1 National Tax Liaison Group
MINUTES
FOR THE MEETING OF 3 JUNE 2003
Venue:
Conference Room, 5th Floor, West Tower,
Australian Taxation Office, National Office, 2 Constitution Ave, Canberra.
Attendees:
|
Steve Allan |
CPA Aust |
Deidre Gerathy |
Treasury |
|
Michael Carmody (Chair) |
ATO |
Jennie Granger |
ATO |
|
Suzette Chapple |
NTAA |
Gil Levy |
TIA |
|
Judith Choate |
LCA |
Johanna Lowry |
ICAA |
|
Michael D’Ascenzo |
ATO |
David Marks |
LCA |
|
Michael Dirkis |
TIA |
Peter McDonald |
TA |
|
Bob Duncan |
ATMA |
Frank O'Loughlin |
LCA |
|
Peter Dowling |
CPA Aust |
Gavan Ord |
NIA |
|
Frank Drenth |
CTA |
Brian Sheppard |
ICAA |
|
Paul Drum |
CPA Aust |
Ross Seller |
LCA |
|
Neil Earle |
TIA |
Tony Stolarek |
ICAA |
|
Paul Flanagan |
Treasury |
Apologies:
|
Rob Warnock |
NTAA |
Guest Speakers:
|
Rona Mellor |
ATO |
Lesley East |
ATO |
Secretariat:
|
Denise English |
ATO |
John Lindell |
ATO |
Please note: NTLG agendas, minutes and related papers are not binding on the ATO or any of the other bodies referred to in these papers. While every effort is made to accurately record views expressed, the wording necessarily represents a summary of statements of general position only, and care should be taken in interpreting those statements. These papers reflect the position at the date of release (unless otherwise noted) and readers should note that the position on any issue may subsequently change.
Professional bodies represented at the NTLG
|
Association of Taxation and Management Accountants |
ATMA |
|
Corporate Tax Association |
CTA |
|
CPA Australia |
CPAA |
|
Institute of Chartered Accountants in Australia |
ICAA |
|
Law Council of Australia |
LCA |
|
National Institute of Accountants |
NIA |
|
National Tax and Accountants Association |
NTAA |
|
Taxation Institute of Australia |
TIA |
|
Taxpayers Australia |
TA |
Agenda Summary
1 Confirmation of minutes of the 26 March 2003 meeting 1
2 Implementation of Consolidation and ATO resources 3
3 Current status of Technical Issues Management Sub-Committee 8
4 CGT Subcommittee and Extension of Focus 10
5 Role of Industry Partnerships 12
6 Update on Treasury Consultation Model 14
7 Capital protected equity products 17
8 Selection of mass marketed schemes for prosecution action 18
9 Controlling interest superannuation arrangements 21
10 Deductions for contributions and expenses made on behalf of a superannuation fund by the contributing employer 22
11 SMSFs and real property co-ownership 24
12 Superannuation Guarantee Audits 26
13 VL Finance and Others, at call loans and Div 7A 27
14 Global method of asset valuations in loss integrity measures 28
15 R&D Tax Offset – Commissioner’s discretion 31
16 Progress report on ATO evaluation processes of technology initiatives to collect tax data 33
17 Outstanding items from NTLG meeting of 26th March 2003 35
18 NTLG work program and management issues 40
18.1 Report on action items from the 26 March NTLG meeting 40
18.2 ATO Tax Practitioner Forum 45
18.3 Capital Gains Tax (CGT) subcommittee report 46
18.4 Consolidations subcommittee report 47
18.5 Fringe Benefits Tax (FBT) subcommittee report 48
18.6 Foreign Source Income (FSI) subcommittee report 50
18.7 Superannuation Industry Liaison Group (SILG) report 51
18.8 GST Tax Practitioner Industry Partnership (TPIP) report 52
18.9 Transfer Pricing subcommittee report 56
18.10 GST Rulings Panel report 57
18.11 International Tax Rulings Panel report 59
18.12 Litigation Panel report 60
18.13 Part IVA Panel report 61
18.14 Public Rulings Panel report 62
18.15 Regulatory Framework report 64
19 Other Business 65
19.1 Consultation and impact on tax agents community: Valuation of assets for self-managed superannuation funds - SC 2003/1 65
20 Next meeting 66
List of Attachments
Attachment 1: Tax Office media release 2003/51 67
Attachment 2: Australian Prudential Regulation Authority – Addendum to Circular No. IV.A.4 68
Summary of Action Items
Action Item NTLG0306/1 : The Tax Office to update members on the implications of the outcome of the AD(JR) case decision in relation to the Commissioner’s discretion to allow further time for loss transfers when a Tax Office view has been formed. 1
Action Item NTLG0306/2 : The Tax Office to confirm the Tax Office view expressed in the response that both the taxpayer and tax agent were required to take reasonable care to gain the benefit of the exemption in subsection 284-215(2) of Schedule 1 to the TAA 1953. 2
Action Item NTLG0306/3 : The Tax Office to follow up availability of information coming from current industry partnerships on the Tax Office website. 12
Action Item NTLG0306/4 : The Tax Office to address inadvertent errors in its consultation paper following the completion of a compliance review of self managed superannuation funds. 23
Action Item NTLG0306/5 : Professional bodies to provide additional information to the Tax Office to enable it to expand the response provided in relation to the VL Finance case, at call loans and Division 7A. 27
Action Item NTLG0306/6 : The Tax Office to provide professional bodies with an outline of the information required to be provided for it to consider including the Research and development tax concession schedule as part of the original return. 32
Action Item NTLG0306/7 : Professional bodies to articulate to the Tax Office their arguments around common cases where family trust elections have not been, but should be considered to be, lodged on time. 37
Action Item NTLG0306/ : The Tax Office to arrange a presentation to interested members of the NTLG covering issues associated with the Taxpayers’ Charter review. 37
AGENDA ITEMS
Agenda items are provided by the professional bodies and the ATO, including the many joint the ATO/practitioner/taxpayer liaison forums operating across Australia. They are set out with the description of the item and the response from the ATO or the professional bodies.
[_Toc36007720][_Toc45343111] 2 Confirmation of minutes of the 26 March 2003 meeting
Meeting Discussion
The following items from the 26 March meeting were discussed
Agenda Item 3 Employee incentive trusts and Essenbourne’s case – The Law Council have provided the Tax Office with a formal response to the Tax Office media release ‘Employee benefit arrangement’ (2003/30) issued on 14 March 2003.
The Commissioner advised the Tax Office is still considering the submission and signalled, however, the Tax Office may not necessarily agree with the Law Council’s view.
Agenda Item 5 Firth’s case and amendment of returns – professional bodies advised they believed the Tax Office would indicate some criteria where a taxpayer could preserve their objection and appeal rights in relation to a particular matter and without attracting GIC.
Agenda Item 6 Loss transfers and TR 98/12 – Professional bodies noted at the last meeting the Tax Office was waiting for the outcome of an AD(JR) Act case, suggesting it was likely a recent decision in an AD(JR) case was what the Tax Office was waiting on.
[_Toc45343173] Action Item NTLG0306/1 : The Tax Office to update members on the implications of the outcome of the AD(JR) case decision in relation to the Commissioner’s discretion to allow further time for loss transfers when a Tax Office view has been formed.
Agenda Item 8 Tax Office Access Guidelines and Pratt’s case – Second Commissioner D’Ascenzo confirmed the current version of Chapter 8 (under review and shown as ‘withdrawn’ on the Tax Office website) of the Tax Office’s Access Guidelines remains in place until the outcome of a review of the chapter. Agenda Item 13 Reasonably arguable position and Prebble’s case – Professional bodies wanted to confirm the Tax Office view expressed in the response that both the taxpayer and tax agent were required to take reasonable care to gain the benefit of the exemption in subsection 284-215(2) of Schedule 1 to the TAA 1953.
[_Toc45343174] Action Item NTLG0306/2 : The Tax Office to confirm the Tax Office view expressed in the response that both the taxpayer and tax agent were required to take reasonable care to gain the benefit of the exemption in subsection 284-215(2) of Schedule 1 to the TAA 1953.
Professional bodies were also concerned the last minutes published on the Tax Office website were February 2002, suggesting it was important for their members for them to be available. The Tax Office advised work is currently underway to catch up on the backlog.
All members also agreed that where information was included in addition to the responses provided in the agenda, it should be noted as additional and dated to indicate timing of inclusion.
[_Toc45343112] 3 Implementation of Consolidation and ATO resources
At the meeting of the ATO’s Consolidation forum held on 2 May 2002, the ATO discussed its education strategies for alerting taxpayers that the transitional period allowing existing grouping provisions to operate in parallel with the new Consolidation regime ends on 30 June 2003. The professional bodies anticipate there will be a significant increase in the number of Consolidation inquiries made by taxpayers to the ATO in the lead up to this time and after. Would the ATO please advise:
a. How many qualified staff have been trained to deal with technical Consolidation inquiries?
b. What level of training have these staff received to deal with Consolidation queries?
Response:
The ATO skilling program on Consolidations was developed to assist in embedding/integrating the consolidation measure into the ATO. The skilling program was cooperatively developed across Business and Service lines to maximise transfer of learning, and to build internal capability across the most affected BSLs that is, Large Business and International (LB&I) and Small Business (SB). It included instituting a new role - that of consolidation 'specialist' within normal business teams.
A number of groups of staff have been trained to deal with consolidation queries and have had varying amounts of training depending on the work being performed. Looking at each group in turn:
Centre of Expertise
· The Centre of Expertise consists of approximately 45 staff.
· Training has been provided to Centre of Expertise staff as formal face to face delivery by recognised "experts". In general, however, the capability of the Centre has been built internally, with staff assisting with the development of the legislation, studying the legislation and explanatory memorandum, and developing scenarios to see how the legislation works.
· The Centre is generally highly skilled, and currently in a good position to deal with technical consolidation queries.
· The ATO also recognises that Centre work loads will increase over the next financial year and plans are in place to increase the size of the Centre, and hence increase the ATO’s internal capability.
· Current staffing levels are anticipated to grow over the next 12 months to in excess of 110. This will be phased to match the anticipated workloads of queries and requests for advice.
LB&I and SB consolidation specialists
The ATO has put in place a network of Consolidation specialists, drawn from LB&I and SB. There are approximately 120 specialists in total. The role of LB&I consolidations specialists is to handle consolidations work in their segment, including advising and risk assessment work. They also share knowledge within their teams and expose other team members to some of the issues and impacts of the measure. They will also be case officers for any overflow advising work coming from the Consolidations Centre of Expertise.
· The consolidation specialists have received an extensive amount of skilling including:
· technical training on consolidation topics and legislation;
· face to face discussions on particular topics and issues;
· regular discussions with a subject expert, via audio conference
· participation in discussion groups
· participation in a mentoring and buddying system
General SB field staff and LB&I technical staff
· SB Field staff (in excess of 600 staff) received during May 3 hour sessions concentrating on the eligibility rules, but also providing an overview of the regime. Field staff are expected to handle very simple enquiries, and are provided with an "information kit" to give to their clients. SB field staff are advised of how to escalate queries, and know where clients can go for additional information.
· All LB&I technical staff, including Key Client Managers, approximately 800 staff in total, have received the following training:
· in July - September 2002 all LB&I staff attended a 1 day Workshop, presenting an overview of the regime.
· from March - June 2003 all LB&I staff have/will attend a 2 day workshop looking at membership rules, core rules and cost setting rules. Attendance is compulsory. To date approximately 500 staff have attended the 2 day workshop. The materials used for this session will be made available to externals.
· A workshop on losses, MECs, PAYG instalments, and other issues is planned that in the second half of 2003 LB&I staff. Staff will then be provided with an integrated case study to complete the training series.
Call Centre
· Contact Centres handling consolidation queries, are provided with scripts, and face to face training. Training is provided at the request of the Call Centre as a result of staff movements, call volumes, or at the suggestion of the New Law Skilling Team when changes warrant up skilling.
· There are approximately 30 call centre staff skilled to handle basic consolidation queries or to escalate them as required.
Other staff
· All ATO staff have been invited to learning events and have access to technical materials on consolidation.
· In 2002 9 CPD sessions, presenting an overview of the regime were conducted, (open to all ATO staff).
· All staff have access to materials such as the Consolidation Reference Manual and fact sheets, via the internal systems. Hard copies of materials are also available.
· Staff were invited to attend the Consolidations Walk Through and special sessions were held at those events to provide an overview of the consolidation measure.
Quality assurance
· All LB&I staff are required to participate in an assurance process - there are a series of computer based assessments after training on consolidations. The assurance process commenced with the 2 day workshops in March.
· Staff in LB&I are increasing their capability in order to be in a position to deal with technical consolidation inquires, with their skilling program attempting to match anticipated increased work flows.
· A formal evaluation of training delivery and methods as well as retention of knowledge reported in February 2002 that "Transfer of knowledge has been occurring and organisational capability in consolidation is gradually being built" with regard to the BSL Specialist.
c. How many Consolidation queries has the ATO received to date?
Response:
· The ATO logs all questions that are received other than basic queries handled at the call centre level.
· All consolidation queries received by phone are initially handled within the call centre. Where the call cannot be answered within the call centre the details of the caller and the queries are sent by email to a central point within the Centre of Expertise.
· Approximately 600 calls were forwarded over the past 12 months.
d. What are types of technical issues are being raised in these queries?
Response:
· The majority of calls referred to the Centre of Expertise sought to clarify interpretation of material read in the Consolidation Reference Manual, especially around membership rules.
· The ATO monitors patterns of calls received and addresses common questions through updated Consolidation Reference Manuals.
· Approximately 50 worked examples have been added to the Reference Manual.
e. What are the escalation processes for resolving a problem?
Response:
· Questions that cannot be resolved within the Centre of Expertise are analysed as to why they cannot be resolved.
· Where analysis shows that further ATO guidance is required to answer the question or issue it is placed on the issues register.
· The issues register is subject to regular review through both the Centre of Expertise and also by the NTLG Sub Committee dealing with Consolidation.
· The ATO confers regularly with Treasury on matters where it is considered that revised or additional law is required.
Meeting Discussion
Professional bodies indicated a view amongst practitioners involved in consolidation matters that there are a number of outstanding issues, some of which have been outstanding longer than was expected. They indicated there is a perception the Tax Office is spread too thinly and unable to cope with the workload. Professional bodies indicated, however, following discussions with the Tax Office, they understood attention was being paid to technical resources in the Centre of Expertise. Professional bodies also suggested the Tax Office give some attention to prioritising material in a bid to get it out into the community as quickly as possible, without batching it up to issue as a single information package. They also indicated some large corporates saw issuing FAQs as a means of providing much needed assistance.
Second Commissioner D’Ascenzo suggested the recent Consolidations Manual update should go a long way to alleviate some of the information shortage in the community. The Commissioner asked professional bodies to raise any future problem areas with the Tax Office.
The Commissioner asked professional bodies for their view on the progress of consolidation. Professional bodies responded with the following:
· Some fundamental technical issues need to be resolved for some organisations to decide whether, or when, to consolidate.
· Managing evolving law and ensuring the clearest possible guidance to the community is a challenge for the Tax Office, citing, as an example, issues around leased vehicle fleets.
· Part IVA guidance will help calm community fears.
· Members are concerned about the potential additional attention from the Tax Office, citing an example where one organisation received calls from 5 different Tax Office staff members.
· Members are generally realistic in their expectations of the Tax Office.
Second Commissioner D’Ascenzo suggested professional bodies, through the subcommittee, could provide input into the rulings process in terms issues and importance.
The Commissioner also suggested the Tax Office could provide some indication of preliminary views through an alert process if professional bodies were in a position to provide information to the Tax Office for this purpose.
[_Toc35752847][_Toc45343113][_Toc18291593] 4 Current status of Technical Issues Management Sub-Committee
The professional bodies are concerned that the current status and role of the Technical Issues Management Subcommittee is not resolved. As this Subcommittee will play an integral role in the escalation of technical issues, it is important is this Subcommittee is up and running at the earliest possible time.
Would the ATO please provide an update on current status of the Technical Issues Management Sub-Committee (eg. has membership of the sub-committee been finalised, what is expected date of the group's first meeting)?
Response:
The first meeting of the subcommittee was by telephone hook-up on Friday, 23 May 2003. The current membership is:
Annamaria Carey LCA
Bob Duncan ATMA
Deirdre Gerathy Treasury
Gavan Ord NIA
Geoffrey Sheehan ATO
Johanna Lowry ICAA
Johnni Jordison ATO
Michael Dirkis TIA
Miquel Timmers CTA
Paul Drum CPAA
Peter McDonald TA
Rona Mellor ATO
Sophie Evreniadis ATO
Tony Jones NTAA
An update will be provided at the meeting.
Meeting Discussion
Rona Mellor (First Assistant Commissioner, Policy Management Division) attended for this item. Rona advised the Subcommittee will meet again tomorrow (4 June) to work through a list of issues compiled from the NTLG subcommittees. Her expectation is for the subcommittee to test the validity of the process, compile a set of criteria that will help determine priority setting for future issues and to select one or two issues that can be taken further through the process.
Professional bodies indicated the main purpose for including the item on the agenda was to be able to articulate expectations to the wider group. They explained their expectation is for the preparation of a comprehensive list with issues being categorised, for example, as either subject to a Government announcement, awaiting a ruling, solution via administration or needing a legislative fix.
The Tax Office confirmed it will maintain a master list of issues and professional bodies agreed that sign-off on issues selected for escalation can be arranged by contacting members out of session.
The Commissioner also advised that reports on comments he made following his speech at the CPA Australia Convention in Ballarat were inaccurate with respect to the Government’s decision around uniform capital allowances. He advised the Government had not yet made a decision on their proposals to reintroduce a statutory threshold allowing immediate write-off, for example, the former $300 rule.
[_Toc35752848][_Toc45343114] 5 CGT Subcommittee and Extension of Focus
Proposal to expand the CGT subcommittee of the NTLG to become ‘Losses and CGT subcommittee.
The proposal, for discussion by the NTLG, is that the scope of the existing CGT subcommittee be broadened to include loss issues. That is, it is proposed that the subcommittee be referred to as the 'Losses and CGT' subcommittee. As well as CGT, the subcommittee would deal with the full spectrum of loss issues, including (for example) company and trust losses, same business test issues, matters relating to the loss integrity measures and forgiveness of commercial debts.
From an ATO perspective, the subcommittee would continue to be managed by the Losses and CGT Centre of Expertise (led by Glenn Davies) in the Office of the Chief Tax Counsel.
Some benefits expected to accrue from expanding the scope and role of the existing subcommittee are:
· There will be a forum, other than the NTLG, which can consider specialised and complex loss issues (eg issues similar to the issue on the global valuation methodology on the agenda for this meeting could be considered at the subcommittee level).
· The CGT subcommittee has already considered some issues relating to capital losses, but its current scope does not properly allow it to examine underlying loss questions.
· The professional bodies will have an additional opportunity to raise loss issues for the ATO’s (and Treasury's) consideration in the presence of officers with that specialisation.
· It would provide a greater opportunity to integrate the discussion of both CGT and losses issues with relevant discussions occurring in the Consolidations subcommittee.
· If agreed to, it is proposed that the change would take effect for the next meeting of the subcommittee after the already scheduled 11 June 2003 meeting, which is likely to be in November 2003. This would allow time for the professional bodies, as well as the ATO and Treasury, to consider changes or additions to their current representatives, and to make whatever other administrative changes may be needed to ensure the efficient functioning of a broadened subcommittee.
If the NTLG is in agreement, some of these issues could be canvassed as agenda items for the CGT subcommittee's 11 June 2003 meeting.
Meeting Discussion
Professional bodies indicated the proposal was a good idea given the interplay in the two aspects of the tax system. They indicated, however, the current six monthly meetings may not be sufficient to deal with the additional issues covered by the subcommittee in its new role, suggesting it could meet quarterly for the next twelve months and then reconsider its meeting frequency.
Professional bodies were concerned the new focus may mean attention will go to the ‘big end of town’, noting it was currently a broad based subcommittee dealing across the spectrum of CGT issues.
The Commissioner agreed the Losses and CGT Subcommittee would proceed and advised caution to keep attention across the current broad range of taxpayers impacted by issues discussed.
[_Toc45343115] 6 Role of Industry Partnerships
The role of the ATO’s Industry Partnerships and their relationship to other peak consultative forums is not clear. It is noted that most of these Partnerships were set up in the GST context and that only one (Primary Production Industry Partnership) appears to have a broader role in respect to both income tax and GST.
Would the ATO please advise:
a. What are the ongoing roles of these industry partnerships?
b. How do the Partnerships relate to the ATO consultative forums?
Response:
To be discussed at the meeting.
Meeting Discussion
Professional bodies outlined their view of the history of industry partnerships, suggesting a disconnect from the professional bodies.
The Commissioner advised:
· Introducing industry partnerships was primarily around implementing the GST and dealing with industry issues.
· There are currently 10 industry partnerships including the new Indigenous Advisory Group.
· Given the current stage of GST implementation, they are broadening to cover whole of Tax Office issues impacting their respective industries.
· The objective has always been to get industry’s valuable direct input into consultation and understanding what is significant for a particular industry.
· Working with industry has proven to be a good way to get information to taxpayers because they read industry based publications and use industry based information sources.
· Industry’s are willing to work with the Tax Office around compliance issues as well as addressing risks associated with particular industries.
Professional bodies were concerned access to information, for example minutes and issues logs, had been restricted given it was difficult to find on the Tax Office website. The Commissioner advised there is no intention to withhold information and agreed to follow up the availability of information on the website.
[_Toc45343175] Action Item NTLG0306/3 : The Tax Office to follow up availability of information coming from current industry partnerships on the Tax Office website.
The Commissioner indicated industry partnerships were another ‘window out’ of the Tax Office, with professional bodies indicating access to industry partnership papers enhanced the professional bodies’ view of issues being discussed.
Second Commissioner D’Ascenzo advised it also provided an opportunity for the Tax Office to discuss ideas with industry to gauge impacts and potential advantages.
[_Toc45343116] 7 Update on Treasury Consultation Model
Following the Treasurer's announcement in 2002 of the Government's broad approach to consultation on policy and legislation issues based on recommendations from the Board of Taxation, the model/framework for dealing with Treasury on policy/legislative issues is still not clear. In the absence of this, the professional bodies do not have any standard procedures for discussing issues with Treasury nor any details about how issues are being dealt with.
Would the ATO please advise:
a. what is the current status of the treasury consultation model?
b. in the lead up to finalisation of this model, what framework is currently in place to deal with policy/legislative issues?
c. how many policy/legislative issues are currently on the list?
d. how are the issues being prioritised?
Response:
The following response has been provided by Treasury:
The Treasurer’s Press Release of 2 May 2002 announced the Government’s in-principle position in relation to community consultation in the development of taxation policy and legislation (including other laws administered by the Commissioner of Taxation).
The Government has indicated that, in principle, it will consult on substantive tax policy proposals. In this context, consultation means the process of seeking information and advice from persons and groups likely to be affected by policy proposals and considering those responses when advising Government.
Treasury will consult on tax policy and legislative proposals (except where consultation is not appropriate) using one or more of the following approaches:
· Open public consultation: consultation where submissions are invited from the general community;
· Targeted public consultation: consultation with specific stakeholders, representative focus groups or technical experts based on publicly available documents such as discussion or issues papers;
· Targeted confidential consultation: confidential consultation with specific stakeholders, representative focus groups or technical experts.
In deciding the approach to use, flexibility in managing the timing of policy change, time constraints and any commercial, market, political, revenue or tax avoidance sensitivities will be considered.
Consultation may not be appropriate where the commercial, market, political, revenue or tax avoidance sensitivities are significant. Consultation will not always be undertaken for technical amendments.
A different consultative approach (or combination of approaches) may be adopted at each stage of policy and legislation development. Exposure drafts may be used to road test legislation.
Sufficient time will be made available for responses. However, the period for consultation may differ and will depend on the timeframes of the tax measure. Sometimes only a limited time for consultation will be possible.
From time to time, the Treasurer will ask the Board of Taxation to conduct consultations on major topics. The Board's processes may include any of the approaches listed above, and may be assisted by presentations from the Treasury. In many cases, the Board will report to Government both its own views and the views of those it consults.
Monitoring and Evaluation
As you will be aware, the Treasurer has asked the Board of Taxation to monitor consultation processes and to conduct post implementation reviews. Treasury will regularly provide information to the Board to support its work in this area.
Process for escalating issues
Members of the National Tax Liaison Group (NTLG) have been provided with contact and area of responsibility details of all Treasury Revenue Group general managers. In addition, as you will be aware, a subcommittee of the NTLG has been formed to develop a process that would allow this forum to make recommendations for legislative change.
Meeting Discussion
Deidre Gerathy from Treasury addressed this item. Deidre Gerathy advised that Revenue Group, Treasury is working on best practice consultation guidelines for Revenue Group staff. Deidre Gerathy noted consultations will occur in a variety of circumstances including under restricted time limits, need for confidentiality or open public consultation in the form of a discussion paper or opportunities via the Treasury website.
Deidre Gerathy noted professional bodies should understand the purpose of consultation and Treasury's role in providing policy advice to the government, referring to an address to the Australian Business Economists in Sydney on 20 May 2003 by Ken Henry, Secretary to the Treasury (see page 3 of his address < http://www.treasury.gov.au/contentitem.asp?pageId=&ContentID=639 >).
Deidre Gerathy also noted the Board of Taxation's role in consultation.
Members were advised that of the current 58 announced tax/superannuation measures, 50 are being consulted at the policy and/or legislation stage with the remaining largely being minor or technical issues. Deidre Gerathy reiterated the importance being placed on consultation by Treasury.
Professional bodies asked if they would be included as a matter of course in Treasury consultation. Deidre Gerathy responded that all input into consultation is valuable, although she could not guarantee professional bodies would be included in all cases either because time was limited or there were sensitivities around a measure. In open public consultation, she advised professional bodies are always welcome to provide their views and input into the consultation process.
Deidre advised the completion date for the best practice consultation guidelines was expected to be by the end of the year. Professional bodies asked if Treasury would be able to report to the NTLG on matters where they were not involved in consultation, noting that involvement in consultation on an issue has often given insight into other matters Treasury are dealing with. Deidre advised they will consider what information, if any, can be provided to NTLG members.
[_Toc45343117] 8 Capital protected equity products
On 16 April 2003, the Treasurer announced that the Income Tax Assessment Act 1997 would be amended to ensure that part of the expense on a capital protected product is attributed to the cost of the capital protection feature, is not interest and is not deductible where this cost is capital in nature. These amendments have not as yet been legislated.
The professional bodies have concerns as to how the position will be managed in the meantime, particularly in regard to the period leading up to the end of the financial year (assuming that the form of the amendments is not known by then). This is of concern to potential investors in such products and clarity is needed to avoid confusion. In particular:
a. What is the status in regard to the review of product rulings which have been released in regard to capital protected loans and instalment warrants?
b. What is the ATO’s policy regarding applications for product rulings in regard to capital protected loan products in the intervening period (that is, between the Treasurer’s announcement and the introduction of the amending legislation)?
Response:
To be provided at the meeting.
Meeting Discussion
The Commissioner suggested, with the agreement of the professional bodies, the recent Tax Office and Treasury media releases have provided the necessary information to members. The Tax Office media release is at Attachment 1 .
1 [_Toc45343118] 9 Selection of mass marketed schemes for prosecution action
Examples have emerged where accountants have been selected for prosecution action notwithstanding a number of circumstances that on face value mitigate the accountant’s exposure to such action. These include full co-operation with the ATO, a very long elapse of time since the issue was first raised by the ATO, and ratification of the arrangement by the court. The exposure to prosecution action and the drawn out nature of the processes have severe financial and personal implications for the individuals concerned, resulting in the disintegration of the accounting practice and a great deal of personal stress.
Whilst it is appreciated that the Commissioner is not in a position to discuss the circumstances of individual taxpayers, on the basis of the detail of examples brought to the professional associations there seems to be a good case to examine the efficiency of the processes that are used to select cases for prosecution. This would include the interaction of the ATO with the DPP, the time taken to progress the processes, and, where circumstances change affecting the Commonwealth’s case, whether there are adequate review processes to ensure the case for prosecution is reconsidered before the matter is “on the court house steps. If the processes do not have these integrity checks, the damage to the individual is exacerbated, and the ATO is open to accusation of adopting a too aggressive approach to prosecutions as an over-reaction to past criticism of laxity in this area.
Could the Commissioner consider and comment?
Response:
The Tax Office undertakes prosecution investigations either in its own right or in partnership with other agencies such as the Australian Federal Police and the Australian Crime Commission (previously the National Crime Authority). There are various guidelines that impact on the way in which this work is undertaken, these include:
· Commonwealth Fraud Control Guidelines 2002
· Commonwealth Fraud Investigation Standards Package
· Prosecution Policy of the Commonwealth
· Guidelines for Dealings between Commonwealth Investigators and the Commonwealth Director of Public Prosecutions, and
· The ATO Prosecution Policy
It is also important to note that the Australian Federal Police and the Australian Crime Commission are able to undertake their own investigations of matters which may have relevance to taxation crimes independent of the Tax Office. The Tax Office has no authority, nor should it have, to instruct those organisations to commence or cease an investigation into a criminal fraud.
With respect to those matters investigated by the Tax Office, the following extract from the ‘ATO Prosecution Policy’ is of particular relevance:
[#PF][PF] F. A prosecution should not be instituted or continued unless it is consistent with the Prosecutions Policy of the Commonwealth and in the public interest.
[#P2.3.7][P2.3.7]2.3.7 The term 'public interest' is not restricted to the need for deterrence or the seriousness of the offence. The Prosecution Policy of the Commonwealth (at pages 5-6) lists relevant factors in determining whether the public interest requires a prosecution as including:
· The seriousness, or conversely the triviality of the alleged offence or whether it is of a 'technical' nature only;
· Any mitigating or aggravating factors;
· The youth, age, intelligence, physical health, mental health or special infirmity of the taxpayer;
· The staleness of the alleged offence;
· The degree of culpability of the taxpayer in connection with the offence;
· The availability and efficacy of any alternatives to prosecution;
· The prevalence of the offence and the need for deterrence, both personal and general; and
· The necessity to maintain public confidence in such basic institutions as the Parliament, the Courts and the tax system.
(Real or potential publicity is not a relevant consideration in identifying cases suitable for prosecution).“
Clearly the level of co-operation and the staleness of the alleged offence are factors which can be taken into account in deciding whether the Tax Office should commence an investigation of a criminal offence. Although not specifically mentioned above, the fact that a Court, particularly in a civil jurisdiction, had already expressed a view on the same facts is a relevant factor that would be taken into account as an indication of the likelihood of a conviction being obtained.
The final decision to undertake a criminal prosecution resides with the Commonwealth Director of Public Prosecutions (CDPP) and this discretion is exercised independently regardless of which agency may have undertaken the prosecution investigation. The Tax Office can not instruct the Director to withdraw a prosecution. The CDPP’s role in independently carrying out the Commonwealth’s prosecutorial function is a very effective review mechanism and ensures only appropriate matters are undertaken in accordance with policy.
The Tax Office is not aware of any matters currently before the Courts where there has been full co-operation from the persons involved, staleness of the alleged offences and ratification of the arrangement by the court.
The Tax Office considers the current arrangements for the investigation and prosecution of criminal offences are operating well and the role of the CDPP in conducting all prosecutions operates as a very effective review mechanism.
Meeting Discussion
Professional bodies raised this issue to seek assurance the Tax Office employs rigorous processes to only prosecute appropriate cases and to be assured cases receive due review prior to going to the Commonwealth Director of Public Prosecutions (CDPP). Professional bodies asked the Tax Office to closely examine high profile cases to mitigate personal and financial costs in long running prosecution action, concerned that some action has taken 5 years to get to court.
The Commissioner advised the Tax Office follows appropriate guidelines in ensuring the right cases are referred to the CDPP.
[_Toc45343119][_Toc35752852] 10 Controlling interest superannuation arrangements
The Commissioner of Taxation announced in a Media Release on 14 March 2003 that the ATO accepts the decision in Prebble’s Case. Cooper J in this case decided that the taxpayer had a reasonably arguable position and that the understatement penalty should be excised.
Accordingly, in the Commissioner’s press release, it was indicated that that ATO will waive penalties imposed in controlling interest superannuation arrangements where a genuine contribution was made to a superannuation fund. The Commissioner then went on to say that, in an attempt to clear up the cases, the ATO will reduce the general interest charge to 4.72% where the contribution was made to a superannuation fund before 19 May 1999, which is the date the ATO announced the controlling interest superannuation arrangements did not work.
Taxpayers who settled controlling superannuation interests and employee benefit plan arrangements prior to the Media Release on 14 March 2003 could have settled on far less attractive terms compared to those that were offered in the Media Release. This is unfortunate as broadly those that settled earlier are being unfairly penalised.
Given the above, is the ATO prepared to extend the offer retroactively to taxpayers who settled the arrangements prior to 14 March 2003 on less favourable terms so that taxpayers are not being treated differently that those who settle after 19 May 1999?
Response:
The ATO in conjunction with the Commissioner’s speech on 14 March 2003 released a fact sheet outlining the full details of the ATO’s view of recent case law relating to controlling interest superannuation arrangements. The Tax Office stated that for taxpayers who made contributions to a fund before 19 May 1999 and have paid the penalty and the full general interest charge, the relevant amount of penalty and interest will be refunded. This will include those who had settled their disputes.
Meeting Discussion
No discussion.
[_Toc45343120] 11 Deductions for contributions and expenses made on behalf of a superannuation fund by the contributing employer
At the June 2002 NTLG, the professional bodies raised their concerns about audits of superannuation funds where the ATO has denied deductions for contributions and expenses made on behalf of a superannuation fund by the contributing employer (agenda item 18.1). The ATO acknowledged that this practice was widespread and that they would refrain from actively targeting this practice, until consultation with industry and ARPA had taken place. It was indicated by the ATO that consultation with industry would involve a discussion paper and negotiation of a possible implementation date. The issue was raised again at the December 2002 NTLG (agenda item 28.6 of draft minutes) and the same answer provided by the ATO at the June 2002 NTLG was repeated.
a. Would the ATO please provide an update on the resolution of this issue?
Response:
The Tax Office is conducting a compliance review of self managed superannuation funds (SMSFs). During these reviews, the Tax Office has identified numerous occurrences of funds incorrectly treating contributions and fund expenses. When incorrect treatment of the items are identified, the Tax Office is advising agents of the correct procedures. At the conclusion of the compliance reviews in mid June, the Tax Office will release a paper for consultation.
From 1 July 2003, the Tax Office will expect that all funds understand the correct practice.
b. Is the ATO targeting this practice in its audit?
Response:
The Tax Office is not actively targeting the practice.
Meeting Discussion
Lesley East (Assistant Commissioner Superannuation) attended for this item.
Professional bodies indicated there was confusion in the market place around understanding the substantial issue and if there were revenue implications.
Lesley advised the Tax Office had conducted a benchmark survey (currently being collated by the Australian Bureau of Statistics) of SMSFs from which early indications are that 20% do not keep separate records from the business.
Professional bodies advised their concerns were around potential audit activity given the 1 July 2003 date set by the Tax Office that all SMSFs will understand their requirements.
Professional bodies asked how they could advise members in terms of dealing with practical issues, for example, when accounting fees are paid from the business account when a proportion relate to the superannuation fund, as well as dealing with inadvertent errors. The Tax Office agreed to address inadvertent errors in the consultation paper currently being prepared.
[_Toc45343176] Action Item NTLG0306/4 : The Tax Office to address inadvertent errors in its consultation paper following the completion of a compliance review of self managed superannuation funds.
[_Toc45343121] 12 SMSFs and real property co-ownership
In August 2001, the ATO released a document on it’s website with the title “SMSFs and real property co-ownerships: ATO views”. Among other issues, the document referred to ATO views on situations where parties borrowed money on a property where a superannuation fund held co-ownership. This document now appears to have been removed from the website.
a. Would the ATO please advise why the document was removed and whether it is being reviewed with a view to being released again?
b. Would the ATO please advise whether any requests for private rulings have been received on issues covered in this document, and if so, what were the results of these private rulings?
Response:
'The document referred to, “SMSFs and real property co-ownerships: ATO views” was a draft Tax Office paper dealing with tenants in common or real property co-ownership put on the web site in error. It was removed the same day.
The Tax Office and the Australian Prudential Regulation Authority (APRA) administer the Superannuation Industry (Supervision) Act 1993 (SIS). APRA is responsible for small, medium and large superannuation funds while the Tax Office regulates particular small funds called self managed superannuation funds (SMSFs).
To assist in the effective joint administration of SIS, the Tax Office and APRA have points of contact so that all interpretation advice or fact sheets contain consistent information. For example, the ATO sends all draft ATO IDs to APRA for consultation and agreement.
The ATO document was put on the web site before discussions with APRA had occurred. The ATO and APRA are still jointly working on the issue of tenants in common or real property co-ownership in SMSFs.
The APRA view is contained in an APRA circular as follows:
SUPERANNUATION CIRCULAR NO. II.D.6 - IN-HOUSE ASSETS [November 2000]
JOINT INVESTMENTS WITH RELATED PARTIES
61. The SLAA4 amendments clarified that a fund could invest in property with a related party on a tenants in common basis without the investment being classed as an in-house asset (section 71(1)(i)). While the borrowing restrictions prevent a fund from charging assets, the prohibition does not extend to the other titleholder. In APRA's view, it would be more prudent for a trustee to refrain from investing as a tenant in common where the related party intends to use its investment in the property as security against borrowings.
62. In considering a joint investment when formulating the investment strategy of the fund, a trustee should weigh any risk that the strategy would be subordinated to the circumstances of the other party, for example, in respect of a forced sale of the property where the other titleholder is required to liquidate its assets. While effectively a forced sale would only be in respect of the other tenant's share, it is commercially more realistic to expect that the whole property would have to be sold in such circumstances. In APRA's view, an appropriate protection would be to obtain in writing the agreement of the lender that the fund's share of the proceeds of any forced sale would receive priority and are therefore not, indirectly, subject to any charge.
Meeting Discussion
The response was noted.
[_Toc45343122] 13 Superannuation Guarantee Audits
Recently superannuation guarantee audits have sought information back to the 1997 year. This creates great difficulty in retrieving the relevant data.
What is the current policy of the ATO on conduct of Superannuation Guarantee Audits?
Response:
Under the Superannuation Guarantee legislation, employers are required to retain records for 5 years. While the legislation allows the Tax Office to conduct audits for all outstanding years, generally the Tax Office will only pursue the previous five years. In all these cases the employer should have the records available.
Meeting Discussion
No discussion.
[_Toc45343123] 14 VL Finance and Others, at call loans and Div 7A
In the VL Finance and Others Case, the Court considered the common law with regard to debts becoming statute barred. The Court held that for an at call loan, the period during which the action must be taken starts when the loan was first advanced - not when a "call" is first made.
a) Would the ATO please confirm whether or not an at call loan that becomes statute barred effectively becomes a deemed dividend under Division 7A?
Response:
Where an at call loan made by a private company to a shareholder or an associate of a shareholder has become statute barred it will be taken to be forgiven and treated as a dividend. The amount of the dividend will equal the amount of debt forgiven. This is subject to section 109Y which limits the dividend to the amount of the private company’s distributable surplus for that year.
b) Would the ATO please advise what its position is with regard to the application of the decision in the VL Finance and Others Case and it’s implications for Division 7A?
Response:
VL Finance Pty Ltd v Legudi confirms the Tax Office’s position that, for an at call loan without additional contractual terms for payment, the time period for the purposes of the Limitations Acts starts when a loan is made, not when a call to repay the loan is made.
Meeting Discussion
Professional bodies believed the response required more detail and expansion to cover a broader range of issues. It was agreed the professional bodies would provide additional information to the Tax Office to assist with expanding the response, to which the Tax Office will include additional information in the minutes if appropriate.
[_Toc45343177] Action Item NTLG0306/5 : Professional bodies to provide additional information to the Tax Office to enable it to expand the response provided in relation to the VL Finance case, at call loans and Division 7A.
[_Toc45343124] 15 Global method of asset valuations in loss integrity measures
The purpose of this question is to seek the ATO’s comments on the global valuation method described in subsection 165-115E(2) of Subdivision 165-CC.
Subdivisions 165-CC and 165-CD were inserted during 1999 and 2000 and implemented the recommendations in A Tax System Redesigned and dealt with inappropriate access to and duplication of a company’s realised and unrealised losses. Subsection 165-115E(2) was subsequently inserted by No 90 of 2002 and allows for the optional use of the global asset valuations minimizing compliance costs as it avoids the need to ascertain the cost base and the market value for each CGT asset.
Step 1 of the method statement requires the total market values of all the CGT assets. Step 2 requires the total of the cost bases of those CGT assets to be ascertained. Step 3 states that if the step 2 amount exceeds the step 1 amount there is an unrealised loss.
This is relatively straightforward concept; however, on application there would appear to be an unintended outcome.
Analysis: assets post 13 May 1997
For simplicity we will only consider the first element of the cost base, being the amount paid to acquire the asset. The reference to cost base in step 2 in the case of a depreciating asset can only be a reference to the cost of the asset not the written down value. For assets acquired after 13 May 1997 it is necessary to consider section 110-37 and section 110-45. The effect of 110-37 is that where a later provision of the Subdivision states an amount does not form part of the cost base of a CGT asset, the expenditure is initially included in the cost base and is reduced immediately before a CGT event happens to the asset. In the case of a depreciating asset the relevant later provision of the subdivision would be section110-45(2). There is no CGT event prescribed in the method statement. This is a necessary condition for the effective operation of section 110-37 and hence as the condition is not met, no reduction can be effected.
Example
If we assume the following:
· an asset has a cost base of $100;
· it has a tax written down value of $50; and
· the asset has a book value of $60 which is also the market value.
This produces a $40 loss for step 3. This is inappropriate. If the asset was sold, or deemed to have been sold, it would have resulted in an assessable recoupment $10 not a loss.
Unless there is deemed to be a CGT event the cost base, rather than the tax written down value, will be used.
This position can be contrasted with the outcome under section 165-115F. Here, there is assumed to be a CGT event relating to the asset by virtue of subsection 165-115F(2). The gain or loss on disposal of the depreciating asset is then determined in accordance with subsection 165-115F(3) taking into account the depreciation claimed. In the example above the gain would be $10.
(Note: In accordance with subsection 165-115F(5) the company could elect that any reference to the market value of the asset is a reference to its written down value. This would give a nil result.)
Solution
To rectify the situation it will be necessary to deem there to be a CGT event in respect of the asset. This would then enable an appropriate reduction in the cost base to be made.
This does not remedy the situation for assets acquired prior to 13 May 1997. No mechanism exists in section 110-40 to effect a reduction of the first element of the cost base for the depreciation claimed in respect of such assets. Perhaps a means of remedying the situation would be to use the tax written down value. As noted earlier, subsection 165-115F(5) in certain circumstances enables a company to use as a reference to market value the tax written value for an individual asset.
Issues for Consideration
Would the ATO please advise:
a. If the above analysis is correct, can the Commissioner confirm that the outcome is intended?
b. If the outcome is not intended what remedial action is proposed?
Response:
The Tax Office agrees with the technical analysis. It cannot comment on intention except to point out the following matters from the explanatory memorandum to the New Business Tax System (Consolidation, Value Shifting, Demergers and Other Measures) Bill 2002 which introduced the global method.
Firstly, paragraph 13.7 refers to the fact that compliance costs (especially valuation costs) might be less if assets could be valued together (i.e. globally) rather than individually. Paragraph 13.8 refers to the fact that the 'rules will therefore be refined to allow, as an option, the use of the global method of valuing assets.' Noting that not only are valuation cost savings referred to, compliance costs are saved by the use, in most cases, of a simple consistent asset base (eg. unmodified cost base, or trading stock value) which does not require detailed calculations to determine its amount at a given point in time. This is unlike, for example, tax written down value or cost base adjusted for deductions, where amounts of deductions would have to be calculated and subtracted. Also, the global method is optional, and companies are not prevented from using the individual asset method for calculating their unrealised net loss with more precision if desired.
Secondly, paragraph 13.27 of the explanatory memorandum provides that:
Step 2 aggregates the cost bases of the CGT assets owned at the relevant time. Only if an asset's cost base is less than the amount that, for an item of trading stock, would be compared with its market value under section 165-115F (i.e. on an individual asset basis) for calculating a notional revenue gain or notional revenue loss, or, for a revenue asset, would similarly be compared, is the trading stock or revenue asset amount used instead. This ensures that the unrealised net loss calculated under the global method could not be less than it would be under the individual asset method.
This statement in the explanatory memorandum clearly envisages that the global method may produce a result where the unrealised net loss calculated may be more than would be calculated under the individual asset method. No special treatment is provided for depreciating assets under the global method in the legislation.
Meeting Discussion
No discussion.
a) [_Toc45343125] 16 R&D Tax Offset – Commissioner’s discretion
At the NTLG of 5th December 2002, concern was raised regarding the ATO’s interpretation of section 73I ITAA 1936, and the requirement that taxpayers must elect in their original tax return to claim the R&D Tax Offset, that the election cannot be made later by amendment. This differs from the section 73B R&D tax concession, which can be claimed at a later date by amended assessment.
The ATO explained the technical basis for its approach, being in effect that the legislation requires the choice to be made in the taxpayers “return of income”, and that the law does not recognise the concept of an “amended return” (as distinct from an amended assessment).
a. The ATO acknowledged in its explanation that the professional bodies’ concerns did properly raise the point of whether the result occasioned by the application of section 73I (as applied by the ATO) was the most appropriate policy and that the ATO was in the process of writing to Treasury about the matter. Would the ATO please provide an update?
b. Could the ATO please advise how many R&D Tax Offset claims have been made by amended assessment? What is the status of these, in terms of being accepted, disallowed or still under consideration?
Response:
The Tax Office position on this item has been further reviewed. Although no formal response has yet been received from Treasury, the Tax Office has decided to take a more encompassing view of what will be an eligible company’s ‘return of income’, for the purposes of choosing the R&D tax offset. This approach will include, where necessary, formalising the status of the 2002 Research and development tax concession schedule as part of such a return. In some cases this may involve acknowledging lodgment of this schedule as having been required under section 162 of the ITAA 1936.
This approach will be applied to those R&D offset cases currently on hand, as well as to those who have already been advised that their claims could not be met, as they had not complied with the procedural requirement to choose this offset in the company’s return of income (37 in total to date). In many cases it will mean that an eligible company will be able to choose the offset as part of what may be called an ‘amendment request’ (though sometimes there will be no amended assessment which results).
The approach will not extend however, to those companies who now want to change their choice from claiming deductions in relation to their research and development expenditure, to instead, now wanting to choose the R&D tax offset.
Development of a variety of means to communicate this approach to eligible companies who may not as yet have lodged their 2002 Research and development tax concession schedule, is also underway.
Meeting Discussion
Professional bodies appreciated the Tax Office’s response, but were disappointed the benefit of the Tax Office’s revised approach was restricted to approximately 30 taxpayers who lodged amended returns to include the schedule. They noted many taxpayers chose not to lodge amended returns following widespread information from professional bodies, acting on Tax Office advice, amendments would not be effective.
Second Commissioner D’Ascenzo advised this was an integrity measure, and for the Tax Office to now proceed, it has relied on a clear indication that the intention to claim always existed. Professional bodies advised they believed any taxpayer who had lodged their application with AusIndustry would clearly be indicating their intention was always to claim the offset.
Second Commissioner D’Ascenzo also noted there was a limit to the extent to which the Tax Office could say a claim is part of the original return. He advised some issues around this concept were being tested in the courts, but suggested professional bodies advise their members to put their case to the Tax Office and it would work through the issues with them. He also agreed to provide an outline to professional bodies of what a taxpayer might be required to do to have the case dealt with.
[_Toc45343178] Action Item NTLG0306/6 : The Tax Office to provide professional bodies with an outline of the information required to be provided for it to consider including the Research and development tax concession schedule as part of the original return.
[_Toc45343126] 17 Progress report on ATO evaluation processes of technology initiatives to collect tax data
At a previous meeting of the NTLG, ATO reaction was sought to the growing number of approaches to the ATO, Assistant Treasurer and the professional bodies seeking support for technology initiatives that offer the potential to collect tax data from existing commercial and banking systems. An example is the BAScard concept. The ATO has previously indicated to some of the promoters that an ATO working group was being established to ensure these types of proposals are evaluated in a disciplined fashion.
Given recent statements by the Commissioner that the ATO is looking at/receptive to future initiatives that would reduce double handling to meet tax compliance obligations, via forms of direct access to commercial data bases, would the Commissioner advise the status of the ATO’s working party, and his thoughts on a likely time frame for the implementation of such developments.
The issue takes on additional relevance, given the mutual concern by the ATO and the professional bodies that there are signs of a declining pool of accountants prepared to undertake the more labour intensive forms of traditional tax compliance for the business sector, and which has been exacerbated by The New Tax System.
Response:
The Tax Office is considering a wide range of technology based solutions for reducing the cost to business of complying with their tax obligations. A number of these solutions can be administered or delivered directly by the Tax Office. Examples of initiatives already delivered include e-tax, e-record and ECI. The portal is a more recent example of this type of service.
Another approach to reducing the cost of compliance is for the Tax Office to work with a range of service providers in the community who may be able, or are well placed, to deliver efficiencies to business in the areas of record classification, storage and reporting. As part of its Change Program, the Tax Office has established the Research and Development Unit to work with the community on these new solutions.
This new unit is exploring opportunities and stimulating activities with a range of service providers including financial institutions, software developers, payroll providers, tax professionals, telecommunication enterprises and industry associations. Some initiatives suggested by private sector providers have commercial implications for them and therefore have confidentiality requirements.
Some of the ideas being developed or suggested to the Tax Office and Government require little, if any, infrastructure to be provided in order to deliver the service while others require considerable infrastructure and technology to be developed prior to implementation. The “BAS card” suggestion is an example where considerable infrastructure is required. In this case, the concept requires involvement of ‘point of sale’ software and hardware providers, telecommunications services, accounting software developers, banks and card technology service providers. Stimulating commitment from all these providers for the delivery of the “BAS card” is proving to be time consuming and difficult. Indeed, many of the organisations have independently suggested that there is not a commercially viable business model for the concept. Notwithstanding this, the Tax Office will pursue the idea by bringing together appropriate service providers at a symposium to be undertaken in the first quarter of the new financial year. This symposium will consider broad design and implementation matters, including opportunity, cost, viability and stakeholder issues.
The Tax Office will pursue this activity in parallel with the other initiatives that are less resource intensive in delivering cost savings to businesses and their representatives.
Meeting Discussion
Professional bodies are looking to technology to alleviate some of the pressures on tax agents to attract new people to the industry, particularly given recent research findings indicating 24 percent are likely to leave in the next few years.
The Commissioner noted the establishment of the Research and Development Unit, advising it is the nature of research and development that ideas look good but do not always work in reality. He advised that some ideas being considered by the Tax Office will bare fruit, others will not, noting “nirvana is not around the corner.”
The Commissioner advised the door is open and the more the Tax Office can facilitate discussion between potential interacting parties in the community, the better for taxpayers, the profession and the community. He advised the research and development will run in parallel with many of the projects already being undertaken in the Tax Office on the technology front.
[_Toc45343127] 18 Outstanding items from NTLG meeting of 26th March 2003
a. Item 1, confirmation of minutes of meeting of 5th December 2002. Item 10, mass marketed scheme settlements: minutes to reflect ATO acknowledgment that resourcing of area was an issue, and that feedback from members of professional associations was that delays were on the part of ATO, the process was not being held up by the taxpayer.
Response:
Paragraph 3 in the meeting discussion for Agenda Item 10 Part IVA and offers of settlement has been updated.
Meeting Discussion
No discussion.
b. Item 4, Phillip’s Case. ATO to add to response provided in minutes, to expand on features the ATO is looking at. ATO also asked to provide a “safe harbour” of service trust features to give practices some certainty as to what is acceptable.
Response:
Additional information has been included at Item 4 Phillips Case in the draft minutes of the 26 March 2003 meeting as well as being provided to NTLG members separately.
Meeting Discussion
No discussion.
c. Item 8, Access Guidelines and Pratt’s Case. Concern expressed over wording of ATO response, which suggests ATO is reshaping how they apply the guidelines without actually changing them. Agreed “reshaping” was not a good choice of words, ATO will change wording in minutes to ensure accurately reflects the guidelines.
Response:
The response at Agenda Item 8, Tax Office Access Guidelines and Pratt’s Case, has been updated in the draft minutes of the 26 March 2003 meeting.
Meeting Discussion
No discussion.
d. Item 10, granting of SAPs. Jennie Granger said she would make enquiries as to number of applications and approvals for SAPs and timing taken to grant approvals.
Response:
The response at Agenda Item 10, Substituted Accounting Periods (SAPs), has been updated in the draft minutes of the 26 March 2003 meeting.
Meeting Discussion
No discussion.
e. Item 18, Family Trust Election, part (b) re: scope for amnesty to cover period prior to release of information. ATO to clarify whether needs to be on tax reform issues list.
Response:
An updated response has been included at Agenda Item 18, Family Trust Election, in the draft minutes of the 26 March 2003 meeting.
Meeting Discussion
Professional bodies advised the problem is around the election having to be made as part of the return, noting a strong view in the profession that a family trust election need only be made when there is a loss involved. It is now the case where the election is relevant to the 45 day holding rule, so a gap exists between 1999 and the present time. They noted that in most cases there were only small amounts of imputation credits involved. The concern is there is no capacity to go back to make an election.
Professional bodies also noted there were now approximately 4 items relating to family trust elections and there may be implications for the taxpayer should an audit be conducted and no record of an election exists, that is, the taxpayer or tax agent did not tick the box.
The Commissioner asked if the matter was one of form over substance, and asked professional bodies to articulate to the Tax Office the common cases and the Tax Office will look at whether administrative options are available.
[_Toc45343179] Action Item NTLG0306/7 : Professional bodies to articulate to the Tax Office their arguments around common cases where family trust elections have not been, but should be considered to be, lodged on time.
f. Item 19, Taxpayer’s Charter review update. ATO to see if NTLG members can receive a copy of the Donovan Report.
Response:
To be discussed at the meeting.
Meeting Discussion
The Commissioner will invite interested members of the NTLG to a presentation covering the full spectrum of issues associated with the Taxpayers’ Charter review, including an overview of the research findings.
[_Toc45343180] Action Item NTLG0306/8 : The Tax Office to arrange a presentation to interested members of the NTLG covering issues associated with the Taxpayers’ Charter review.
g. Item 20 ATO bushfire assistance. Two issues raised in discussion were:
a. Concerns that tax agents sign off not only that return is true but also that have the records, but in fact the records have been destroyed.
Response:
Section 388-70 of the Taxation Administration Act 1953 (TAA 1953) states, “If an agent gives a return, notice, statement, application or other document to the Commissioner in the approved form on behalf of another entity, the agent must, if the document so requires, make a declaration in the approved form stating that:
a) the document has been prepared in accordance with the information supplied by the other entity; and
b) the agent has received a declaration from the other entity stating that the information provided to the agent is true and correct; and
c) the agent is authorised by the other entity to give the document to the Commissioner.”
Section 900-195 of the Income Tax Assessment Act 1997 (ITAA 1997) gives the Commissioner discretion to grant relief where the nature and quality of the evidence available to substantiate a taxpayer’s claim satisfies the Commissioner that:
a) the expense was actually incurred by the taxpayer; and
b) the taxpayer is entitled to deduct the amount claimed.
In reaching this decision, the Commissioner is directed to have regard to the nature and quality of the evidence that the taxpayer has available to substantiate the claim. It is consistent with the terms of the law that no relief is available in respect of a claim where there is no supporting documentation or factual material evidencing the expense.
Consistent with the self-assessment environment, taxpayers are not required to furnish written evidence when lodging their income tax returns.
Therefore, if an agent is confident that the information in the return is true and correct, that is, based on the nature and quality of the supporting evidence and the requirements of subsections 900-195 (a) and (b) ITAA 1997, then no further explanation to the declaration is necessary.
If not already identified, a statement in the return to identify the taxpayer as being affected by the bushfires may be beneficial. This will allow the Tax Office to update its records. In this way, there will be a record held within our corporate systems if the question is raised in the future. It is expected however there will always be some records held to substantiate the return. Even where the original records have been destroyed, substitute records or at least a document outlining how the 'reasonable estimate' was ascertained would be held.
b. It may be possible to get the information but is too expensive (eg copies of cheques from bank @ $9/cheque). ATO to comment further on these issues.
Response:
Again, if it is not reasonably possible to obtain substitute documents (eg. prohibitive expense) of a lost or destroyed document, relief may be available under s. 900-195 ITAA 1997.
An officer reviewing a claim where the documentary evidence required by the substantiation provisions was incomplete, would consider the nature and quality of the evidence provided to support the taxpayer’s assertion that the relevant expense was incurred.
Paragraph 60 of Taxation Ruling 97/24 states, "In deciding ... whether it was 'reasonably possible' to obtain a substitute document, each case must be considered on its merits. A common sense approach must be applied". If the cost of obtaining such evidence was prohibitive when considering the circumstances, it would not be reasonable to expect a taxpayer to do so.
To follow on from the example where the cost of obtaining 150 cheques was $9 each, it may well be reasonable to expect a taxpayer to obtain a copy of a cheque relating to a large claim, but only require the taxpayer to obtain a bank statement listing all cheque amounts for small claims. However, it is stressed that decisions would be made on a case by case basis and that the Tax Office will take a sympathetic and common sense view when taxpayers are affected by natural disasters.
Meeting Discussion
No discussion.
h. Item 23, small business CGT relief / discretionary trust. ATO response didn’t address the questions asked, which focus on the practical aspects of what taxpayers should do in this interim period before Treasury fixes the law. ATO guidance on these points is urgently needed . Also, Treasury was asked to see if the Government could announce ASAP that law will be amended retrospectively.
Response:
The Tax Office has been unable to identify an administrative workaround under the current law. The Tax Office notes the Government has advised the professional bodies in its acknowledgment to their joint submission that it accepts that the current rules are not consistent with the policy intent of the small business capital gains tax concessions and that it is considering the issue further to ensure the best possible resolution of this issue.
Treasury has advised that work on the issues raised in the joint submission continues, and that the Government is not yet in a position to announce its final response to it.
Meeting Discussion
No discussion.
i. Item 26, Other Business. Employee benefit funds, need guidance as to deductibility when contribution is made, status of receipt in hands of employee. Was noted that ATO will look into this, and include something in the minutes if time allows.
Response:
A response has been included in the draft minutes of the 26 March 2003 meeting at Agenda Item 26.1, Redundancy Trusts and the Application of TR99/5.
Meeting Discussion
No discussion.
[_Toc45343128][_Toc36007761][_Toc35078670] 19 NTLG work program and management issues
[_Toc45343129] 19.1 Report on action items from the 26 March NTLG meeting
[_Toc39984005] Action Item NTLG0303/1 : Professional bodies to identify to the Commissioner areas where record keeping requirements could be modified to reduce impact on business, including possible practical outcomes.
Response:
Professional bodies continue to have an opportunity to provide information directly to the Commissioner.
Meeting Discussion
No discussion.
[_Toc39984006] Action Item NTLG0303/2 : The Tax Office to advise members when the draft practice statement dealing with identified issues will be released and circulate it at that time for comment.
Response:
A draft of the Practice Statement is expected to be available early June 2003. It is expected that NTLG members will be invited to nominate members for a working party to consult on the draft prior to its general release for comment.
It is expected that upon release of the draft Practice Statement the existing rulings relating to SAPs will be withdrawn.
Meeting Discussion
No discussion.
[_Toc39984007] Action Item NTLG0303/3 : The Tax Office to clarify current practices in relation to the remission of GIC in GST “wash” transactions.
Response:
Practice Statement LA PS 2003/2 has issued since the last NTLG meeting and is available on the ATO Legal Database. Its content mirrors the discussion on this issue at the NTLG meeting of 5 September 2002. Tax Office staff in GST Compliance and the Debt Lodgment area of Operations have been applying the policy since September of last year.
A taxpayer needs to provide a written submission for GIC remission detailing the facts of the case, the circumstances that led to the omission, and information in relation to the five (5) preconditions outlined in the Practice Statement that must be met for GIC remission to be available.
It should be noted that the GIC is remitted to the base interest rate if all the conditions are met, not to zero.
[_Toc39984008] Meeting Discussion
No discussion.
Action Item NTLG0303/4 : The Tax Office to provide the NTLG with the Commissioner’s view on what the Tax Office is prepared to consider in relation to remission of GIC.
Response:
To be discussed at the meeting.
Meeting Discussion
Professional bodies continue to be concerned about the Tax Office approach to the remission of GIC in a range of situations.
The Commissioner advised that Second Commissioner D’Ascenzo had spoken about reduced GIC around uncertain consolidation issues and the Tax Office had provided advice in relation to GST ‘wash’ transactions. He advised he was aware of the views of the professional bodies.
The Commissioner is waiting for a discussion paper dealing with remission of GIC canvassing a range of ideas and views. He has asked if cases or circumstances could be identified which would assist the general understanding and from which principles could be derived by the Tax Office to apply to similar situations.
The Commissioner agreed to provide a draft copy to NTLG members to assist discussions, however, did not believe this would be before the end of June 2003.
[_Toc39984009] Action Item NTLG0303/5 : Professional bodies to identify cases where they believe Tax Office staff have not followed identified practices.
Response:
Professional bodies can provide information to the Tax Office via PALU.
Meeting Discussion
No discussion.
[_Toc39984010] Action Item NTLG0303/6 : The Tax Office to re-examine ATOID 2002/1067 and clarify any technical deficiencies and the ATO position if required.
Response:
The Tax Office has reviewed ATO ID 2002/1067 and considers that the decision and the reasons for decision in the ATO ID are correct.
As stated in our original response this ATO ID only deals with the deductibility of the subscription in this particular factual circumstance. The Tax Office is currently preparing a Taxation Determination to cover more broadly the deductibility of subscriptions to periodicals, journals and information services for share investors.
The Tax Office recognises in the last sentence of the ATO ID it refers to information 'session' rather than 'service'. We are of the view that this does not cause the ATO ID to be incorrect or misleading and therefore do not propose to change this wording.
Meeting Discussion
No discussion.
[_Toc39984011] Action Item NTLG0303/7 : The ATO to examine its broad approach to providing tax technical information and how this fits with the reform program.
Response:
The Tax Office Channel Management project team has been provided with the NTLG’s views around the use of ATOIDs and will consider this in its development of a channel management framework.
Meeting Discussion
No discussion.
[_Toc39984012] Action Item NTLG0303/8 : The ATO to advise members when the draft Taxation Determination, ATO Interpretive Decisions and website materials in relation to the making and lodgment of family trust and interposed entity elections would be available.
Response:
On 7 May 2003 the Tax Office released on ‘ATOassist’, three (3) information documents on the following topic:-
Do family trust elections (FTEs) and interposed entity elections (IEEs) made for the purposes of the:
· franking credit trading measures
· company loss tracing measures
· trust loss measures
need to be lodged with the ATO?
These materials supplement the material ‘broad overview of the trust loss measures’ and ‘trust loss measures – questions and answers’ that have been on ‘ATOassist’ for a number of years.
To date, a number of ATO Interpretative Decisions, including ATOIDs 2002/1082, 2003/164 and 2003/236 have been published relating to aspects of making FTEs and IEEs. Further ATO Interpretative Decisions on FTEs and IEEs will be prepared as required.
A Taxation Determination(s) is planned to reinforce the materials released on 7 May 2003.
Meeting Discussion
See discussion at Agenda Item 17 e.
[_Toc39984013] Action Item NTLG0303/9 : The ATO to clarify requirements for trusts identified by professional bodies as not being able to comply with requirements in relation to making a family trust election.
Response:
The Tax Office has contacted the Taxation Institute of Australia (TIA) and The Institute of Chartered Accountants in Australia (ICAA) to collaborate with professional bodies in identifying particular concerns associated with the existing FTE and IEE requirements.
Talks to date have been productive. The Tax Office understands that professional bodies will supply further particulars including anecdotal evidence.
The Tax Office also notes from recent tax press the TIA and ICAA are preparing a joint submission to the Minister for Revenue and the Assistant Treasurer on this issue. “The concerns include:
· the impact on beneficiaries of discretionary trusts in terms of the 45 day rule (franking credit trading measures);
· the impact on the company loss measures (where shares in a company are held by a discretionary trust);
· there is no provision in the legislation to allow an extension of time to make a late election once a return has been lodged (for those trusts required to lodge a tax return);
· the ATO’s view is that an amended return including an FTE or IEE will not be accepted as lodging the election for a specified year.”
Meeting Discussion
See meeting discussion at Agenda Item 17 e.
[_Toc39984014] Action Item NTLG0303/10 : The ATO to: clarify the ATO position regarding proposals being made available externally prior to implementation; seek advice about releasing the NFO Donovan research results to professional bodies.
Response:
To be discussed at the meeting.
Meeting Discussion
Refer to agenda item 17, item f.
[_Toc39984015] Action Item NTLG0303/11 : The ATO to circulate the draft list of issues for consideration by the Subcommittee to all members of the NTLG.
Response:
The subcommittee met on 23 May 2003 and has agreed to take a comprehensive approach including issues on a register, therefore the list provided to the working group on 10 February 2003 will be of little value.
Additional advice will be provided elsewhere in the agenda regarding future work on compilation of issues.
Meeting Discussion
No discussion.
[_Toc45343130] 19.2 ATO Tax Practitioner Forum
The ATPF met on Friday 2 May 2003 in Melbourne. The minutes of the 7 March 2003 meeting are expected to be finalised soon. The next meeting will be held on Friday 1 August 2003 in Sydney.
The ATPF hosted a breakfast meeting with Melbourne tax practitioners prior to the meeting on 2 May 2003. This included a workshop on practice management and readiness for audits, facilitated by ATPF practitioner member Ian Thomas. The ATPF has agreed to host further breakfast sessions with practitioners prior to scheduled meetings in 2003.
Summary of significant issues
Authority
Three themes have emerged: consistency of access across all channels; legislative framework; and tax agent practices. The ATPF agreed to sponsor an Authority Working Group to examine authority issues further and is expected to commence in June 2003.
ATO program on improvements for tax agents
The ATPF was updated on the ‘single account view’ due for inclusion in the December 2003 release of the Portal. The status report – Client experience deliverables, 30 June 2003/30 July 2003 was provided and will be provided for each meeting. The ATPF agreed to sponsor a Change Program Working Party following discussion on the Proposed co-design process with tax practitioners paper.
Understanding tax agent research
The Tax Office released the findings from the understanding tax practitioner research. The research was jointly undertaken by the ATO and the professional associations as an industry profiling initiative following the 3 September 2002 meeting between the professional associations and the Commissioner. The project steering committee will examine ways to go forward with findings of the research.
Other issues discussed in the meeting
Member initiated issues are now reported via the ATPF Issues Log. The Issues log will be published to the ATO website following each ATPF meeting.
Meeting Discussion
No discussion.
19.3 [_Toc45343131] Capital Gains Tax (CGT) subcommittee report
The CGT Subcommittee last met on Wednesday 27 November 2002 in Melbourne. The next meeting is scheduled for Wednesday 11 June 2003 in Sydney.
Draft minutes for the meeting held 27 November 2002 were released 3 April 2003 to subcommittee members for comment.
[_Toc45343132] 19.4 Consolidations subcommittee report
Meetings were held on 14 March 2003 & 2 May 2003. The next meeting is planned for 23 June 2003.
Minutes and Issues Log for each meeting issued within a week of each meeting.
Summary of Significant Issues Discussed
14 March 2003
· Roles & purpose of Committee established including escalation processes for administrative and legislative issues arising.
· Sub working parties established for 5 dominant issues: Single Entity concepts, Liabilities, Accrued Profits, Goodwill and Market Valuations.
· ATO Rulings & Provision of Advice program for Consolidation discussed and priorities agreed. ATO to prioritise all work associated with Allocated Cost Amount (ACA) calculations.
· Draft principles established for Advance Market Valuation Agreements.
2 May 2003
· Draft paper concerning ATO position on application of Part IVA to pre and post consolidation events distributed and discussed. Comments called for prior to issue of final paper.
· Draft Practice Statement released for operation of Market Valuation Panel.
· Progress of discussions concerning application of credit by foreign tax jurisdictions under consolidation provided to members and feedback received.
Other matters :
1. There is a considerable level of interest for all matters associated with Consolidation.
2. Members are provided with weekly updates on progress of matters raised.
Meeting Discussion
No discussion.
[_Toc45343133] 19.5 Fringe Benefits Tax (FBT) subcommittee report
The subcommittee met on 20 February 2003. The next meeting is planned for 22 May 2003
Minutes of the 20 February 2003 meeting were released on 16 April 2003.
Summary of Significant Issues Discussed at the February meeting:
Issue 1: Employee Incentive Trusts and the Essenbourne Case – In relation to FBT, the ATO is of the view that the Federal Court’s construction of the FBT provisions in the Essenbourne Case is not correct and was inconsistent with the ATO’s understanding of the intent of the FBT law. The Tax Office considered, however, the Essenbourne Case was inappropriate for clarifying the FBT law on an appeal to the Full Federal Court given the Court’s findings that the contribution to the employee incentive trust was a profit sharing exercise of the three principals of the company. As the Court’s views about FBT in Essenbourne are not limited in their application to employee benefit trust schemes, it is the ATO’s intention to seek clarification of the FBT law through litigation of other cases.
Issue 2: Employer contributions to social clubs – The ATO will await the outcome of further litigation before the Federal Court prior to finalising the ATO view in respect of employer contributions to staff social clubs.
Issue 3: Valuation of living-away-from-home allowance – The ATO advised that, having regard to paragraphs 27 and 28 of Miscellaneous Taxation Ruling MT 2030, the information provided by an independent third party that specialises in providing international compensation data for employees working overseas is an objective method of determining the food component of a LAFHA. It is the employer who must be satisfied that the information provided by third parties is based on acceptable methodologies and is representative of the population from which it is drawn.
Issue 4: Non-cash payments of superannuation amounts – The ATO advised that if an employer makes an in-specie contribution of an asset under section 82AAC of the ITAA 36, such a contribution is likely to be subject to fringe benefits tax as it is not made by way of a ‘payment of money’. An in-specie contribution that is a fringe benefit would be subject to FBT when title to the property is transferred to the superannuation fund. The FBT exemption for employer contributions to a superannuation fund relates to the ‘making of a payment of money’.
Other issues clarified by the ATO at the meeting:
· • How the annualised kilometres of a car would be determined when there is a break in time when the car is held by the employer and in this scenario when the 1/3 reduction in the cost base of the car would apply.
· What documentary evidence is considered reasonable for employers to keep to account for days a car is not available for private use.
· The circumstances under which the ATO would consider that a car would not be taken to be available for private use.
· Circumstances when car lease charges inclusive of redundancy insurance are an operating cost of a car.
· The FBT treatment of payment/reimbursement of credit card account that has been used by the employee to obtain a cash advance.
Meeting Discussion
No discussion.
[_Toc45343134] 19.6 Foreign Source Income (FSI) subcommittee report
Meetings: No meetings have been held as they may adversely impact on the Board of Taxation’s carriage of the International Tax Review.
The ATO will consider the Committee’s future following finalisation of the Government’s position on the Board of Taxation’s recommendations.
Meeting Discussion
No discussion.
[_Toc45343135] 19.7 Superannuation Industry Liaison Group (SILG) report
The Group met on 11 March 2003 with the next meeting scheduled for 3 June 2003
Status of Minutes: Draft.
Summary of Significant Issues Discussed
Issue 1: The forum discussed the implementation of the Quarterly Superannuation Guarantee (QSG) measures. The forum was looking for more information in regards the QSG compliance plan especially the plan’s relationship with employers. It was agreed that the forum would be kept up-to-date with any new developments.
Issue 2: The accounting bodies wanted to discuss at length the project currently being undertaken that reviews the work of SMSF auditors. The main concerns here were access to auditor working papers and the overall authority of the ATO to engage SMSF auditors as part of its regulatory role. It was decided to continue discussions at a separate meeting. This meeting was held on 8 April 2003 where constructive discussions were held. The professional associations appear to be more comfortable with the Tax Office approach and a further meeting has been arranged for mid June 2003.
Meeting Discussion
No discussion.
[_Toc45343136] 19.8 GST Tax Practitioner Industry Partnership (TPIP) report
Last meeting held in Melbourne on 29 April.
Revised meeting dates for 2003:
19 August in Canberra
25 November in Sydney
Minutes: Draft minutes of 19 February meeting issued.
Summary of Significant Issues Discussed at April 29 meeting
Issue 1: Compliance and Correcting GST Mistakes
What is the Tax Office position about correcting GST Mistakes where an entity can demonstrate they were going to make the amendments in-line with the Fact Sheet concessions, but the Tax Office commences compliance action on the entity before the due date of lodgment of the current BAS? Will GIC and penalties apply?
Draft ATO Response
This response assumes in all cases that the error:
· is known by the entity;
· is within time and correction limits set out in the Correcting GST Mistakes Fact Sheet;
· is disclosed to the auditor at the commencement of the audit; and
· is a genuine mistake.
Failure to disclose a known error to the auditor at the commencement of the audit could lead to an inference that the error is not a genuine mistake.
If the error is not a genuine mistake, neither the Fact Sheet nor paragraph 39 of PS 2002/8 Administration of penalties under the new tax system, would apply to allow the entity to correct the mistake in the next BAS. Different penalty consequences would also follow.
At the commencement of each audit, the auditor will always offer the entity the opportunity to make a voluntary disclosure of any underpayment of GST. We expect that when the audit commences, the entity will immediately notify the auditor of the error and of the resulting underpayment of GST. Additionally, we expect that the entity will be able to produce evidence of its prior discovery of the error and of its intention to correct the error in the next BAS. This evidence may take the form of a journal entry in its books of account that showed a correction of the error. This must be entered into the accounting system prior to notification from the ATO of audit action. The auditor would also need assurance that the accounting system had transaction audit logs that cannot be altered or turned off.
For transactions during the second year of the GST
The auditor will apply the terms of paragraph 39 in PS 2002/8 and allow the entity to make the adjustment in the next BAS. There will be no penalty or general interest charge applied. The terms of paragraph 39 of PS 2002/8 mean that this applies whether a known error is disclosed by the entity at the commencement of the audit or a previously unknown error is discovered by the auditor during the course of the audit.
For transactions after the second year of the GST
Subject to any later practice statements covering penalties after the second year of GST, where the error arises from a genuine mistake the entity will have taken reasonable care. There will not be any penalty applied if this is disclosed at the commencement of the audit. Paragraph 39 of PS 2002/8 will not apply so that the auditor would make the adjustment in the BAS in which the underpayment of GST occurred and general interest charge would apply.
In either circumstance, where the error is considered not to be a genuine mistake, the general rules of voluntary disclosure would apply. Where an entity makes a voluntary disclosure before being told that a tax audit is to be conducted, the penalty determined based on the behaviour of the entity is reduced by 80%, or to nil if the shortfall amount is less than $1,000. If the voluntary disclosure is made after the commencement of the audit, the penalty is reduced by 20%. These reductions are not remissions but are the penalty amounts specified in Subdivision 284-D of Schedule 1 to the Taxation Administration Act 1953. The general interest charge would apply.
Issue 2 : Denial of input tax credits
Issue 2(a): What is the Commissioner’s intention in relation to penalties where a recipient has relied on a document to claim a tax invoice when the supplier is not registered or required to be registered for GST?
Draft ATO Response
The relevant penalty provisions are to be found in Division 284 of the TAA. Where a taxpayer makes a claim for input tax credits to which they are not entitled or where a taxpayer makes a claim for input tax credits and they do not hold a tax invoice at the time they make the claim (for acquisitions greater than $55), the taxpayer will have made a false and misleading statement that may result in a shortfall in a tax liability. Section 285-215 of the TAA provides that there is no shortfall to the extent that the taxpayer has exercised reasonable care in making the claim.
The Commissioner expects that a taxpayer will exercise reasonable care in making any claim for input tax credits. What amounts to reasonable care will depend upon the individual circumstances of the case. The following examples illustrate what would amount to reasonable care:
Supplier is a public company or the supplier has a high public profile and is a major supplier to the industry
In these circumstances it is reasonable for the taxpayer to expect that the supplier will be registered or required to be registered for GST and therefore that the supply to them is a taxable supply.
Acquisition results in a significant claim for ITC
Where the amount of input tax credit for an acquisition is substantial the Commissioner would expect the taxpayer to be reasonably certain that the supply is taxable supply to the taxpayer (including that the supplier is registered or required to be registered for GST) and that the document meets the requirements of a tax invoice. This may require the taxpayer checking the Australian Business Register to ensure the supplier is registered for GST. If the supplier is not registered, then the taxpayer would be expected to make inquiries with the supplier to verify that the supplier is either registered or required to be registered for GST.
Regular trading relationship with supplier
Where the taxpayer has an ongoing trading relationship with the supplier, the Commissioner would expect the taxpayer to be reasonably certain that the ongoing supplies are taxable supplies (including that the supplier is registered or required to be registered).
One off acquisitions that result in small claims for input tax credit
Where, on the face of it, the document satisfies the requirements of a tax invoice and the taxpayer has no reason to suspect differently, it is reasonable for the taxpayer to assume that the supply is a taxable supply and that the requirements for a tax invoice have been met.
Where, on the face of it, a document does not meet the requirements of a tax invoice, the taxpayer will be expected to make inquiries with the taxpayer to obtain a correct document. This may include asking for confirmation that the supplier is registered or required to be registered for GST.
Similarly, where the taxpayer has reason to suspect that the supplier may not be registered for GST, the taxpayer will be expect to make reasonable inquiries to verify that the supplier is either registered for GST or required to be registered for GST. This may require the taxpayer checking the Australian Business Register to ensure the supplier is registered for GST. If the supplier is not registered, then the taxpayer would be expected to make inquiries with the supplier to verify that the supplier is either registered or required to be registered for GST.
Where the taxpayer has not exercised reasonable care in making the claim for input tax credit, the taxpayer will be liable for an administrative penalty. Any remission of this penalty will be in accordance with the Commissioner’s normal policy for remission of penalties for false and misleading statements.
Where a taxpayer is required to be registered but is not, and you become aware of this fact, reporting this information to the ATO will improve the integrity of the new tax system. This information can be reported on our toll free hotline 1800 060 062.
Issue 2(b): What penalties can be applied to a supplier who issues tax invoices when they are not registered or required to be registered?
Draft ATO Response
There are no provisions that allow for administrative penalties to be applied to a supplier who issues tax invoices when they are not registered or required to be registered for GST.
However, there are offences that are applicable in these circumstances. Under sections 8K and 8N it is an offence to make a false or misleading statement to a taxation officer. Subsection 8J(9) provides that a statement made to a taxation officer includes a reference to such a statement made to a person other than a taxation officer for a purpose in connection with the operation of a taxation law.
Subsection 8J(10) makes it clear that a statement includes a statement made in a tax invoice or an adjustment note given to a person other than a taxation officer.
The combined effects of these provisions is that a person who is not registered or required to be registered for GST will be guilty of an offence if they provide a recipient with a document (a tax invoice) that is false or misleading in relation to the GST included in the price.
Other matters:
TPIP endorsed a new Charter. The changes to the forum include:
· Confirming the forum as a GST technical sub-committee of the National Tax Liaison Group (NTLG).
· GST administrative and compliance issues will be handled by the ATPF.
· A change of name to the GST Subcommittee.
Meeting Discussion
No discussion.
19.9 [_Toc45343137] Transfer Pricing subcommittee report
The subcommittee has not met since the last NTLG meeting. The next meeting is scheduled for 3 June 2003 in Sydney. A report of this meeting will be made available at the next NTLG meeting.
Meeting Discussion
No discussion.
[_Toc45343138] 19.10 GST Rulings Panel report
Meetings and Minutes:
During the period 1 March 2003 to 31 May 2003, the GST Rulings Panel will have convened on three occasions.
Meeting – 27-28 March 2003
At the GST Rulings Panel meeting held on 27 and 28 March 2003, the Panel considered and provided advice on:
· an issues paper dealing with the application of the GST law to various circumstances arising in the context of Retirement Villages (particularly issues about different retirement village structures and payments);
· a draft GST Ruling on reduced input tax credits under Division 70 of the GST Act and regulation 70 of the GST Regulations;
· a scoping paper on Insolvency issues; and
· a draft GST Determination on the acquisition of market valuations for consolidation purposes .
Meeting – 30 April 2003
At the GST Rulings Panel meeting held on 30 April 2003, the Panel considered and provided advice on:
· a further issues paper on the application of the GST law to scenarios arising in the context of Retirement Villages (particularly, issues around the acquisition of shares); and
· an issues paper on the Assignment of Income Streams.
Meeting – 22- 23 May 2003
The next GST Rulings Panel meeting is scheduled to be held on 23 May 2003.
At that meeting the Panel is scheduled to consider and provide advice on :
· a draft GST Ruling on GST and Representatives of an Incapacitated Entity.
‘Out of session’ consideration
During the reporting period, the GST Rulings Panel also considered a number of proposed GST Rulings ‘out of session’. All of these had previously been considered ‘in session’ by the Panel and were circulated to indicate to members any changes that had been made in progressing the Ruling. These were:
· A proposed GST Ruling dealing with Trade Exchanges;
· A proposed GST Ruling on Reduced Input Tax Credits;
· A proposed GST Ruling dealing with the Financial Acquisitions Threshold.
Summary of Significant Issues Discussed (at meetings during the period)
Issue 1: Consideration of an issues paper dealing with the application of the GST law in the context of Retirement Villages
The Panel discussed issues arising in the context of retirement villages such as their various structures and the different payments made in order to participate in a retirement village scheme. Panel discussion included examining whether maintenance fees paid by a resident to an operator of a retirement village may be consideration for a mixed supply with the need to apportion amounts paid. The Panel also discussed the correct GST treatment of payment of a deferred management fee and the circumstances in which it may be paid.
Issue 2: Consideration of a draft GST Ruling on Reduced Input Tax Credits
The Panel discussed the correct analysis for determining whether various acquisitions in the financial supply context would come within an item in regulation 70. In particular, the panel discussed the scope of certain items and how to interpret terms such as ‘processing services’ and ‘bulk mailing’.
Issue 3: Consideration of a Scoping Paper on Insolvency Issues
The authoring team presented a scoping paper that identified a number of issues the team proposes to address in a public ruling, including registration issues and the interaction of Division 147 with other provisions in the GST Act. The Panel advised the authoring team to conduct further research and seek practical advice on the topics raised.
Issue 4: Consideration of a draft GST Determination on the acquisition of market valuations for consolidation purposes
The Panel discussed whether the acquisition of market valuations for consolidation purposes in particular circumstances are a creditable acquisition for GST purposes.
Issue 5: Consideration of a further issues paper on the application of the GST law in the context of Retirement Villages
The Panel discussed whether shares in a retirement village are excluded securities and consequently not input taxed as a financial supply. The Panel also discussed the ways in which residents may acquire rights and interests relating to residency in retirement villages and the correct GST treatment of those rights and interests.
Issue 6: Consideration of an Issues Paper on the Assignment of Income Streams
The Panel discussed the circumstances in which the assignment of a right to an income stream may fall within the description of the matters listed in item 2 of sub regulation 40 5.09(3) of the GST Regulations.
Meeting Discussion
No discussion.
[_Toc45343139] 19.11 International Tax Rulings Panel report
The Panel has met on 11 March 2003, 14 March 2003, and 11 April 2003. The next meeting is scheduled for 15 and 16 May 2003.
Summary of Significant Issues Discussed:
Consideration of TR2002/D11: Royalty Withholding Tax Implications of Chartering arrangements. The Panel has considered the draft and is preparing to issue it as a final.
Consideration of a draft ruling on Central Management and Control (statutory test) for company residency.
Consideration of a Draft Cost Contribution Arrangements ruling. A consultation document was distributed to the Transfer Pricing Subcommittee of the NTLG (in late February), and the comments received are being considered.
Other matters:
A number of draft rulings have been released for comment – in particular:
International Hiring of Labour: clarification of the application of Dependent Personal Services Article in DTAs (TR 2003/D1). Comments were received by the due date and are being considered.
Foreign Investment Funds – Conversion of UK Employer and Superannuation Funds to Personal Pensions (TR 2003/D2). Comments are due in mid May.
Meeting Discussion
No discussion.
[_Toc45343140] 19.12 Litigation Panel report
No meetings have been held since the last NTLG meeting.
Meeting Discussion
No discussion.
[_Toc45343141] 19.13 Part IVA Panel report
Kevin Fitzpatrick is still considering what useful information can be provided to the NTLG.
Meeting Discussion
The Commissioner advised he had received some advice from First Assistant Commissioner Kevin Fitzpatrick he would include in the minutes.
The following material was provided on the day of the meeting:
Kevin Fitzpatrick has advised he intends to release Taxpayer Alerts around issues coming from the Panel and that the Panel will no longer report to the NTLG, given the comments from members that previous reports served only to cause concern and Tax Office concerns additional information could identify taxpayers, even if unwittingly.
[_Toc45343142] 19.14 Public Rulings Panel report
During the period 1 March 2003 to 5 May 2003, the Public Rulings Panel (the Panel) met on two occasions. The April meeting was rescheduled for 1-2 May in consideration of the Easter and Anzac Day public holidays. The next meeting of the Panel is scheduled for 29- 30 May 2003.
Summary of Significant Issues Discussed
Consolidations : deductibility of valuation expenses incurred by a subsidiary- is expenditure incurred by an entity for the purposes of either entering into a consolidated group as a subsidiary member or working out the future income tax liability of a consolidated group of which it would be a subsidiary member an allowable deduction to that entity under section 25-5 of the ITAA 1997? Taxation Determination TD 2003/11 issued 30 April.
Consolidations : deductibility of valuation expenses incurred by a head company- is expenditure incurred by a head company in obtaining valuations in respect of the formation of a consolidated group or entities joining a consolidated group an allowable deduction? Taxation Determination TD 2003/10 issued 30 April.
Partnership salaries : what is the correct basis for treating amounts paid to partners as salary when determining the net income or partnership loss of a partnership under section 90 of the ITAA 1936 and the assessable income or allowable deductions of a partner under section 92 of the ITAA 1936? Draft ruling has finalised. Consideration is being given to its date of effect.
Distribution made by a company : what amount is included as a dividend in the assessable income of a shareholder if the company distributes property to the shareholder and debits its share capital account in respect of the distribution? Taxation Ruling TR 2003/D3 issued 9 April.
Employee share scheme class ruling : is there a CGT loss or disposal of rights where there is a variation under an employee share scheme? Does the variation give rise to a cessation time under section 139CB? Class Ruling under consideration by DCTC.
Farm management deposits : the definition of financial institution for the purposes of the farm management deposit scheme. Further consideration is being given to policy issues.
Interest deductions : ruling considering the deductibility of interest incurred prior to the commencement of, or following the cessation of, relevant income earning activities in light of the decisions of Steele, Brown and Jones. Ruling to be reviewed out of session in May.
Consolidations : same business test- options paper intended to provide the basis for determining the ATO views on the application of the same business test to any company seeking deductions for prior year tax losses/ net capital losses, bad debts, current year tax losses/ net capital losses and unrealised tax losses where the company is, in the year or years in the deduction is claimed, the head company of a consolidated group or MEC group. Draft ruling is being prepared, having regard to the outcome of Panel consideration.
The deductibility and assessability of advance swap payments : discussion paper outlining the ATO position and alternative arguments; and whether payments made under a swap are on revenue account or more appropriately determined on a profit emerging basis. Draft ruling is being revised and will be reconsidered out of session in May.
Living away from home allowance : discussion paper addressing what is a person's 'usual place of residence'; determination of the 'exempt accommodation component'; whether intra-city movements and backpackers qualify for LAFHA; and the meaning of 'additional expenses'. MT 2030 to be reviewed and incorporated into a more comprehensive taxation ruling.
Protective items : the deductibility of expenses incurred in protecting oneself from the risk of illness or injury posed by the environment in which one carries out income earning activities following the decision in FC of T v Morris & Ors. Ruling is being revised and will be reviewed out of session in May.
Other matters
Several matters were considered out of session in the period. These were partnership salaries (as above); the deductibility of valuation expenses incurred by a subsidiary and a head company (as above); non-commercial losses; three Simplified Tax System determinations; and boat hire arrangements.
Meeting Discussion
Professional bodies were concerned about the progress of a ruling around consolidations and the ‘same business test’ and that Treasury were waiting for the Tax Office’s administrative view.
Second Commissioner D’Ascenzo advised the Tax Office is exploring a view the subsidiary history rule could be for the ‘same business test’, however, this raises a timing issue which is currently being worked through. He also noted Treasury were being kept informed.
19.15 [_Toc45343143] Regulatory Framework report
The consultative paper was provided to Treasury last November with a request that approval be sought for it to be released for broad consultation.
Treasury are currently liaising with the Minister for Revenue and Assistant Treasurer, the Attorney General’s Department and the Department of Prime Minister and Cabinet to determine how the Government wants to proceed with the proposals.
Meeting Discussion
No discussion.
[_Toc45343144] 20 Other Business
[_Toc45343145] 20.1 Consultation and impact on tax agents community: Valuation of assets for self-managed superannuation funds - SC 2003/1
Superannuation Circular states that, despite AAS 25 only applying to reporting entities and most SMSFs are non-reporting entities, SMSFs should value their assets at their net market value as at the reporting date.
The NTAA concern about this is that, to our knowledge, there has not been any consultation on this issue. In practical terms, there are currently 135,000 SMSFs, growing by some 1,000 more every month. This measure means that, at short notice, all of these funds will need to value their assets by 30 June this year.
The NTAA would like to ensure that in future due regard should be taken of the effect on the tax agent community as well as the general tax community.
Given the above, system change would need to involve a process whereby material matters (to the tax agent community) would “float up” to management for consideration prior to issuing any ATO views.
Response:
To be provided at the meeting.
Meeting Discussion
Lesley East (Assistant Commissioner Superannuation) attended for this item.
Professional bodies were concerned there was no consultation prior to the issue of the Superannuation Circular. Lesley advised that industry had requested the Tax Office put forward its preferred approach on the valuation of assets, indicating that taxpayers were not bound by this view.
The following material was provided on the day of the meeting:
The Tax Office has a history of listening to, and extensively consulting with, industry in relation to Self Managed Superannuation Funds (SMSFs). Superannuation Circular 2003/1 was issued following a number of requests from industry for clarity on the matter of Valuation of SMSF Assets. It outlines the Tax Office preferred approach for the valuation of assets. The method is optional, and if adopted is not meant to impose additional costs. The circular outlines how trustee/ members themselves can value assets, should they choose to do so.
The circular reiterates the view set out by the Australian Prudential Regulation Authority (APRA) in their Addendum to Circular No. IV.A.4 (see Attachment 2 ). As such, this approach is not new.'
[_Toc45343146] 21 Next meeting
The next meeting of the NTLG is scheduled for 9.30am on Tuesday 2 September 2003 at the Australian Taxation Office, 2 Constitution Avenue, Canberra.
[Attachment1][_Toc45343148] Attachment 1: Tax Office media release 2003/51
30 May 200[ReleaseNo]3 2003/51
Tax Office acts on capital protected products
The Tax Office has acted to address market uncertainty on product rulings following today’s announcement by the Government of its revised tax treatment of capital protected products.
On 16 April 2003, the Government announced it would amend the tax law to ensure part of the expense on a capital protected product is attributed to the cost of the capital protection feature, is not interest and is not deductible where this cost is capital in nature.
As an interim measure, the Government has announced an approach to apportion the expense on a capital protected product between the interest on the loan component and the cost of the capital protection component. (Minister for Revenue, press release no. C046/03, May 2003)
The interim costing method announced by the Government reflects the approach adopted in previous product rulings issued by the Tax Office.
A typical capital protected product involves an investor using a limited recourse loan facility to buy shares. The investor is protected from any fall in the price of the shares by a feature that gives them the right to transfer the shares back to the lender for the amount outstanding on the loan.
Tax Commissioner Michael Carmody said the Tax Office would continue to issue product rulings in relation to capital protected products which have a full or limited recourse loan and a separately identifiable put option where the cost of this put option is based on the methodology announced by the Government.
“The terms of the put option must enable the borrower to transfer the securities back to the lender for the balance outstanding on the loan,” Mr Carmody said.
“This approach will apply to those capital protected products used to acquire listed shares, units or stapled securities.”
“In the case of listed instalment warrants we will similarly apply the costing methodology announced by the Government.”
“Existing product rulings on products which have a limited recourse loan with a separately identifiable put option, where the cost of this put option is based on the methodology the Government has announced, will still have effect,” Mr Carmody said.
[Attachment2][_Toc45343149] Attachment 2: Australian Prudential Regulation Authority – Addendum to Circular No. IV.A.4
AUSTRALIAN PRUDENTIAL REGULATION AUTHORITY
SUPERANNUATION CIRCULAR
NO. IV.A.4
RESPONSIBILITIES OF THE
APPROVED AUDITOR
FEBRUARY 2001
(Addendum to Circular No. IV.A.4 of
August 1999)
ADDENDUM - FEBRUARY 2001
Circular IV.A.4 was issued in August 1999 to outline auditing requirements in relation to superannuation entities for the 1998/99 year of income. In paragraph 2 it was noted that this Circular also provides additional information about the expectations of APRA with respect to audits of superannuation entities.
The purpose of this addendum is to inform trustees and approved auditors that APRA intends that financial reporting for all superannuation entities should be required to be on a market value basis.
APRA recognises that, following the transfer of the regulation of self managed superannuation funds to the Australian Taxation Office, there may still remain some small APRA regulated funds that can, in the professional judgement of the auditor, appropriately be classified as non-reporting entities. At present auditors of such entities preparing special purpose accounts may not apply AAS25 in full, and to this extent assets may not be recognised at market value in the financial statements of the fund.
APRA will continue to rely on the audit profession to ensure that superannuation funds are given the appropriate reporting definition. However, regardless of whether the approved auditor has determined that the fund is a reporting or non-reporting entity, market value accounting should be used for the year of income ending 30 June 2001. For this purpose, APRA has requested amendment of the relevant regulations prior to 30 June 2001.
The move to market value reporting for all funds will ensure that members' benefits reported in the annual statements of a fund are reflective of all market value movements during the reporting period as well as providing for a consistent accounting approach for all superannuation assets. Part 8 of SIS has required market value reporting in respect of new in-house assets since its commencement and of existing in-house assets since the 1998/99 year of income.
The requirement in section 112 to provide a statement of cash flows is under review by APRA. Previously, excluded funds (those with fewer than 5 members) were exempted from this requirement. Now, the exemption only applies to self managed funds, not to APRA regulated funds with fewer than 5 members.
APRA proposes to update and reissue Circular IV.A.4 in full when these matters have been finalised. In the meantime, trustees and auditors should prepare to move to market value accounting and reporting for all APRA regulated funds for the 2001 year of income.
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