the decision in the first instance by Justice Heery. In the ensuing discussions, delegates were of the view that at best, the decision in the first instance was of little or no precedence value given the decision of the Full Federal court.
In conclusion, the subcommittee was informed that in clarifying this issue, the ATO has sought counsel's advice and if there are no impediments, a ruling will be issued as a matter of priority.
5: Developments in the funds industry and technical discussion on Foreign Investment Fund (FIF) attribution.
Michael Brown gave an overview of developments in global investments strategies of the funds industry and the resulting non-traditional investment vehicles being undertaken to reduce fund risk. For example, pooled hedge funds (with reference to Australian Financial Review article 25/07/01).
Discussions moved on to various technical issues and other concerns the funds industry has in relation to the FIF measures, including:
· the 5% balanced portfolio exemption;
· compliance issues around FIF investment classification;
· the practice of selling down and buying back;
· US exemptions; and
· attribution of capital gains.
It was agreed various submissions to Government by the funds industry representative body outlining their concerns would be circulated to the FSI subcommittee.
6: International Tax Rulings Program.
The Chair outlined the FSI subcommittee’s role in the international tax rulings program is within the consultancy ‘loop’ where they could make recommendations and comments on rulings. The Chair reminded the subcommittee that predraft rulings were confidential and do not represent the final view of the ATO. Therefore, predrafts are for discussion purposes only and should not be relied upon.
Predraft rulings on the meaning of 'entitled to acquire' and residence of limited liability partnerships were tabled and discussed. As a result, the comments received have been included into the updated draft ‘entitled to acquire predraft’
The subcommittee recommended that a residence tax determination for US limited liability companies be undertaken as a priority.
7: Discussion on the draft 2002 international schedule (25A).
Ross Robertson outlined to the subcommittee the reasoning behind the updated schedule 25A and tabled the latest draft. In discussing the draft schedule the subcommittee expressed a number of concerns about the threshold levels. The subcommittee was asked to forward any further comments they had to the secretariat.
8: National issues register.
The subcommittee agreed that the national issues register needed to be updated and transformed into a workable document. In doing so, the register is to be split into the following three subcategories to reflect the method of resolution:
· policy;
· technical; and
· administrative.
The updated national issues register is to be completed for the next subcommittee meeting in November.
Meeting Discussion: No discussion.
[_Toc528466577] 19.7 GST Rulings Panel Report
Status: During the period 1 June 2001 to 17 August 2001, the GST Rulings Panel has convened on two occasions. A further meeting is scheduled to occur before the end of August.
The Panel has examined and provided advice on the following GST public rulings:
· apportioning the consideration for a supply that includes taxable and non-taxable parts (since released as Draft Goods and Services Tax Rulings GSTR 2001/D4);
· non-monetary consideration (since released as Draft Goods and Services Tax Rulings GSTR 2001/D5);
· GST and prizes;
· when is a ‘supply of a going concern’ GST-free? (Since finalised as Goods and Services Tax Ruling GSTR 2001/5);
· financial supplies;
· exports of goods;
· creditable importations of goods; and
· vouchers (including issues arising from feedback on Draft Goods and Services Tax Ruling GSTR 2000/D22).
At the next GST Rulings Panel meeting, on 29-30 August 2001, the Panel is currently expected to consider the GST treatment of:
· trade exchanges;
· when is the sale of real property the sale of new residential premises (including feedback on Draft Goods and Services Tax Ruling GSTR 2001/D3); and
· vouchers.
Meeting Discussion: No discussion.
[_Toc528466578] 19.8 PAYG working Party Report
Meetings: 4 June 2001 and telephone hook-up on 17 August 2001
Next meeting: None scheduled.
Minutes: Outcomes of meetings are recorded in the PAYG Working Party Issues Register which is available on the ATO’s Tax Reform website
Summary of significant issues discussed
1. Future of the PAYG Working Party
The PAYG Working Party was originally set up in November 1999 to assist with managing the introduction of the PAYG instalments and withholding regimes. The PAYG system has now been in place for 12 months. Over the past six months the number of PAYG issues being raised by working party members has decreased significantly. Of the 26 new issues raised since February 2001 only 11 related specifically to PAYG. The remaining 15 items related to activity statements, the running balance account and GST.
Against this background there was discussion about the future role of the PAYG Working Party. It was agreed that there was a continuing role for the working party (albeit a reduced one). In the future the working party would meet as needed rather than on a regular basis and wherever possible meetings would be conducted via phone hookup. The ATO undertook to arrange working party meetings whenever significant PAYG issues arise.
2. Early payment of deferred company instalments
In the transition to PAYG companies and funds were entitled to defer payment of some or all of their assessed tax for 1999-2000 and repay the deferred amount in quarterly instalment over 2 ½ to 5 years. Concerns were raised about the ATO’s apparent inability to deal with early repayment of the deferred amount.
The ATO will accept early repayment of tax deferred under the PAYG transitional arrangements. ATO systems are being changed accordingly and procedures are being developed.
3. PAYG and corporate groups with transferred losses
Working party members were concerned that the formula used to calculate an entity’s instalment rate did not take into account transferred losses. While it was accepted that such a situation could be remedied by varying the instalment rate there were issues about exposure to variation penalties.
The Commissioner has subsequently responded to a direct representation on this issue from a member body. That response has now been provided to all PAYG Working Party members and will be included in the Working Party issues register which is available on the ATO’s Tax Reform website.
4. Offsetting income tax refunds against PAYG instalments
Members sought clarification of the ATO’s policy on offsetting credits against debts that are due but not yet payable.
The ATO advised that this was one of a number of issues arising from the overlap of PAYG annual instalments and lodgement of tax returns. The issues are addressed in a PAYG Q&A that was loaded onto the Tax Reform website on 1 June 2001 and included in a subsequent e-link broadcast to practitioners.
The ATO has commenced a broader review of it offsetting practice and will consult with members of the Client Accounting Working Group (CAWG) as part of that process.
5. Calculation of the GDP adjustment used to calculate PAYG GDP-adjusted notional tax instalments
Members sought clarification of the method used to calculate the GDP-adjustment.
The ATO explained that the GDP adjustment is essentially the proportional change in GDP between last calendar year and the calendar year before that. Because the GDP adjustment is
based on GDP amounts from prior calendar years there can at times appear to be a mismatch between the adjustment factor being used and other measures of economic activity.
6. Telephone Hook-up
Discussion at the telephone hook-up collected feedback on a draft ATO policy for correcting PAYG mistakes.
Meeting Discussion: No discussion.
19.9 Superannuation Industry Liaison Group Report
Meeting : 6 June 2001. Next Meeting 12 September 2001.
Minutes : Draft.
Summary of Significant Issues Discussed (at meetings during period)
Issue 1: The concept of the SPIN – Superannuation Product Identification Number – was presented to the forum by industry. This is a unique identifier that the superannuation industry is examining as an alternative to having to report member account numbers for superannuation surcharge reporting. The reporting of the member account number became compulsory with amendments to the surcharge regulations, however, administrative difficulties have made the reporting of this number difficult. The SPIN has been sponsored by the Association of Superannuation Funds of Australia and the SuperEC project.
The paper was presented to the forum for consideration by the ATO. Some issues need to be clarified, but it appears that the SPIN will be approved shortly.
Issue 2: Discussion took place around the changes to superannuation law heralded in the budget, in particular the changes announced to the treatment of ETPs for surcharge purposes – officially known as Terminations Payments Tax. At the time legislation was still pending, but industry voiced its concern as to how the ATO will administer the changes. Industry was assured that wherever possible, they would be consulted.
Issue 3: Industry reported on-going concern with the new privacy legislation and issues associated with the Financial Services Reform Bill – previously known as CLERP6.
Meeting Discussion: No discussion.
[_Toc528466579] 19.10 Transfer Pricing Subcommittee Report
Meetings: The subcommittee met on 24 July 2001. The next meeting will be held on 20 November 2001.
Minutes : Minutes for the March meeting have been approved by the members. The July meeting minutes are in draft.
Summary of Significant Issues Discussed (at meetings during period)
Issue 1: The members were briefed on the ATO’s ongoing Transfer Pricing Record Review & Improvement project. This included an update on the progress of the benchmarking research project undertaken by the Economist Cell of LB&I International.
Issue 2: The members were given an update on Advance Pricing Arrangement developments since last meeting.
Other Matters: The impact of consolidations policy on current transfer pricing documentation will be included at the next meeting.
Meeting Discussion: No discussion.
19.11 [_Toc528466580] International Tax Rulings Panel Report
Meetings : The panel met on 15 June, 13 July and 10 August 2001. It is scheduled to meet again on 13 or 14 September 2001.
Minutes : The panel does not issue minutes.
Summary of Significant Issues Discussed
Issue 1: The panel considered a revised draft TR 2000/D15 dealing with the application of Division 13 of Part III and double tax agreements to permanent establishments. The draft ruling was issued on 15 November 2000, with a final expected to issue in late August or early September.
Issue 2: The panel considered two draft taxation determinations dealing with the decision in Chaudhri's case which involved a seafarer whose service included the performance of his duties in international waters. Issues addressed in the TDs are whether service in international air space is foreign service for the purposes of section 23AG of the ITAA 1936 and whether Australia is a foreign country for the purposes of section 23AG of the ITAA 1936. Both raised a number of policy issues.
Issue 3 : The panel considered a draft taxation determination on the residency of UK and US limited partnerships (LPs) and similar foreign hybrid entities for the purposes of Division 1 of Part X of ITAA 1936. A revised draft was approved by the panel, however, some policy issues are currently being resolved before the TD is issued in draft form.
Issue 4 : The panel considered a revised draft ruling on the meaning of permanent establishment under the domestic law. TR 2001/D6 issued in draft form on 15 August 2001.
Issue 5 : The panel considered a draft ruling on whether the holding of pre-emptive rights constitutes a contingent entitlement to acquire for controlled foreign company (CFC) and foreign investment fund (FIF) purposes. A revised draft to be presented at the next meeting.
Issue 6: The panel considered a draft taxation determination dealing with s160APAAAA (which relates to a new section contained in the New Business Tax System (Debt and Equity) Bill 2001). A TD was cleared for issue after the passage of the legislation.
Other matters:
· The panel considered a revised draft ruling (out of session) on the meaning of the arm’s length test in paragraph 47A(7)(a). A further revised draft is to be circulated out of session before its released as a draft ruling.
· Revised draft ruling on the royalty rate applicable (for example, 30 per cent or 10 per cent) on that part of a royalty payment which, under a royalty article of a double tax treaty, is considered to be excessive was considered by the panel in July and approved to issue as draft. Some policy issues need to be resolved before the draft ruling can issue.
· The panel considered a draft ruling on the application of Australia’s pre-CGT Double Tax Agreements to capital gains.
· Subject to changes recommended by the ITRP the ruling was approved, however, some policy issues need to be resolved before the draft ruling is ready for issue as a final.
· The panel considered a draft public ruling on the implications of the Century Yuasa Batteries case for interest withholding tax. A revised draft, incorporating further changes, is currently being prepared, and is expected to be released in early September.
· Practice statement on the interpretation of international double tax treaties is being finalised and is expected to issue in early September.
· The final tax determination on the meaning of the term ‘holder of the debenture’ for the purposes of paragraph 126(1)(e) was issued as TD 001/19 on 8 August 2001.
· Practice statement on the interpretation of the Netherlands DTA was re-considered by the panel in August 2001. The practice statement is expected to issue in early September.
Meeting Discussion: No discussion.
[_Toc528466581] 19.12 Litigation Panel Report
The Litigation Panel has not met since the last NTLG.
Meeting Discussion: No discussion.
[_Toc528466582] 19.13 Part IVA Panel Report
Meetings : 5 June 2001; 6 July 2001; 17 August 2001
Summary of Significant Issues Discussed
Issue 1: Consequences of takeover and share buyback.
Issue 2: Release of guarantee of debt - consideration paid to third party.
Issue 3: Fraudulent deduction claims and diversion of income to associates.
Issue 4: Offshore arrangements and the application of Part IVA and s 260.
Issue 5: GST Division 165 issue - input tax credit scheme.
Issue 6: Securities Lending Arrangements.
Meeting Discussion: No discussion.
[_Toc528466583] 19.14 Public Rulings Panel Report
During the period 1 June 2001 to 31 August 2001, the Public Rulings Panel (the Panel) has convened on three occasions.
The Panel has examined and provided advice on the following public rulings:
· adjustment of cost base interests in a loss company under Subdiv 170-C of the ITAA 1997 following a loss transfer;
· the meaning of personal services income;
· what is a personal services business;
· deductions relating to personal services income;
· PAYG withholding obligations of a personal services entity in respect of attributed person services income;
· deductibility of expenditure incurred in setting up a web site;
· no ABN withholding;
· penalty liability – false and misleading statements;
· deductibility of travel expenditure when carrying equipment;
· simplified tax system – the grouping rules in Subdiv 328-F of the ITAA 1997;
· simplified tax system – STS average turnover;
· non-commercial business losses.
The next Public Rulings Panel meeting is scheduled for 11-12 September 2001.
Meeting Discussion: No discussion.
[_Toc528466584] 19.15 Tax Treaties Panel Report
Meetings : Met on 18 May 2001. The next meeting is likely to be held in February 2002. This will enable the outcomes from the second round of the US and UK talks to be examined in detail.
Minutes : The minutes of the previous meeting, held on 5 July 2000, were approved. All action items arising out of that meeting have been addressed.
Summary of Significant Issues Discussed:
Issue 1: UK Renegotiations
Jim Killaly led the discussion on this issue. The ATO advised that it would welcome views on what Australian business would want from the treaty, in particular on the issue of avoiding becoming a ‘branch office economy’.
It was mentioned that the UK would, in accordance with its own treaty practice, seek to reduce source country taxing rights such as are common in Australian treaty practice, and there would be further discussion over Australian anti-avoidance provisions. Participants raised issues about the operation of the treaty including:
· those related to the cost of employing expatriates;
· dual listed companies;
· treatment of capital gains; and
· imposition of withholding tax on foreign companies (especially in the financial sector).
Issue 2: US Renegotiation
Participants discussed the main issues in the negotiations, including:
· withholding taxes on dividends;
· interest and royalties;
· expatriates;
· capital gains;
· interest;
· US regulated investment companies (RICs) and real estate investment trusts (REITs);
· shipping;
· a non-discrimination article (NDA);
· limitation of benefits; and
· the US’s ability to tax branch profits.
Other Matters.
Participants discussed:
· the treatment of US limited liability companies (LLCs) and limited liability partnerships (LLPs) under the treaty and Australia’s controlled foreign corporation (CFC) rules;
· the relationship of the debt/equity rules and treaties;
· progress in finalising outstanding treaties:
- Germany (there are some outstanding technical issues, and Germany has raised non-resident insurers);
- Turkey;
- Mexico (the only outstanding issue is the rate of dividend withholding tax);
- Russia (the DTA has been signed but it needs to go through the Australian and Russian Parliaments);
- Canada (close to finalisation);
- Romania (now concluded);
- Malaysia (anticipate a second amending Protocol in the near future).
· East Timor – participants discussed what provisions should be inserted into any new treaty – eg whether s44(1)(b) of ITAA 36 would be applicable.
· The draft ATO ruling on pre-CGT treaties and Draft Practice Statement on Treaty Interpretation – will issue in the next few months following the meeting.
· OECD update - A report on the definition of PE in the e-commerce context was released in December last year. Other major issues currently being considered include the treaty characterisation of e-commerce payments, the ‘place of effective management’ tiebreaker rule in tax treaties, the OECD Harmful Tax Competition Report and the taxation of cross-border pensions payments.
Meeting Discussion: No discussion.
[_Toc528466585] 19.16 Tax Practitioner Industry Partnership Report
Meetings : The last meeting of the Partnership was held on 10 July 2001 in Canberra. The next meeting is planned for 11 September 2001 in Sydney.
A GST insolvency forum was also held in Melbourne on 2 August 2001.
Summary of Significant Issues Discussed at the Partnership meeting:
Draft non-monetary consideration ruling.
Professional bodies provided feedback on the draft ruling and provided additional practical examples for ATO consideration.
GST refunds paper.
The forum resolved many issues and raised a number of new significant issues.
New Significant Issues:
· Treatment of non-residents who lodge electronically and have to remit PAYG withholding payments several times a month.
· Entitlement to input tax credits where a motor vehicle is provided to an employee with minimal restriction on usage guidelines and employee utilised the vehicle for business use only.
· Fringe benefit reimbursement to employees.
· FBT/GST attribution of supplies between entities.
· A New Tax System (Goods and Services Tax) Act 1999 Classes of Recipient Created Tax Invoice Determination (No 1) 2000.
· Input tax credits and change in use of new residential premises.
· Electronic Commerce Interface and ELS.
· Accuracy of web-site information.
· Timeliness of Private Rulings and ATO responses.
· ATO policy on announced changes e.g. budget announcements to end the transitional restriction on claiming input tax credits for new motor vehicles.
· Definition of long-term leases in s 195-1.
· Application of GST input tax credits to existing tax debts.
· Is a share-for-share swap a financial supply?
· Is an accountant providing advice on sale of client shares considered a financial supply facilitator?
· Is the accountant entitled to reduced input tax credit?
· Is underwriting fees charged by a brokering firm an input taxed or taxable supply?
Issues resolved:
· Tax Practitioners Infoline policy on call identification.
· Large Enterprises Compliance-appropriate contact for large corporate clients.
· Operation of the margin scheme.
· CPD enrolment forms/membership renewals and tax invoice requirements.
· Refund issues for GST Groups.
· Compliance issues-ATO Notice to release parties bound by confidentiality clause.
· List of gazetted public holidays that ATO recognised as official public holidays.
· Input tax credits entitlement on the lease of a luxury car.
· Impact of Simplified Accounting Method on the use of GST instalment option.
· Primary producers and special professionals, who can average their income for tax purposes, have the option to pay only two GST installments under the new BAS reporting arrangements. Does this option apply to only GST or for both GST and PAYG?
· Input tax credit entitlements on trailer.
· How to obtain draft GST rulings removed from web-site.
· Late lodgment penalty on BAS.
· Extension of time to lodge BAS after periods after July 2001.
· Single tax invoice made to multiple entities.
Meeting Discussion: No discussion.
[_Toc528466586] 20 Other Business
[_Toc528466587] 20.1 Deductibility of foreign exchange losses on offshore borrowings
The NTLG minutes of 13 March 1997 appended additional information including ATO advice dated 17 February 1997 to the professional bodies concerning the ATO practice in relation to the implications of the decision of the High Court in FCT v Energy Resources of Australia Ltd regarding the taxation of foreign exchange gains and losses (refer to Attachment 9 an extract from NTLG minutes).
The crux of the advice provided in that letter by the Chief Tax Counsel was, pending any legislative change, further judicial direction, the issuing of a Tax Ruling on this matter or the amending of TR 93/21, the ATO practice would be to continue to treat borrowing costs as deductible provided the funds raised were used in the taxpayer's assessable income producing business.
There has been no further legislative or judicial developments since 1997 nor has the ATO issued or amended public taxation rulings on this matter. The reliance placed on the 1997 letter as a statement of ATO practice is becoming of greater significance in the current economic climate where the $A has significantly devalued such that the quantum of exchange losses on overseas borrowings has risen significantly. Offsetting gains are being incurred on hedging contracts including options and swaps. The status of the ATO advice of the administrative practice of allowing deductions for the exchange losses on the borrowings and confining ERA to its particular factual circumstances is becoming increasingly important given:
· the size of the foreign exchange losses being incurred due to the $A devaluation since 1996; and
· the potential change to the tax characterisation of offshore borrowings due to the introduction of a tax consolidation regime which will reduce reliance on the use of intra group finance companies to achieve tax characterisation of borrowing expenses as on revenue account.
Any inference that the status of the letter from the Chief Tax Counsel has been compromised as a result of the Commissioner's Practice Statement regarding the reliance that can be placed on ATO advice in PS 2001/4 would be viewed with serious alarm by the professional associations.
We therefore seek confirmation of the status of the 1997 letter and scope for taxpayer's to continue to rely on it pending legislative , judicial or ATO advice to the contrary.
Response : To be discussed at the meeting.
Meeting Discussion : Second Commissioner D’Ascenzo confirmed the letter referred to in the agenda item remained in place, although this is an interim measure. The ATO has no intention to move away from the view expressed.
[_Toc528466588] 20.2 Independent Contractors, bicycle couriers and Hollis v Vabu
With the recent High Court decision in Hollis v Vabu, the Court characterised bicycle couriers as employees. This is a departure from the ATO practice since 1996 of treating such couriers as independent contractors on the strength of the Court of Appeal decision preceding the High Court’s determination of the matter. There are not only critical tax concerns now on the part of bicycle couriers, but also PAYGW, payroll tax and other important issues for employers.
Would the ATO please advise how it proposes to administer the tax obligations of bicycle couriers during the period from 1996 up to the High Court’s decision in Hollis v Vabu, from the perspective of both the bicycle courier and the employer?
Response : The High Court in Hollis v Vabu Pty Ltd concluded that bicycle carriers employed by the respondent were employees. In so doing it commented that the "notion that the (bicycle) carriers some how were running their own enterprise is intuitively unsound". The ATO will be working with the carrier industry to sort out the implications of the High Court ruling.
The High Court in Hollis v Vabu Pty Ltd also said that "a different conclusion might be appropriate where the investment in capital equipment was more significant" and did not specifically over rule the Full Federal Court decision in Vabu Pty Ltd v FCT on this point.
Meeting Discussion: No discussion
[_Toc528466589] 20.3 Technical Corrections Register
Is the Technical Corrections Register still being prepared? Would the ATO please provide an update on the status of this Register?
Response : A response to be provided at the meeting.
Meeting Discussion : Professional bodies noted that before the implementation of GST and Business Tax Reform measures, the ATO prepared a register of technical corrections. The professional bodies sought to have this information available as it provided an insight into legislative corrections planned by the ATO.
Second Commissioner D’Ascenzo commented he would examine the content of information currently kept by the ATO, although he noted the ATO may not be able to make this information available. He confirmed the ATO was happy to accept suggested technical corrections from the NTLG and would advise the Tax Design Group of the NTLG’s interest.
Second Commissioner D’Ascenzo also suggested a confidential discussion of the content of the register could be held at some time in the future to assist the ATO determine high priority items.
Action Item NTLG0109/18 : NTLG’s interest in the technical corrections register be passed to the Tax Design Group for further consideration and advise the NTLG.
[_Toc528466590] 20.4 Reasonably Arguable Position
The Taxation Institute is concerned that subsection 284-15(1) of the Income Tax Assessment Act 1997 (the 1997 Act) has altered the meaning of the concept of reasonably arguable, as that term was defined in subsection 222C(1) of the Income Tax Assessment Act 1936 (the 1936 Act). Subsection 284-15(1) was inserted into the 1997 Act by A New Tax System (Tax Administration) Act (No 2) 2000, and replaced subsection 222C(1) of the 1936 Act.
Subsection 222C(1) defined a matter as being reasonably arguable if “it would be concluded that what is argued for is about as likely as not correct.” In contrast, subsection 284-15(1) states that a matter is reasonably arguable if “what is argued for is as likely to be correct as incorrect, or is more likely to be correct than incorrect”.
In spite of the opinion expressed in the Explanatory Memorandum to A New Tax System (Tax Administration) Bill (No 2) 2000 at paragraph 1.20 that “…(a)lthough the wording has been refined, the concept has the same meaning as in section 222C…”,
the wording of subsection 284-15(1) alters the meaning of reasonably arguable because it establishes a more stringent test whereby the prospects that the taxpayer’s treatment of a matter as being the correct treatment must be greater than 50%.
This conflicts with subsection 222C(1) where the test is “about as likely as not”. As indicated in Taxation Ruling TR 94/5, this latter test simply means that there only has to be a substantial likelihood that the taxpayer’s treatment of a matter is the correct treatment, whether or not those prospects are less than or greater than 50%.
Would the ATO:
a. confirm that subsection 284-15(1) of the 1997 Act does not alter the meaning of the term “reasonably arguable” as originally defined in subsection 222C(1) of the 1936 Act; and
b. advise what steps will be taken to amend the wording of subsection 284-15(1) so that it correctly reflects Taxation Ruling TR 94/5 and paragraph 1.20 of the Explanatory Memorandum to A New Tax System (Tax Administration) Bill (No 2) 2000?
Response : The ATO considers that the concept has the same meaning as in section 222C.
Meeting Discussion : The professional bodies conceded the Explanatory Memorandum advises there is no change in the meaning of the term ‘reasonably arguable’, as defined in former subsection 222C(1). This position has also been confirmed by the ATO. Professional bodies believe there is, however, a perception in the community that the meaning has changed as the words used in subsection 284-15(1) seem to change the interpretation. The professional bodies suggested the definition use the words of subsection 222C(1) rather than 284-15(1) to minimise confusion.
Second Commissioner D’Ascenzo proposed this could be submitted to the Tax Design Group as a suggested technical correction.
Action Item NTLG0109/19 : The suggestion by the NTLG to revert to the definition of reasonably arguable contained in subsection 222C(1) be conveyed to the Tax Design Group for possible inclusion in the list of technical corrections.
[_Toc528466591] 20.5 Information from subcommittees
Meeting Discussion : There was a brief discussion of the ability of members to gain access to members of subcommittees and working groups of both the NTLG and ATPF. The ATO agreed to provide each member of the NTLG and subcommittees and working groups with a more detailed list of members than exists on the ATO’s web site.
Action Item NTLG0109/20 : ATO to provide detailed membership lists to all members of the NTLG and related subcommittees and working groups.
[_Toc528466592] 21 Next Meeting
The next meeting is scheduled for Thursday 6 December 2001 at 9.30am at the Australian Taxation Office, 2 Constitution Ave, Canberra.
Meeting Discussion : The professional bodies asked for the ATO to provide a list of scheduled meeting dates for the NTLG for 2002.
Action Item NTLG0109/21 : ATO to provide NTLG members with scheduled NTLG meeting dates for 2002.
[_Hlt523560218][_Toc17533496][transition] Attachment 1 - Action Item Summary
|
Action Item No. |
Agenda Item No. |
Action Item |
Responsibility |
|---|---|---|---|
|
NTLG0109/1 |
2 |
The ATO will provide NTLG members with an outline of major milestones and timelines for RBA systems changes |
Erin Holland |
|
NTLG0109/2 |
3.2 |
ATO to provide to the NTLG a copy of the draft document outlining prioritisation process of topics in the public rulings program. |
Tom Meredith |
|
NTLG0109/3 |
5 |
The ATO to examine the impact of the decision in Payne’s case on the current rulings and legislation and advise the NTLG. |
Phil Foster |
|
NTLG0109/4 |
6 |
The ATO to enquire with the Treasurer’s office in an attempt to determine the relevance of the February 1999 date in relation to the treatment of non-commercial loans. |
Commissioner |
|
NTLG0109/5 |
7 |
Professional bodies to advise the ATO of issues in relation to ‘non-genuine’ leases previously covered in the withdrawn TD 94/20. |
Professional Bodies |
|
NTLG0109/6 |
8 |
The ATO to advise the NTLG at the December meeting on possible wider dissemination of material and application of penalties in relation to Division 243. |
Jan Farrell |
|
NTLG0109/7 |
9.1 |
Professional bodies to provide the ATO with a list of reform measures likely to have the greatest practical impact and due to be implemented on 1 July 2002. |
Professional Bodies |
|
NTLG0109/8 |
9.2 |
The ATO to follow up the development of a subsequent practice statement about imposition of penalties applicable to the second transition year of the new tax system. |
Erin Holland |
|
NTLG0109/9 |
10 |
ATO to write to professional bodies and ATPF members to propose a way to progress implementation of recommendations from the NRSTP. |
Commissioner |
|
NTLG0109/10 |
13 |
ATO to investigate quicker release of ATO media releases to professional bodies. |
PALU |
|
NTLG0109/11 |
14 |
ATO to provide the NTLG with further advice in relation to the ATO’s risk reviews on taping of conversations and the relevance of the Audit Guidelines. |
Jim Killaly |
|
NTLG0109/12 |
14 |
ATO to provide the ATO brochure tabled at the Corporate Consultative Committee. |
PALU |
|
NTLG0109/13 |
18 |
ATO to advise NTLG whether there has been any change to the ATO’s view of the application of Legal Professional Privilege. |
Carole Grey |
|
NTLG0109/14 |
19.1 |
The paper detailing ‘reasonably arguable position’ issues to be refined by the authors if necessary and provided to the ATO. |
Professional Bodies |
|
NTLG0109/15 |
19.1 |
ATO to further investigate the trust resettlement issues in line with the professional bodies’ request for specific information regarding Centrelink’s text for the withdrawal from a trust and stamp duty implications. |
Debbie Boyd |
|
NTLG0109/16 |
19.1 |
Professional bodies to provide a note for the NTLG covering discussions about the continuity of ownership test with the ATO’s Losses Centre of Expertise. |
Tony Stolarek |
|
NTLG0109/17 |
19.1 |
A revised status report for NTLG0106/24 to be prepared and provided to PALU |
Professional Bodies |
|
NTLG0109/18 |
20.3 |
NTLG’s interest in the technical corrections register be passed to the Tax Design Group for further consideration and the NTLG advised. |
PALU /
|
|
NTLG0109/19 |
20.4 |
The suggestion by the NTLG to revert to the definition of reasonably arguable contained in subsection 222C(1) be conveyed to the Tax Design Group for possible inclusion in the list of technical corrections. |
PALU /
|
|
NTLG0109/20 |
20.5 |
ATO to provide detailed membership lists to all members of the NTLG and related subcommittees and working groups. |
PALU |
|
NTLG0109/21 |
21 |
ATO to provide NTLG members with scheduled NTLG meeting dates for 2002. |
PALU |
[_Toc17533497] Attachment 2 - Where the ATO is at with the Transition to ANTS
|
Tax Time Last Year |
Tax Time This Year |
|
• 11,500 ANTS correspondence on hand end June 2000 – ATO received approx. 2600-3000 items per week in March-May 2000 |
• 2300 ANTS correspondence on hand currently – volumes for March-May 2001, approx. 400 per week – ATO completed 98,000 requests for written advice on ANTS since Mar 2000 |
|
• ANTS call centre volumes for June 2000 – 242,000 calls per week (average) – Daily calls peaked at 72,800 – most calls on registration process, status of registration and requests for amending registration details |
• ANTS call centre volumes for June 2001 – 93,000 calls per week (average) – Daily calls peaked at 27,500 – 7.1m calls since 1 July 2000 (10.9m since July99) – most calls on annual instalment variation, lodgment and refunds |
|
• Balanced compliance program - balanced program of help and assistance (no penalties for genuine mistakes or misunderstandings) |
• 400,000 advisory visits completed
(gradual redeployment of field resources to field verification activities from March 2001) |
|
• 2.7 million ABNs issued – expected 2.5m ABN registrations – expected 1.9m GST registrations – around 15% applications received online |
• 3.6 million ABNs issued (in total) – 3.6m ABNs issued – 2.2m GST registrations – 213,500 GST cancellations – 35% of new registrations now completed online – significant increase in use of ABR online by businesses (eg. establishing registration status of other businesses) |
|
• 3.164 million Activity Statements issued in June 2001 Quarter (quarterly and monthly BAS, IAS) – 3.065 million paper, 45,000 ELS & 54,000 ECI – new forms give effect to new GST/PAYG reporting and payment options – customised forms |
|
|
• 100,940,219 hits to taxreform.ato.gov.au in 1999/00 • 1100 public education seminars on ANTS |
• 109,507,851 hits to taxreform.ato.gov.au in 2000/01 • 1500 public education seminars • 100,000 users of E-Record – over 1.6m E-Record CDs distributed in total – 9450 CDs requested /month and 1214 downloads /month |
|
• Legislation-driven, ATO-centric approach to tax design |
Integrated tax design approach bringing together voice of Government, administrator and user to bear earlier in the process |
[_Hlt523560227][reformupdate][_Toc17533498] Attachment 3 - Tax Reform Update
Measures Expected to Commence
July 2002 and Later
Timeline is based on the announcements contained in Treasurer's Press Release No. 16 dated 22 March 2001
|
|
|
|
Simplified Imputation System Consolidation Taxation of Life Insurance Policy Holders Temporary Residents – tax exemption Franking Credits for Foreign Dividend WHT Non-Resident WHT Regime Foreign Income Accounts |
Transfer Pricing Provisions Leases and Rights Partnership and Joint Activities Taxation of Financial Arrangements Tax Value Method |
General anti-avoidance rules will now have effect from the time of introduction into Parliament of the relevant legislation
Measures Commenced
1999 - 2001
|
|
|
|
|
CGT Company tax and imputation Integrity measures |
Removal of section 46 dividend rebate for unfranked dividends Company tax rate reduction to 34% (including franking account consequential amendments) Life insurance companies - base broadening measures Losses from non commercial business activities Alienation of personal services business income Scrip for scrip - further amendments |
Company Tax Rate - reduction to 30% Thin Capitalisation Debt/ Equity Test Simplified Tax System |
|
Measures |
Commencement |
Status |
|
|---|---|---|---|
|
Entities and Distributions |
Entities Regime |
Yet to be determined |
On 27-Feb-01 (Treasurer's Press Release No. 8) the Government announced the withdrawal of the entities draft legislation, following consultation on the exposure draft. The Government's intention is to begin a new round of consultations on principles which can protect legitimate small business and farming arrangements, whilst addressing any tax abuse in the trust area. The Board of Taxation will be part of this consultation. |
|
Integrity Measure |
General anti-avoidance rule |
At Introduction |
This measure has been deferred pending further consultation and development. Treasurer’s Press Release No. 74/1999 had announced that the proposed rules would apply to schemes entered into or carried out after 1pm, by legal time in the ACT, on 11-Nov-99. Press Release No. 16/2001 announced that any amendments to the Part IVA provisions will now have effect from the time of introduction into the Parliament of the relevant legislation, instead. |
|
International Tax |
Foreign Source Income Rules |
Yet to be determined
|
Legislation has not been introduced. Commencement of measure deferred from 1-Jul-01. |
|
International Tax |
Transfer Pricing Provisions |
Yet to be determined
|
Legislation has not been introduced. Commencement of measure deferred from 1Jul-01. |
|
Leases and Rights |
Leases and rights |
Yet to be determined
|
Legislation has not been introduced. Commencement of measure deferred from 1Jul-01. |
|
Partnership and Joint Activities |
Partnership and Joint Activities |
Yet to be determined
|
Legislation has not been introduced. Commencement of measure deferred from 1Jul-01. |
|
Taxation of Financial Assets & Liabilities |
Taxation of financial arrangements (TOFA) |
Yet to be determined
|
Commencement of measure deferred from 1-Jul-01. Note, however, that specific rules in relation to the distinction between debt and equity interests have been introduced. These proposed rules will also introduce a definition of ‘debt' for Thin Capitalisation purposes. The rules are contained in the NBTS (Debt and Equity) Bill 2001. |
|
Tax Value Method |
Tax value method |
Yet to be determined
Expected 1-Jul-03 |
The tax value method will provide a new structure for the income tax law. It is based on a common conceptual platform designed to achieve greater simplicity, transparency and durability. The Government has deferred this reform measure, so that further consultation through the Board of Taxation with the business community can take place. Further information regarding this measure together with draft demonstration legislation can found at the Board of Taxation website at www.taxboard.gov.au. |
|
Capital Allowances |
Other ‘Blackhole’ expenditures |
1-Jul-02
|
Legislation has not been introduced. Commencement of measure deferred from 1Jul-01. |
|
Company Tax and Imputation |
Simplified Imputation System |
1-Jul-02 |
Legislation has not been introduced. Commencement of measure deferred from 1Jul-01. |
|
Consolidation Regime |
Consolidated Income Tax Treatment for Wholly Owned Groups of Entities |
1-Jul-02 |
This measure has been deferred from 1-Jul-01 to enable further consultation on the proposed legislation, including rules relating to general value shifting arrangements. |
|
Life Insurance and Pooled Superannuation Trusts |
Taxation of life insurance policy holders |
1-Jul-02 |
Legislation has not been introduced. Commencement of measure deferred from 1Jul-01. |
|
International Tax |
Foreign Income Accounts |
1-Jul-02 |
Legislation has not been introduced. Commencement of measure deferred from 1-Jul-01. |
|
International Tax |
Exemption from tax of temporary residents |
1-Jul-02 |
Legislation has not been introduced. Commencement of measure deferred from 1-Jul-01. |
|
International Tax |
Franking credits for foreign dividend withholding tax |
1-Jul-02 |
This measure was contained in the NBTS (Entity Taxation) Bill 2000 (Exposure Draft). On 27-Feb-01 (Treasurer's Press Release No. 8) the Government announced the withdrawal of the entities draft legislation, following consultation on the exposure draft. The Government has deferred the commencement of this measure from 1-Jul-01 in order to give taxpayers sufficient advance notice and certainty of detail of the final arrangements. |
|
International Tax |
Non-resident withholding tax regime |
1-Jul-02 |
Legislation has not been introduced. Commencement of measure deferred from 1Jul-01. |
|
Capital Allowances |
Uniform capital allowances |
1-Jul-01 |
NBTS (Capital Allowances) Act 2001
|
|
Company Tax and Imputation |
Company tax rate reduction to 30% |
1-Jul-01 |
NBTS (Income Tax Rates) Act (No. 1) 1999 |
|
International Tax |
Thin capitalisation |
1-Jul-01 |
Awaiting passage of NBTS (Thin Capitalisation) Bill 2001 (passed House of Representatives 8-Aug-01). |
|
International Tax |
Debt/equity test |
1-Jul-01 |
Awaiting passage of NBTS (Debt and Equity) Bill 2001 (passed House of Representatives 8-Aug-01). |
|
Small Business |
Simplified Tax System |
1-Jul-01 |
NBTS (System Tax System) Act 2001 Previously, to be eligible to enter the Simplified Tax System, businesses, and related businesses, had to have depreciating assets of less than $2 million at the end of the year. This figure has now been increased to $3 million. This threshold figure and the grouping rules are designed to ensure that businesses that are part of a larger group of entities do not gain access to the Simplified Tax System. |
|
Capital Allowances |
Removal of immediate deductions for plant and equipment costing $300 or less and introduction of a low value asset pool for assets costing under $1,000 (except small business) |
1-Jul-00 |
The New Business Tax System (Capital Allowances) Act 2001 reinstates the immediate write-off for plant costing $300 or less from 1-Jul-00 for certain taxpayers who use the plant predominantly to produce assessable income that is not derived from carrying on a business. |
|
Company Tax and Imputation |
Refund of excess imputation credits on assessment |
1-Jul-00 |
NBTS (Miscellaneous) Act (No. 1) 2000 |
|
Company Tax and Imputation |
Removal of section 46 dividend rebate for unfranked dividends |
1-Jul-00 |
NBTS (Miscellaneous) Act (No. 1) 2000 |
|
Company Tax and Imputation |
Company tax rate reduction to 34% (including franking account consequential amendments) |
1-Jul-00 |
NBTS (Income Tax Rates) Act (No. 1) 1999
|
|
Life Insurance and Pooled Superannuation Trusts |
Life insurance companies - base broadening measures |
1-Jul-00 |
NBTS (Miscellaneous) Act (No 2) 2000 |
|
Small Business |
Losses from non commercial business activities |
1-Jul-00 |
NBTS (Integrity Measures) Act 2000 |
|
Small Business |
Alienation of personal services business income |
1-Jul-00 |
NBTS (Alienation of Personal Services Income) Act 2000 The ATO announced in Media Releases 55/2001 and 56/2001 that the draft rulings on this measure are being significantly reworked and will be finalised as a matter of priority. |
|
CGT |
Scrip for scrip - further amendments |
13-Apr-00 |
NBTS (Capital Gains Tax) Act 1999
|
|
CGT |
CGT roll-over relief for scrip for scrip takeovers |
10-Dec-99 |
NBTS (Capital Gains Tax) Act 1999
|
|
CGT |
Non resident pension funds exempt on disposal of eligible venture capital investments. |
10-Dec-99 |
NBTS (Capital Gains Tax) Act 1999 |
|
CGT |
Venture capital franking rebate |
10-Dec-99 |
NBTS (Miscellaneous) Act (No. 1) 2000
|
|
Integrity Measure |
Inter-entity loss multiplication |
11-Nov-99 |
NBTS (Integrity and Other Measures) Act 1999
|
|
Integrity Measure |
Prepayments under tax shelters |
11-Nov-99 |
NBTS (Integrity Measures) Act 2000 |
|
Integrity Measure |
Unrealised losses |
11-Nov-99 |
NBTS (Integrity and Other Measures) Act 1999
|
|
Integrity Measure |
Preventing a deduction and capital loss arising from a single economic loss |
21-Oct-99 |
NBTS (Integrity and Other Measures) Act 1999 |
|
Integrity Measure |
Transfer or creation of assets by companies that are members of linked groups |
21-Oct-99 |
NBTS (Integrity and Other Measures) Act 1999
|
|
CGT |
Indexation frozen |
30-Sep-99 |
NBTS (Integrity and Other Measures) Act 1999 |
|
Capital Allowances |
Removal of balancing charge offsets |
21-Sep-99 |
NBTS (Capital Allowances) Act 1999 |
|
Capital Allowances |
Accelerated depreciation replaced with effective life |
21-Sep-99 |
NBTS (Capital Allowances) Act 1999 |
|
CGT |
CGT discounts |
21-Sep-99 |
NBTS (Integrity and Other Measures) Act 1999
|
|
CGT |
Removal of CGT averaging and indexation |
21-Sep-99 |
NBTS (Integrity and Other Measures) Act 1999
|
|
CGT |
Removal of plant and equipment from CGT regime |
21-Sep-99 |
NBTS (Capital Allowances) Act 1999 |
|
CGT |
CGT small business concessions |
21-Sep-99 |
NBTS (Capital Gains Tax) Act 1999
|
|
Integrity Measure |
13 month prepayment rule removed except for small business |
21-Sep-99 |
NBTS (Integrity and Other Measures) Act 1999
|
|
Integrity Measure |
Removal of defects in continuity of ownership test |
21-Sep-99 |
NBTS (Integrity and Other Measures) Act 1999
|
|
Integrity Measures |
Repeal of excess mining deduction rules |
21-Sep-99 |
NBTS (Integrity and Other Measures) Act 1999
|
|
Small Business |
Small business continues to have accelerated depreciation, balancing charge offset and immediate write off of plant and equipment under $300 |
21-Sep-99 |
NBTS (Capital Allowances) Act 1999
|
|
Company Tax and Imputation |
Small shareholder exemption threshold is increased from $2,000 to $5,000 |
1-Jul-99 |
NBTS (Miscellaneous) Act (No. 2) 2000 |
|
Integrity Measure |
Artificial losses through debt forgiveness |
22-Feb-99 |
NBTS (Integrity and Other Measures) Act 1999 |
|
Integrity Measure |
Lease assignments |
22-Feb-99 |
NBTS (Integrity and Other Measures) Act 1999
|
|
Integrity Measure |
Transfers of tax losses and net capital losses within wholly owned groups |
22-Feb-99 |
NBTS (Integrity and Other Measures) Act 1999
|
[live][_Toc17533499] Attachment 4 - Commissioners ATOlive broadcast
Thank you for joining me today.
I taped this on Monday evening, as soon as our resource position was finalised, and just before going on a few days leave.
I have allowed the intervening days for Line Executives and senior managers to be fully across the issues, so they can brief you.
The time taken to resolve our funding position and settle required redundancies has been unsettling for everyone.
If I could have resolved it quicker, I would have, but it is complex, and I wanted to make sure we did everything possible to reduce the number of redundancies required.
So, why are we facing redundancies?
The reason is that our funding base has been reduced, because we have moved on from the peak implementation year of the New Tax System. Along with that, phasing out of the Wholesale Sales Tax is nearing completion.
I know there is still a lot to be done, but we have passed the major hump. For example, telephone and written enquiries are substantially down from their peak.
The proposed new Agency Agreements are also committing us to efficiencies to fund the proposed pay rises.
To help reduce the resulting redundancies, we have, with your help:
· reduced supplier costs like contractors, travel, printing, postage and consultants;
· and we have released large numbers of contractors and non-ongoing staff; and
· re-deployed ongoing staff into CAM and ATOP.
I want to again thank those staff affected for their responsiveness in doing that.
As a result of these actions, we have been able to reduce substantially the number of redundancies that would otherwise have been required.
With these actions we are looking at around 1300 or so redundancies.
The precise number will depend on final decisions on classification levels, the cost of redundancy packages and the timing of people taking up the redundancies.
It will also depend on us continuing to drive down our non-salary costs and reducing higher duties.
As mentioned, redundancies are principally due to the reduction in transitional funding for implementation of the New Tax System.
As a result, redundancies will occur in Small Business and GST, which includes our Sales Tax operations.
Redundancies will also occur in Personal Tax, as we need to shift resources to areas with the greatest risk to the integrity of our tax system.
We have, of course, already committed to major efficiency improvements in support areas, including through the market-testing program.
We will continue to streamline our corporate support areas, ATOC and FS, which will see redundancies in those Lines.
For similar reasons, we are looking to improve the effectiveness of our IT investments after the very hectic, but very necessary, developments for the New Tax System.
We have already released a number of contractors, and some redundancies will be required.
There will be some redundancies in OCTC and in Superannuation.
Notwithstanding this, we will be maintaining staffing levels in the Tax Counsel Network, and in the Legal Practice and skilling areas in OCTC.
Superannuation will be refocussing its operations towards more active compliance, in superannuation guarantee and for self-managed funds.
Reflecting the areas of high risk I referred to earlier, there will be no redundancies in Large Business and International operations.
We will be looking to keep funding at an equivalent level to recent years.
Large Business and International will need to manage staff levels, for example, through natural attrition, within that budget.
Similarly, there will be no redundancies in our Excise operations, where we are looking to improve the integrity of the operations of these new responsibilities.
Immediate workloads also mean there will be no redundancies in ATOP or CAM.
Indeed, these will be priority areas throughout the year as we bed in the New Tax System.
The redundancy plans I have outlined are based on our best projections of workloads and risks.
As with last year, we will act quickly to deploy people to address changed risk or service requirements during the year.
This will include deployments across Lines as necessary.
What now?
Well, as part of the next phase, National Program Managers have prepared the picture of where redundancies are likely to be necessary.
As a first step, we will be calling for expressions of interest in voluntary redundancies. And we will discuss the process with you.
We will also be moving quickly to follow the procedures outlined in the Agency Agreements, including holding discussions with the unions.
In relation to the proposed next Agency Agreements, we will be identifying the corporate outcomes for this year in the light of our resources, and we can then move ahead with those agreements.
I know that this whole process runs the risk of being very disruptive, at the very time when we continue to have a lot to do to deliver for the Australian community.
Now I have said many times just how important our tax system is to this country.
It supports the Australian way of life.
The community is relying on us to keep our focus on doing that.
We have shown over our long history our ability to do just that - no more so than over the last year or two when people from Tax have successfully implemented the biggest change ever to our tax system.
I know that you will continue to show that level of commitment and flexibility in meeting our really important role for the Australian community.
Thank you again for joining me.
[april][_Toc17533500] Attachment 5 - Tax agent broadcast of 17 April 2001
Dear Tax Practitioner
Alienation Legislation
Transitional Arrangements & 2 Draft Rulings Issued
Following consultation with national accounting organisations, the Tax Office is today announcing transitional arrangements for the 2000-01 income year to assist taxpayers who are affected by the new Alienation of Personal Services Income legislation. These arrangements include concessions on the application of penalty and the General Interest Charge - see below for details .
Personal Services Income (PSI) is income which is mainly a reward for an individual’s personal efforts or skills. Draft ATO Public Rulings on the definition of PSI [D4/2001] and what constitutes a Personal Services Business (PSB) [D3/2001] issued on 4 April 2001 and can be found at http://law.ato.gov.au/atolaw/browse.htm?toc=04:RUL:Taxation:Draft
Which taxpayers are impacted?
· The legislation has a major impact on taxpayers who use entities (partnerships, trusts or companies) to distribute PSI to family members, facilitate payments to an associate (including superannuation) or as a vehicle to retain earnings.
· If an entity or individual is in receipt of PSI in 2000-01, they need to consider the impact of the new legislation, including the new PAYG obligations, unless they are covered by the two year deferral which applies to certain PPS payees.
· For taxpayers who receive 80% or more of their PSI from one source the new measures apply unless the ATO has issued a personal services business determination.
· The measures do still apply where the 80% threshold is not reached unless a taxpayer is able to self assess that a PSB exists under one of three tests in the legislation.
Transitional Arrangements & Opportunity To Get It Right Now
· Make the correct PAYG withholding payment in respect of PSI for the March 2001 quarter.
· Include a “catch up” payment in the June 2001 quarter of the amount of any PAYG which should have been withheld and remitted in respect of PSI from all earlier periods in the 2000-01 income year.
· Withhold PAYG on the correct basis from the commencement of the 2001-02 income year.
· Taxpayers who act now and who have made a genuine attempt to comply for the 2000-01 income year by the due date of their June 2001 quarter obligations, will not be subject to the imposition of penalties, including GIC, in respect of the " catch up" payment.
· The ATO will not require revised activity statements for earlier periods in the 2000-01 income year. Any outstanding tax will be payable on assessment after the 2001 tax return is lodged.
What action is required?
Depending on each taxpayer’s circumstances, the following actions should be taken now :
· Pay personal services income as salary or wages within 14 days of the end of the PAYG payment period, to the individual performing the personal services and withhold PAYG from that payment in the usual way.
· Work out if there is attributable income for each PAYG payment period and, if there is, withhold PAYG from this amount. An entity (partnership, trust or company) will have attributable income in respect to PSI if the PSI (after allowable deductions) is not promptly paid as salary or wages to the individual performing the personal services.
· You may apply for a PSB Determination if you receive 80% or more of your PSI from one source. Full Information should be supplied with the application form to minimise any unnecessary delays in processing the application.
· It is important to note that, where the alienation measures do not apply, the pre-existing legislation and rulings which deal with the treatment of PSI still apply . The ATO’s rulings IT 2639, IT 2503, IT 2330 and IT 2121 have not been withdrawn and taxpayers must still address the issues identified in those rulings. The general anti-avoidance provisions can still apply even if a PSB is being conducted.
Further assistance
· Phone the Tax Practitioners Infoline on 13 7286 or visit the ATO’s web site at www.taxreform. [_Hlt492974558] ato.gov.au
· ATO staff are available to visit tax agents to explain the new legislation—call 13 7286 to request a visit .
Yours Faithfully
Neil Mann
Deputy Commissioner
Small Business
[_Hlt523295651][july][_Toc17533501] Attachment 6 - Tax agent broadcast of 13 July 2001
Dear Tax Practitioner
Alienation of personal services income
The Tax Office met with representatives of major accounting groups and tax practitioners this week to discuss the administrative issues surrounding the implementation of the Alienation of Personal Services Income measures (‘the measures’) and the practical implications of the recent changes announced by the Treasurer.
Following this meeting, the Commissioner has agreed to:
· Penalty concessions for the transition period covering the 2000-01 and 2001-02 income years. Taxpayers affected by the measures will not be penalised where they have made a genuine attempt to comply with their obligations under these measures;
· Accept 2000-2001 income tax return forms prepared in accordance with the changes announced by the Treasurer in relation to independent contractors and commission agents;
· Further transitional arrangements relating to PAYG obligations as detailed below.
For 2000-01 income year
Currently all penalties and the general interest charge will be remitted for personal services entities that comply with their PAYG (Withholding) obligations by the final quarter in 2000-01. This payment was due by 28 July 2001 unless an extension of time had been granted, for example under the agent lodgment program. The Commissioner has agreed to extend this concession. As a result, a PAYG (W) payment for the 2000-2001 income year will no longer be required in respect of personal services income.
Taxpayers receiving personal services income will need to declare the income in their individual 2001 tax returns and pay any amount outstanding at the time of assessment. In these circumstances, the Tax Office will remit all penalties and the general interest charge in respect to the personal services entity’s relevant PAYG (W) obligations for the 2000-01 income year.
For 2001-02 income year
Under the measure personal service entities are required to either:
· pay out personal services income promptly as salary and wages; or
· pay a PAYG (W) amount using the personal services income attribution calculation as set out in the legislation.
For the 2001-02 income year, the Commissioner will allow personal service entities to pay a PAYG (W) amount based on a percentage of the gross personal services income received during the payment period. Either of the two following options may be used:
· 70% of the gross personal services income (as agreed in consultation with representative bodies); or
· a percentage based on the entity’s net personal services income for the previous year.
The amount to be withheld from this income should be calculated as if this amount were paid as salary and wages. Further information giving guidance on how to apply these options will be made available shortly in another broadcast.
Where either transitional option is used, a full attribution of personal services income is to be made in the 2001–02 income tax return. Under these arrangements, no penalty or general interest charge will apply to the difference between the amount paid under the option and the amount that would have been otherwise payable.
In addition, the Tax Office will:
· Continue to provide education and support services including the dedicated call centre line 13 72 86 for agents and 1300 137 619 for taxpayers, fact sheets, flowcharts, Q&As, field visits and seminars. Existing products will be revised and new products such as industry specific checklists will be developed to take into account the Treasurer’s recent announcements concerning independent contractors and commission agents;
· Continue to consult with industry bodies to address the specific issues facing those industries and to develop tailored products;
· Substantially rework and issue the draft rulings as a matter of priority;
· Resolve any practical issues surrounding the lodgment of 2001 income tax returns as a matter of priority;
· Revise and streamline the Application for a Personal Services Business Determination in light of the proposed changes to the law. The draft forms and instructions will be ‘road tested’ with practitioners and taxpayers before being finalised.
We will continue to work with tax practitioners and industry groups throughout the transitional period.
Yours Faithfully
Neil Mann
Deputy Commissioner
Small Business
References:
Treasurer’s Press Release No. 047: Alienation of Personal Services Income - agents
Treasurer’s Press Release No. 051 Alienation of Personal Services Income http://www.tr [_Hlt524340853] easurer.gov.au
ATO Media Release Nat 01/55: Alienation of Personal Services Income
http://www.ato.gov.au/content.asp?doc=/content/Corporate/mr200155.htm
ATO Media Release Nat 01/56: Further Help For Contractors and Tax Agents
http://www.ato.gov.au/content.asp?doc=/content/corporate/mr200156.htm
Practice Statement PS 2000/9
http://law.ato.gov.au/atolaw/browse.htm?toc=03:Practice%20Statements:2000
[RAP][_Toc17533502] Attachment 7 - Common arguments concerning ‘Reasonably Arguable Position’ (“RAP”)
Persons entering into tax avoidance schemes have the same level of penalty imposed regardless of the provisions used to overturn the scheme. The level of penalty imposed on schemes defeated through the use of either the general provisions, specific tax avoidance provisions or Part IVA is identical. The relevant provisions are sections 224, 225, 226 and 226L.
Under s.266L, a person who enters into a scheme for the sole or dominant purpose of avoiding tax is liable to penalty of 50%, which is reduced to 25% if the position taken by the taxpayer is reasonably arguable. The operation of s 226L is limited to tax avoidance schemes in respect of which the Commissioner has not applied any of the anti-avoidance provisions contained in sections 224, 225 and 226. The definition of a ‘scheme’ is based on the meaning given in Part IVA which is very broad and can include any type of arrangement.
The purpose of s 226L is that it recognises that most schemes are found to be ineffective under the ordinary provisions of the ITAA without having to use the anti-avoidance provisions. Section 226L allows the Commission to impose the same level of penalty as if an anti-avoidance provision had been invoked if it can be concluded that the sole or dominant purpose was to avoid tax.
…the “X” scheme is considered to be a scheme where the dominant purpose was to obtain a tax benefit. It is considered that deductions are not allowable under the general provisions of the Act, with Part IVA and the specific anti-avoidance provisions being relied on in the alternative. Accordingly, s 226L is considered the relevant penalty provision.
The scheme has been marketed with the tax benefits dominating. In view of the features of the scheme, it is considered that the participants do not have a reasonably arguable position. Accordingly, the penalty imposed by s 226L is 50%.
LAW COUNCIL RESPONSE
The ATO Common Argument does not rely on the formation, ascertainment, the making, nor the exercise by the Commissioner or his failure or refusal to form an opinion, state of mind, or to make a determination or exercise a power, to which section 224 applies, and accordingly section 226L to which the ATO Common Argument refers is incorrect. It has been said that a scheme to which section 224 might have been relevant, but which was not a ‘scheme section’ case as defined (ss 82KL, KJ, KK or KZM), was that in Fletcher’ s case: see para 226L/5 of Australian Tax Practice Commentary, and note the comments concerning FCT v Studdert 91 ATC 5006 (at 5011); also see TR92/8 & TR97/D20.
According to the Explanatory Memorandum (at pp 83-4) concerning the current penalty tax regime:
“ position taken by a taxpayer will be reasonably arguable if, on an objective analysis of the law and the application of the law to the relevant facts, it would be concluded that the taxpayer's position was about as likely as not correct (ss 222C and 160ARZD). In other words the position must involve a clearly contentious area of the law, that is, one where the relevant law is unsettled or where, although the principles of law are settled, there is a serious question about the application of those principles to the circumstances of the particular case.”
Taxation Ruling TR 94/5 confirms that the Explanatory Memorandum should be used as a general guide for the administration of s 226K penalties and makes the following points.
The reasonably arguable test does not require that the taxpayer's position must be the better view, or the more likely than not correct treatment. The test is "about as likely as not" and nothing more.
The list of authorities in s222C(4) ie those that may be taken into account for the purpose of determining whether or not a position is reasonably arguable, is not exhaustive, and would also cover those that would be accepted by a court as bearing upon the correct treatment of the matter.
The mere fact that a public ruling has issued does not mean that alternative treatments are not reasonably arguable.
Accordingly, where the taxpayer adopts a reasonably arguable position in lodging his tax return relating to a particular transaction, even if a court ultimately concluded that the position was wrong so that the taxpayer will have to pay the disputed tax with interest, he will limit ‘culpability component’ penalties generally as follows:
1. If the terms of s8-1 or s51(1) are not met, for instance, because the outgoing is one of capital, to limit ‘culpability’ to 0% of the tax avoided;
2. If ss82KL, or Part IVA applied, to limit ‘culpability’ to 25% of the tax avoided.
The Commissioner’s position on penalties is such that he does not accept that the participants had a ‘reasonably arguable position’ if they sought to rely on the detailed written advice of professional advisers specialising in tax matters. If this was correct the concept of ‘reasonably arguable position’ in the context of self assessment is meaningless.
He also asserts that certain professional advisers should pay a higher penalty because “they should have known better”. The corollary of this which isn’t mentioned is that such people are more likely than not to have a reasonably arguable position and should not be penalised any differently to any other taxpayer. To do so would be in breach of the Taxpayers Charter.
Section s 222C was the relevant provision in the years in question. With effect from 1 July 2000 it has been re-written and is now contained in s284-15 of Schedule 1 of the Taxation Administration Act. The new provision does not yet appear to have been litigated.
The question of whether the taxpayer had a “reasonably arguable position” was most recently dealt with in the AAT decision in Re North Ryde RSL Community Club Ltd and Federal Commissioner of Taxation (2001) 47 ATR 1034. In that case at p.1113 para 30 the Tribunal concluded that the taxpayer in all except the last year under consideration, exercised reasonable care, and at para 29 the Tribunal said that the various penalty sections are in certain respects related, and noted it had taken into account the following factors:
“(a) in respect of all years, the applicant had an arguable case; an arguable case is not the same as a winnable case. As the global settlement acknowledges, this area of the law is difficult. Section 222K of the ITAA 1936 could not have applied.
(b) As appears from the applicant’s penalty submissions, the ‘reasonably arguable position test’ was intended to propose a more rigorous standard.”
The most recent case on the penalties issue generally is the court decision in Ryvitch v. FC of T [2001] FCA 806 (28 June 2001) where at para 29 Sundberg J found that the taxpayer had failed to persuade him that a partnership in fact existed. However, his Honour found that the taxpayer and taxpayer’s accountants were not reckless in proceeding on he basis there was a partnership, and that there was material available to the accountants which made it arguable that a partnership existed.
The Court most recently dealt with the issue directly in Cohen v FCT (2000) 44 ATR 443 at 450. The ATR headnote to Cohen ’s case specifies:
“The taxpayer was a financial planner employed by an insurance company. He received commissions for selling insurance and similar products. He also received a fortnightly remuneration advance of $2153, payable in arrears. The Commissioner assessed the taxpayer on the difference between commissions earned by him and the amount advanced to him. The taxpayer contended that this amount was an advance of commissions which he did not earn and therefore it was not assessable.
“The ATO also imposed penalty tax of 50% of the tax shortfall, on the basis that the taxpayer was nearly qualified as a tax agent when he prepared the relevant return and he could have obtained a private ruling. The taxpayer argued that, in light of the decision in FCT v Steeves Agnew & Co (Vic) Pty Ltd (1951) 82 CLR 408, his position was reasonably arguable and therefore the penalty tax should be remitted to nil.
“Held, allowing the appeal in part:
(1) The nature of the payments should not be defined by the name attributed to them by the parties. Under the contract, it was clear that sums advanced to the applicant were part of his “day to day” remuneration package. Any commission earned by the applicant was to be calculated and paid in addition to the base payment. Accordingly, the amounts described as “advances against commission” were assessable income.
(2) The payments could not be classed as loans as there was no requirement to repay money if commission earned was less than the sum advanced.
(3) The AAT erred in law by failing to identify the relevant section under which penalty tax should be imposed. Further, the AAT had treated the taxpayer as having omitted income from his return, whereas seemingly he did not. Accordingly, the matter was to be remitted to the AAT to be heard again. “
Hill J said at para 39.4:
“The tribunal considered the question whether, as Mr Cohen submitted, the matter he argued was reasonably arguable. It seems that the tribunal rejected that submission although it found that Mr Cohen had “a case that was arguable”. No doubt there are degrees of arguability ranging from barely arguable to reasonably arguable. I have to say that I admire the ability of the tribunal member to conclude, if he did with such certainty, that the matter was not reasonably arguable. In my view it was.”
The only court decision that stated that in levying penalties, the Commissioner proceeded on the basis that the taxpayer had a “reasonably arguable position”, was Lonsdale Sand & Metal Pty Limited v. FC of T (1998) 38 ATR 384 at 398 (per Mansfield J).
There are several AAT decisions which have dealt with the subject matter directly or indirectly but there are none, in which it stated that in levying penalties, the Commissioner proceeded on the basis that the taxpayer had a “reasonably arguable position”.
Those decisions of the Tribunal in favour of the taxpayer were Re Coppell (2000) 44 ATR 1001 at 1003-4, paras 7 and para 8; Re Australian Feed Pty Limited (1999) 43 ATR 1243 at 1260 para 67; AAT Case 11,655 (1997) 35 ATR 1022 at 1038 paras 50-52; AAT Case 10,666 (1995) 31 ATR 1349 at 1356 para 40; Re Carlaw (1995) 31 ATR 1190 at 1195 para 24; Case 22/39 , 93 ATC 281 at 288 (also reported as (1993) 25 ATR 8752) but decided on the pre-self assessment regime).
Those Tribunal decisions which were equivocal on the issue as the basis of the decision is not adequately stated, were Re Cripps (1999) 43 ATR Case 937and Re Pitcher (1998) 39 ATR 1203 at 1212.
Those decisions of the Tribunal in which the taxpayer was not successful on the point were Re Sparks (2000) 43 ATR 1324 at 1332-6; Re Arnett (1998) 39 ATR 1095 at 1099; AAT Case 10, 911 (1995) 32 ATR 1301 at 1309 para 31.
A consideration of the standard texts reveals no further insight: 2001 CCH Master Tax Guide para 24-160; 2001 ATP Handbook paras 48-095 and 55-100; 2001 CCH Australian Taxation Law, Woellner et al para 28-074; and Lehmann & Coleman Taxation Law in Australia ATP 5th ed (1998) para 21.780.
None of the cases deals with an investor relying on an opinion in a prospectus. None of the cases deals with a taxpayer relying on an eminent tax opinion such as from a ‘Big Five’ accounting firm, or a specialist tax lawyer.
A prospective investor in, for example, a film who relied on the tax opinion of Big Five accounting firm in the prospectus was entitled to do so whether exclusively or with further advice. The Big Five firm in their tax opinion in the prospectus states that, by way of disclaimer:
“As the particular circumstances of a subscriber may be relevant to the consequences to the subscriber of providing these production services, subscribers should consult their own taxation advisers to determine the tax consequences, in relation to their own individual circumstances, of providing these production services.”
and it is stated in the general body of the prospectus:
“Subscribers should seek their own professional advice on any matter they do not understand”.
Whilst it is clearly a good suggestion for each taxpayer to ensure that their advice is personalised, it particularly goes to the question of whether notwithstanding the deductibility of expenses under s8-1 generally, Part IVA could nonetheless apply to deny the particular taxpayer such a deduction due to their personal circumstances.
The fact that the opinion is appearing in a prospectus as the views of an “expert”, makes the author potentially liable to subscribers under the Corporations Law, or as a matter of tort, for fraudulent or negligent misstatement: see generally, para 22.420 of Ford’s “Principles of Corporations Law” Butterworths 9th ed. (1999). The author may seek to defend a claim in tort relying on the disclaimer in the tax opinion referred to above, but the liability under the Corporation Law cannot be disclaimed.
From 1 July 1998 the relevant provisions of the Corporations Law were re-enacted, but the provisions that would apply to a prospectus included in s996(1) would provide:
“A person must not authorise or cause the issue of a prospectus in relation to securities of the corporation if:
(b) (i) a material statement in the prospectus is false or misleading; or
(ii) there is a material omission from the prospectus.”
Section 92(2) of the Corporations Law has the effect that interests in a managed investment are “securities of a corporation”.
Section 1006(2)(e) includes an expert who gave an opinion for a prospectus as a person against whom a civil liability may arise under s1005, where there is a breach of s996(1) by the expert in relation to the opinion: see s1009(2).
A further question arises as to whether the Commissioner accepts that in his public rulings where he discloses an “alternative view” which he does not accept, that the fact that the argument was sufficiently serious to be raised in such a document, would mean that it was accepted by the Commissioner that such an argument would constitute a “reasonably arguable position” for the purposes of the penalty provisions. A good example would be the alternative arguments he sets out in Taxation Ruling TR 2000/8 dealing with “investment schemes”, for example particularly the “alternative views” expressed at para 129-131: that Brand ’s case means an investor does not need to rely on the second limb of s8-1 for a deduction. “Alternative Views” are sprinkled throughout that ruling and numerous other rulings.
The RAP issue is now firmly in the public arena. The ‘Pierpont’ column in the Australian Financial Review on 20 July, 2001, observed that TR94/5 says:
“the reasonably arguable test does not require that the treatment given a matter by the taxpayer must be the better view, or be more likely that not the correct treatment. The test is about ‘as likely as not’”.
The author they says:
“ …if the ATO took the best part of a decade to decide the Kamisha schemes were avoidance, Pierpont would say the taxpayers could argue that it was as likely as not that they were within the law. But the ATO has unilaterally said that they don’t have a reasonably arguable case and that’s that.”
25 July, 2001
[_Hlt523713118][hardship][_Toc17533503]
Attachment 8 - Extracts from the ATO Receivables Policy
defining ‘serious financial hardship’
Chapter 24: Release from payment of some taxation debts
24.6.1 "Serious hardship"
• a term which indicates an unduly oppressive effect, so great that it would be likely to lead to debtors being deprived of necessities according to normal community standards;
• the view of what constitutes "serious hardship" will vary (depending on the particular circumstances of each debtor), but generally it would be seen to exist where payment of an income tax or fringe benefit tax debt would result in the debtor being left without the means to achieve reasonable acquisitions of food, clothing, medical supplies, accommodation, education for children and other basic requirements;
• in some instances, it may also be appropriate to consider any illness and/or other personal as well as financial situations of the debtor when considering whether "serious hardship" exists;
• the mere imposition of an obligation to pay a tax debt does not constitute hardship, nor does the prospect (or likelihood) of bankruptcy/liquidation;
• the limitation of social activities or entertainment or the loss of access to goods or services of a more expensive nature or standard cannot be considered to be serious hardship (for example, a debtor may need to dispose of a more expensive home to move to more modest accommodation and apply any excess funds to the tax debt, or may have to reduce above average expenditure on food, clothing, services, private travel, entertainment or leisure goods such as caravans, boats, higher priced motor vehicles and the like to ensure funds are available to pay tax liabilities when they fall due).
Chapter 28: Recovering disputed debts
28.4.17 Serious financial hardship in the context of a personal taxation debt of an individual taxation debtor, such as income tax, is likely to ensue where payment of the disputed debt would place a taxation debtor in a situation where there are insufficient assets, which could be reasonably realised to cover the gap between personal income and the expenses associated with the basic necessities of every day life.
28.4.18 In the context of an individual or corporate taxation debtor who is engaged in business, a presumption of serious financial hardship would be sustained where the taxation debtor can demonstrate that the business would suffer prejudice of an extraordinary type such that the business would be endangered if forced to make payment of 50% of the disputed debt.
28.4.19 Misfortunes beyond a taxation debtor’s control such as sickness, accident, flood, fire, drought etc can obviously have significant impact on a taxation debtor’s capacity to pay, to such an extent that immediate payment of any part of a disputed debt may be regarded on compassionate grounds as an imposition of undue hardship on the taxation debtor.
28.4.20 A finding of serious financial hardship is unlikely where the taxation debtor and/or entities associated with the taxation debtor hold assets such as term deposits, shares, investment properties, boats etc. or where there appears to be considerable scope for economising on items such as accommodation, clothes, education or general living/business expenses. Similarly, the mere anticipation of inconvenience or disruption to the taxation debtors business or personal lifestyle which could result from the reorganisation of the taxation debtors’ financial affairs to pay 50% of the disputed debt would not amount to hardship.
[press][_Toc17533504] Attachment 9 - Assistant Treasurer's Press Release 1 August 2001
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NO. 34 |
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SENATOR
ASSISTANT TREASURER www.treasurer.gov.au/AssistantTreasurer |
Taxation Treatment of Compensation Payments to Members of the
Australian Defence Force and of Income Which is Repaid
The Assistant Treasurer, Senator Rod Kemp, today announced that the Government will introduce amendments to the taxation law designed to benefit Australian Defence Force (ADF) members who are injured while on duty. These amendments will also benefit taxpayers who have to repay income on which they previously paid tax.
In recognition of the valuable service which members of the ADF provide to the Australian community, the Government considers that compensation payments which members receive for loss of exempt pay and allowances should also be exempt from tax. The amendments will ensure that payments to ADF members to compensate for the loss of deployment allowance will be exempt from tax where the allowance ceases to be paid as a result of injuries sustained during service in a warlike situation.
The amendments will also ensure that compensation payments to Reserve Force members who have to resign as a result of injuries sustained while on duty will be exempt from tax. This reflects the Government’s view that, as the pay and allowances of Reserve Force members are already exempt from tax, compensation payments for loss of that income should also be exempt from tax.
The amendment in respect of income which has to be repaid will allow taxpayers to seek an amended assessment for the year in which that income was included in their tax return. This measure will not apply where worker’s compensation or sickness allowance has to be repaid as a result of a lump sum settlement. These settlements already compensate recipients for the tax originally paid on income that has to be repaid.
The Government proposes that the amendments to the law will commence from to-day’s date and will apply to assessments for the 1996-97 and later years of income.
MELBOURNE
1 August 2001
Contacts: Mark O’Connor Australian Taxation Office (02) 6279 6889
Richard Wise Assistant Treasurer’s Office (02) 6277 7340
[march97][_Toc17533505] Attachment 10 - Extract of NTLG minutes of March 1997
18.4 Commercial bill discounts (NTAA). Can the ATO please advise how it intends to treat a claim in the year ending 30 June 1996 for a deduction for the full amount of a commercial bill discount where the commercial bill was drawn in the 1995/96 tax year and matured in the 1996/97 tax year, and was part of a roll-over facility so that all proceeds received on its sale were used to indemnify the bank in respect of a previously matured bill. The recent High Court decision in FCT v Energy Resources of Australia Limited 96 ATC 4536, which appears to contradict paragraphs 5 and 6 of TR 93/21, indicates the full discount amount is deductible in the 1995/96 tax year. Will TR 93/21 be amended to reflect the High Court decision in the ERA case?
Other information:
All NTLG members were sent the following letter:
'FCT v ENERGY RESOURCES OF AUSTRALIA LTD
I am writing to you about the implications of the Full High Court decision in FCT v Energy Resources of Australia Ltd (1996).
The decision has caused considerable uncertainty for taxpayers and the ATO about the taxation of foreign exchange gains and losses. We have been examining the implications of the decision. This letter summarises our current thinking on the matter.
Cost of discount
The High Court strongly questioned whether the cost of discount incurred by ERA was deductible, indicating that in the circumstances it may have been of a capital nature. The comments put into doubt the ATO's view expressed in Taxation Ruling TR93/21 that discount expense is generally deductible where the taxpayer uses the proceeds of the discounted security in its assessable income producing business.
In the circumstances before it, and on the premise that the cost was of a revenue nature, the High Court decided that the cost of discount was deductible when the promissory note was issued. It is very difficult to reconcile this decision with the High Court's relatively recent decision in Coles Myer Finance Ltd v FCT (1993) that the cost of discount is deductible on an accruals basis.
One possible explanation is that it is only when the cost of discount is of a capital nature that ERA applies to otherwise allow a deduction on an upfront basis. If so, we would at present regard the High Court's comments in ERA concerning when discount expense is capital in nature as being very much limited to its particular facts.
Foreign exchange gains and losses
The High Court has thrown considerable doubt on the Commissioner's view in Taxation Ruling TR93/8 that conversion between foreign currency and Australian dollars is not necessary for a foreign exchange or loss to be brought to account for tax purposes.
It is now not at all clear when Division 3B does or does not apply. This is so notwithstanding the legislative purpose to bring to account for tax purposes business foreign exchange gains and losses of a capital nature.
ATO practice
To alleviate these uncertainties unless there is clearer legislative or judicial direction on these matters, or until it is considered necessary and appropriate to issue or amend Taxation Rulings on the matters, the ATO's practice will be to:
regard the cost of discount to be deductible in the circumstances in which Coles Myer Finance would accrue the cost over the term of the discounted security, provided that the funds raised are used in the taxpayer's assessable income producing business. In this regard ERA would be limited to circumstances where the raising of funds through a discounted security was on a one-off basis, and not intended to be repeated in the near future;
not disturb assessments which bring or have brought to account for tax purposes foreign exchange gains and losses in accordance with the principles established in Taxation Ruling TR93/8.
Michael D'Ascenzo
Chief Tax Counsel'
Robert Warnock asked if a test case could be arranged to clarify the position. Michael Carmody said that the ATO would consider this under a process which would include representations from the community.
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