[H1] Meeting details
The Accounting Working Group (AWG) met on Friday 3 September 2004 at ICAA, Level 15, 37 York Street, Sydney.
Attendees
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John Becker (Chair)
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Tax Office
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Apologies
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Scott Hooper
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Tax Office
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Secretariat
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Marilena Bressan
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Tax Office
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[H2] Agenda items
Please note: Accounting Working Group agendas, minutes and related papers are not binding on the Tax Office 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.
1 Opening and introductions
Meeting discussion
John Becker opened the meeting.
The Chair welcomed everyone and the members introduced themselves to the group.
2 Confirmation of minutes from 6 August 2004 meeting
Meeting discussion
Minutes accepted.
3 Review of action items from 6 August 2004 meeting
[H6]Action item AWG 060804/01
Jacob Fendekian to forward information regarding proposals for the Change Register to John Becker who will investigate and report back to the group.
Status: Completed
Meeting discussion
The suggestions raised have been placed on the Change Program Register.
[H7]Action item AWG 060804/02
Jean Hill to contact Personal Taxes and advise them of the suggestions to provide bank account details when lodging income tax returns.
Status: Completed
Meeting discussion
Jean Hill has passed this suggestion on to the team that looks after Tax Time issues. This team is responsible for publishing on the website and in paper.
[H8]Action item AWG 060804/03
Marilena Bressan to investigate the case raised by John Mikes and ascertain why a refund issued and why it was paid to a particular account.
Status: Completed
[H9]Action item AWG 060804/04
Glenda Moon to contact CPA Australia to obtain details of the case involving the activity Statement problem.
Status: Completed
The CPA has advised that the Tax Agent is satisfied with a general response and they consider the matter closed.
[H10]Action item AWG 060804/05
Jean Hill to provide a summary of TR97/21 - Income Tax Record Keeping - Electronic Records. Steve Fellows to arrange for the summary to be published on the portal.
Status: Completed
Meeting discussion
Jean Hill reported that it is not be possible to have the summary of the ruling published on the portal. Jean has arranged for the summary to be published on the Tax Office website under Practical Tips for Tax Practitioners. The summary will include a link to ruling TR97/21.
[H11]Action item AWG 060804/06
Glenda Moon to contact Lionel Cowan to obtain details of the cases for follow up.
Status: Completed
4 Update of Portal enhancements
Meeting discussion
Steve Fellows led the discussion on Portal enhancements.
Release 7 was implemented successfully on Monday 16th August. The major changes to the Portal include the:
¦ introduction of real-time processing of activity statements;
¦ ability to lodge activity statement revisions online; and
¦ addition of certain client update functions previously only available via ELS.
Bob Duncan stated that the Portal enhancements are excellent and he uses the Portal whenever a client comes into the office. The members concurred that the enhancements are first rate and suggested that the benefits need to be publicised. John Becker suggested that we use tax agents to help publicise the benefits of using the Portal.
Action item AWG 030904/01: Steve Fellows to arrange for an article featuring the benefits of the Portal to be published in the TAXAGENT Newsletter. The article is to be circulated to the AWG members who can include it in their publications if they wish.
Bob Duncan had a problem with a self lodger that came in to have his return prepared this year. The client was very reluctant to provide his bank account details as he said the Tax Office already had them. The client was advised that the bank account details were necessary as the return was being lodged electronically. Bob reinforced that it is important for the Tax Office to make it a requirement that bank account details be provided every year. Bob was aware that the BSB number provided by the client was incorrect however the client was adamant that it was right. John Mikes advised that there is a book available that lists all of the BSB numbers and costs approximately $40. The listings are in both alphabetical and numerical order and John has found it very useful. Information regarding BSB numbers may also be available on the internet.
Action item AWG 030904/02: John Mikes to provide details of the publication which lists BSB numbers alphabetically and numerically. This information will be circulated to the AWG members.
The Tax Office must direct refunds to the nominated account. Problems have occurred when BSB numbers have been changed and the Tax Office has not been notified. The question was asked what information the Tax Office transmits with EFT refunds, is it just the BSB and account number or does it also include the name. All three are transmitted, however there are problems matching with names unless there is a perfect match. Jacob Fendekian stated that he is very reluctant to use EFT for refunds in case the refund goes to the wrong account. Jean Hill advised that the Tax Office is trying to encourage the use of EFT. There is an internal policy to help to recover amounts that have been electronically forwarded to the wrong account. If the Tax Office made the error the client will be reimbursed.
It is rare when someone quotes an incorrect BSB or account number for a refund to go to an actual account, it usually rejects. David Diment advised that every week the Registrations area update the financial institution details (FID) for approximately 1,800 clients as well as capturing 1,000 new FID's. There needs to be more work done to show tax agents the benefits of using EFT. There was a suggestion that tax agents could be asked to provide details of what they think the problems are and the Tax Office could respond.
Action item AWG 030904/03: Marilena Bressan to investigate the problems and benefits associated with using EFT for refunds and present the findings to the group.
Steve Fellows advised that the functionality regarding CBCD transactions, which was previously only available on ELS, is now available on the Portal. Michael Payne-Mulchay asked if a client changes tax agents, can the new tax agent change the client's details on the Portal. Michael raised this issue as he had a practitioner who has asked "what is there to stop somebody taking my client without my knowledge". The answer is yes the CBCD functionality allows you to change tax agents on the Portal. Michael asked whether it would be worthwhile building functionality into the Portal to alert people that you need to have sign off from the previous tax agent. The members felt that this was not the responsibility of the Tax Office but was an ethical issue. Under the code of conduct you should let the previous tax agent know that you have taken on a new client. Once the client details have been updated the previous agent can no longer view the client on the Portal.
Patrick Chan asked whether it is possible to have more information on the Portal regarding the Family Tax Benefit (FTB), particularly in relation to the Part B entitlement. David Diment advised that there have been discussions with Centrelink, however tax agents are not recognised as intermediaries under Centrelink legislation, therefore the information cannot be provided. Steve Choi pointed out that the FTB calculator is very useful. The timing of the $600 FTB benefit is an issue for tax agents as clients can be told to lodge a return to get the money even though they receive fortnightly benefits.
Release 7.1 will occur on 30th October and will include enhancements around the NTS effective dates. In November the Super Safety initiatives will be introduced. Release 4.4 is scheduled for implementation in December 2004. Details of the initiatives included in release 7.1 and 4.4 are provided in the minutes of the 6th August meeting. The Family Trust Election (FTE) proposals have progressed to a concept brief. Steve Fellows will provide further information at the next meeting on a possible release date.
5 Account structure
Meeting discussion
When the Tax Office implements the Change Program it will introduce a new accounting methodology and structure. Steve Fellows presented an example of the proposed new accounting structures to the group. The accounting structures are still being developed and have not been signed off yet. The examples show the difference between the current system where payments are applied to the balance of the RBA and the new system where payments are apportioned to individual liabilities.
There has been a ruling form the Policy & Practice area that all primary taxes will be on a single RBA account. If it is not a primary tax it cannot be on the RBA. The following examples were presented of how accounts may be structured for common business and non-business structures.
¦ Individual Non-Business. One RBA with an annual return. If there is a HECS liability it is on a separate account as HECS is a contingent liability. Actual HECS assessment liabilities are included with the income tax liability;
¦ Business with one RBA. One RBA with multiple roles. There will be an RBA summary account and sub accounts for each active role;
¦ Business with multiple accounts. One RBA with multiple roles. There is a separate account for Excise Grant as this is covered by specific legislation and cannot go on the RBA. There is a separate account for Excise Collections as no GIC can be imposed on outstanding amounts and this makes it difficult to administer on the RBA;
¦ Business with multiple RBA's. Multiple RBA's with multiple roles. Business has a branched structure for purposes of GST and Income Tax Withholding (ITW). Implications of multiple RBA's are: separate BAS's per RBA; separate payments per RBA; GIC calculated per RBA; a separate statement per RBA; and debit and credit offsetting occurs across RBA's. The offsetting rules may be expanded as there are cases where you would not want to offset amongst the branches. For example an education department with multiple schools. You would not want the refund due to one school to be offset against the debt of a different school;
¦ Business Consolidations. Once the group consolidates the head company takes over the reporting and payment obligations. The subsidiary companies will still have reporting obligations for GST & ITW. As you come in and out of a consolidated group the subsidiary will be exempt for the time that they were part of the consolidated group;
¦ Business Joint Venture. The new system will be able to cater for joint ventures. The entity which is responsible for reporting for the joint venture will report the joint venture on one BAS and their own obligations on a separate BAS;
¦ Individual enters Bankruptcy. There are approximately 13 - 14 different scenarios. The new system will be able to cater for bankruptcy and insolvency in the same way that it does now;
¦ Partnership. As with current arrangements income tax is not recorded against the partnership.
Michael Payne-Mulchay asked whether there have been any decisions made regarding archiving of data. Steve replied that this issue is being considered at the moment.
Steve presented to the group the following examples of BAS lodgement scenarios over a four month period:
¦ July BAS lodged 20th August - lodge and pay the right amount. The July reporting period would be closed and would only be opened again if there is an amendment;
¦ August BAS lodged 15th September - lodge and don't pay anything. Once you pass the due date it would be referred to the Debt & Lodgment system for appropriate action which is determined by the amount outstanding and the clients history;
¦ September BAS lodged 21st October - lodge and pay a greater amount. When the payment does not match it is apportioned according to the receivables management policy. In this case it would be allocated to the oldest debt first, which is August, and the priority role is GST, ITW, income tax and then GIC. The rules around what constitutes an exact match are still being determined. Allocating payments to the August period will trigger a GIC calculation. Payment is allocated to the GIC for the August BAS and then this period is closed. The balance of the payment is then allocated in accordance with the receivables management policy i.e. to the GST liability for September;
¦ October BAS lodged in November - lodge and pay the right amount. The October reporting period is closed leaving the September period open. This highlights the difference between the current system where payments are allocated to the RBA balance and the new system where the current period can be closed and earlier periods remain open.
When a financial transaction goes on to an account GIC will be updated. It is still being determined whether the GIC will be posted to the account at the time of the update or on a monthly cycle. Similarly the question of when GIC will be notified is being examined. If there is an amendment to a period it will trigger a recalculation of GIC. The benefit of the new system is that if fits with the traditional zero based accounting methods, it also removes the need for the Tax Office to reconstruct accounts manually. Taxpayers often approach the Tax Office and state that they have lodged all their activity statements and they want to know how much GST etc they have paid. Under the new system this information will be available.
6 Trends in TFN/ABN registrations
Meeting discussion
David Diment led the discussion which follows on from the dialogue at the June 2004 teleconference.
A three page attachment detailing increases in individual, superannuation fund and trust registrations was distributed. David is responsible for the Australian Business Register (ABR) and the client registers for the Tax Office. The first page of the handout looks at individual registrations. The Tax Office receives approximately 600,000 ABN applications per year with 92% being lodged via the web or ELS and 8% via paper. Approximately half of the ABN applications are made by individuals and of these individuals 50% do not have any other tax role. These individuals are not running a business and do not have an obligation to lodge business activity statements.
In the past if you applied for an ABN you were given one and placed on the ABR. When you apply for an ABN you have to sign a declaration that you are running a business. Recently the Tax Office has been surveying the individuals that have recently applied for an ABN. Following the survey half of the people who obtained ABN's surrendered them back to the Tax Office. Some of the reasons provided for applying for the ABN included, to obtain a cheap mobile phone, and having a baby. The Tax Office is now going through the ABR and is looking at individuals that are not running a business, employees, and people who are not legally entitled to an ABN eg apprentices, minors etc. There will be alerts placed on the electronic application which will bring a prompt screen asking "are you sure you are running a business". At this point in time The Tax Office has not taken anyone off the ABR it has all been voluntary, this will now change.
Maria Benardis raised the issue of individuals that have an ABN and lodge tax returns, however they are not conducting an enterprise and should not have obtained an ABN. The reason they obtained the ABN was because they have some contract work and are trying to avoid being an employee. The issue of contractor v employee is not a new problem and the Tax Office is grappling with it. The problem arises from both sides, individuals that do not want to be an employee and businesses that do not want to employ staff. An example was given of a sixteen year old girl that teaches dancing on the weekend at a ballet school. The girl was advised that she had to have an ABN or the ballet school would not give her a job. State governments have similar issues with contractor v employee with regard to work cover and payroll tax.
Lionel Cowan asked a question regarding a non-profit organisation. If a non-profit organisation has a turnover of $20,000 per year do you have to apply for an ABN. The answer is that yes you would register for an ABN for the purpose of carrying on a business, however you do not have to register for GST. David advised that not for profit is an area that is being examined as some not for profit organisations think that they are exempt from all taxes.
There has been a large increase in Superannuation fund registrations believed to be associated with the popularity of Self Managed Superannuation Funds. There have also been significant increases in the number of trust registrations. Lionel Cowan pointed out that the poor performance of the major superannuation funds has encouraged people to set up their own Self Managed Superannuation Fund. Bob Duncan pointed out that the average costs involved in administering a self managed fund are high and you need to generate significantly higher income to make it worthwhile.
At the June teleconference it was pointed out that the main reasons for the popularity of trusts are the CGT treatment, asset protection and estate planning. When the proposed changes to the Bankruptcy Act did not proceed trusts became much more attractive. Many people who had been holding off setting up a trust due to the uncertainty decided to proceed. Lionel Cowan advised that another reason people had trusts was to try and save money on workers compensation however, the legislation has changed to prevent this. Bob Duncan believes that a lot of people are getting the wrong advice as the administration costs and accounting fees in setting up and operating trusts can be high. You may have been better off to simply pay the tax. David Diment pointed out that 92% of ABN applications are being submitted by tax agents. Toby Meller advised that when clients are advised that they can make the application themselves they almost always ask the agent to do it. Steve Choi advised that trusts offer freedom with regard to distribution and are cheaper to set up than companies.
David Diment asked if the members would be interested in reports at future meetings on trends in registrations for various categories of clients eg not for profit. The consensus was that this would be valuable.
John Becker raised the issue of clients communicating with the Tax Office via paper rather than electronically. David Diment informed the members that approximately 50% of clients forward their requests for digital certificates to the Tax Office by paper and a significant number of clients never use their digital certificate. Steve Choi felt this could happen because it is easy to say that you want to deal with the Tax Office electronically but when you get your certificate, e-mail, cd etc it can be very daunting. Maria Benardis felt that clients have a different perception regarding what the question about dealing with the Tax Office electronically means. Maria believes that clients do not think this question relates to lodging a BAS electronically, rather that it is a means for the Tax Office to filter industry specific information to them.
Steve Choi pointed out that one of the requirements for importers or wholesalers with regard to GST is to lodge the BAS on line. This can only be done via Electronic Commerce Interface (ECI), you cannot use ELS to lodge the BAS for these clients. To access ECI you have to apply for the digital certificate. Steve would like to know if this function could be placed on the Tax Agent Portal. David Diment advised that a security threat risk assessment found that because of the nature of the information available on the Tax Agent Portal that access should be through a Public Key Infrastructure (PKI) regime and that the pin and password is insufficient. Steve Fellows advised that there are plans to move the Tax Agent Portal to the PKI platform. Steve Choi was interested to know how many ECI clients there are at the moment. This information was not available at the meeting and the growth of the business portal will be put on the agenda for the next meeting.
Action item AWG 030904/04: Currently a BAS for importers or wholesalers with GST responsibilities can only be lodged using ECI. Steve Fellows to investigate whether this type of lodgement is on the agenda for inclusion on the Tax Agent Portal.
Action item AWG 030904/05: Steve Fellows to arrange for information to be provided on the growth of the Business Portal.
7 Administration of PAYG instalments
Meeting discussion
The discussion was led by Garry Schneider.
Garry has been asked by Murray Crowe to look at the PAYG instalment system and the Tax Office administration of it. Garry is looking at the entire end to end process not just accounting. This includes why people are in or out of the system and the relationship with intermediaries such as tax agents. Garry is seeking feedback regarding irritants or any suggested improvements. Lionel Cowan raised the issue of annual payers and suggested that the annual payment which is currently due on the 28th October be brought forward to the 30th June. Bob Duncan pointed out that a lot of clients would not have their figures ready by this time.
Garry advised that when the new tax system was introduced there was an interim arrangement where the annual instalment had to be met prior to the end of the year. In the mature system that date was moved to the 28th of October to align with other obligations. The Lodgment Working Party has looked at this issue, and it has been raised with Treasury. The 28th of October is a legislative due date and the Tax Office has been unsuccessful in its attempts to have the date shifted.
John Mikes advised that the AWG has put a lot of effort into looking at the irritants involved with PAYG and particularly with regard to the annual instalment earlier this year. It was agreed that short of legislative change there was little that could be done. There were still irritants but they could only be removed by legislative change. Garry will refer to the minutes for details and seek feedback from the AWG after the 28th of October regarding the annual instalment.
Garry also has the task of investigating an ATPF action item regarding producing fact sheets or practical tips on PAYG. John Mikes believes that the request was not to revamp the suite of products but to issue a consolidated pack. The request was more along the lines of can we have somewhere that this information is all in one package. Bob Duncan is happy with the way the forms are positioned on the Tax Office web site as it is easy to locate what you are looking for. It may not be practical to produce a consolidated package as it would require updating every time there is a change to one of the items in the package. The consensus of the meeting was that it is not practical to produce a consolidated package and the ATPF action Item should be finalised.
Garry asked whether there were any problems that have emerged at this stage with regard to annual instalments. Bob Duncan stated that if you lodge a tax return and have not paid the annual instalment it will automatically adjust so it will not be an issue. Feedback from some agents indicates that when a tax return is lodged electronically and a paper annual instalment variation is lodged at the same time, it results in the income tax return being processed before the instalment variation. If you lodge your return before the variation request is processed and your annual instalment is not yet due your annual instalment will change. The Lodgment Working Party has had extensive discussions on this topic.
8 Action items raised by members
Meeting discussion
ETP Terminations Assessment - Lionel Cowan
I would like to have the following problem discussed at our next meeting.
One of my clients received an ETP amounting to $71,000 during July 2003. This ETP was included in the taxpayer's 2003 income tax return and assessed in the 2003 year. On the 16th August 2004 the taxpayer received a Termination Payment Tax Assessment amounting to $10,650, being 15% of $71,000.
This assessment has caused our client a great deal of hardship. If this assessment had been issued when the income tax return was assessed, it would have been easier for the taxpayer to meet his obligations.
The question is could the Termination Payments Assessment be issued at the same time as the Income Tax Assessment, bearing in mind that the department would have access to all the relevant documents.
David Diment responded. David circulated a document titled "How to Establish whether a Superannuation Surcharge liability exists and the rate at which the surcharge is to be applied?". The question raised by Lionel Cowan is basically if the termination payment assessment is based on amounts reported in the income tax return why both assessments can't issue at the same time. David Diment will investigate this further and report back. It was suggested by members that as there can be a significant time lag between when the income tax assessment and the termination payments assessment are issued, that the clients concerned be issued with some type of warning. This could be a flyer that issues to the taxpayer or a warning message in the software that is used to prepare tax returns.
Action item AWG 030904/06: David Diment to investigate the issue raised by Lionel Cowan regarding clients that have received an ETP receiving termination payment assessments at a later date. David to also investigate ways of alerting clients that they may receive a termination payment assessment in the future.
9 Other business
Meeting discussion
John Becker advised that as a consequence of an election being called, the Small Business Measure Bill has elapsed. The Tax Office can no longer progress the following initiatives:
¦ elect to calculate and report GST annually;
¦ annual private apportionment of creditable purpose; and
¦ GST instalment election (roll over).
In anticipation of the legislation being passed approximately 4,000 clients have made an election to report GST annually. These clients now need to revert back to their previous reporting cycle either monthly or quarterly. Clients who have had an annual election processed will receive an explanatory letter with their September activity statement. There is other legislation that did not get through including annual re-election of instalments.
10 List of action items
Action item AWG 030904/01: Steve Fellows to arrange for an article featuring the benefits of the Portal to be published in the TAXAGENT Newsletter. The article is to be circulated to the AWG members who can include it in their publications if they wish.
Action item AWG 030904/02: John Mikes to provide details of the publication which lists BSB numbers alphabetically and numerically. This information will be circulated to the AWG members.
Action item AWG 030904/03: Marilena Bressan to investigate the problems and benefits associated with using EFT for refunds and present the findings to the group.
Action item AWG 030904/04: Currently a BAS for importers or wholesalers with GST responsibilities can only be lodged using ECI. Steve Fellows to investigate whether this type of lodgement is on the agenda for inclusion on the Tax Agent Portal.
Action item AWG 030904/05: Steve Fellows to arrange for information to be provided on the growth of the Business Portal.
Action item AWG 030904/06: David Diment to investigate the issue raised by Lionel Cowan regarding clients that have received an ETP receiving termination payment assessments at a later date. David to also investigate ways of alerting clients that they may receive a termination payment assessment in the future.
Next meeting
The next meeting will be held on Friday 8 October 2004.
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