|
MINUTES |
NTLG members |
30 August 2011 |
Unclassified |
|
format |
Audience |
Date |
Classification |
|
National Tax Liaison Group
FOR THE MEETING of 22 June 2011 Venue : McKay Board Room, Level 10 Amungula Building, 26 Narellan Street, Canberra (commencing at 9.30am) |
|
|
unclassified |
For further information or questions, contact § Brianne Casey (07) 314 95711 § Kylie Bell (07) 314 95712 |
Members:
|
Gerry Antioch
Christopher Branson
Peter Chochula (Guest)
Lance Cunningham
Michael D’Ascenzo (Chair) Commissioner Frank Drenth
Bob Duncan
Teresa Dyson
Yasser El-Ansary
Cheryl-Lea Field
Jennie Granger
Tony Greco
|
Treasury
LCA
ATO
IPA
ATO
CTA
ATMA
LCA
ICAA
ATO
ATO
IPA
|
Michael Hay
Robert Jeremenko
Alexis Kokkinos
Mark Morris
Peter Murray
Michelle de Niese
Andrew O’Bryan
Louis Phan (Guest)
Bruce Quigley
Ken Schurgott
Paul Southwell
Roger Timms
|
CPA Australia
TI
ICAA
CPA Australia
TI
CTA
CPA Australia
NTAA
ATO
TI
ATO
TA
|
Apologies:
|
Steve Cane
Andrew England
|
NTAA
ATO |
Tony Stolarek
|
ICAA
|
Agenda item and Guests:
|
Gary Andrews (item 7)
|
ATO |
Michael Monaghan (item 9)
|
ATO |
|
David Butler (item 6)
|
ATO |
Shane Reardon (item 8)
|
ATO |
|
Peter Chochula (items 2-5)
|
ATO |
John Ryan (item 6)
|
ATO |
|
Steve Martin (item 12)
|
ATO |
Secretariat:
|
Brianne Casey |
ATO |
Kylie Bell |
ATO |
Please note: National Tax Liaison Group (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. These minutes have been formally endorsed by the members.
Agenda Summary
1 Introductions, apologies, confirmation of minutes of 30 March 2011 meeting 7
Top strategic issues 9
2 The application of the share capital tainting rules to employee share schemes 9
3 ATO issue of tax products clarifying proposed trust taxation changes 13
4 ATO publication of Commissioner’s submissions in legal proceedings in the Federal Court and the High Court 19
5 ATO approach to precedential case law 23
6 ATO’s approach to communication of important matters 31
7 ATO approach to audits in the SME market segment 35
8 Risk management by the ATO 40
Updates 43
9 Research 43
9.1 Taxation Statistics 2008-09 (100 people) 43
9.2 Professionalism Survey 43
10 Litigation case report 45
11 Public Ruling Steering Committee 71
12 NTLG Sub-group governance report – Superannuation Technical Sub-group 73
13 NTLG Sub-forum and Panel reports 82
14 Top 3 items of significance under management of NTLG Sub-groups and reportable panels 83
15 Suggested strategic topics for the NTLG 85
16 NTLG - Tax Issues Entry System issues register 86
17 Action items 90
18 Next meeting and close 110
Professional Bodies represented at the NTLG
|
Association of Taxation and Management Accountants |
ATMA |
|
Corporate Tax Association |
CTA |
|
CPA Australia |
CPA Australia |
|
Institute of Chartered Accountants in Australia |
ICAA |
|
Law Council of Australia |
LCA |
|
Institute of Public Accountants |
IPA |
|
National Tax and Accountants Association |
NTAA |
|
The Tax Institute |
TI |
|
Taxpayers Australia Incorporated |
TA |
Summary of Action items – meeting of 22 June 2011
|
Action item number and details |
|
NTLG1106/01 The ATO agreed to follow up on the status of the relevant fact sheet and provide details for the June Minutes. Refer agenda item 2 Agenda topic The application of the share capital tainting rules to employee share schemes |
|
NTLG1106/02 In relation to the examples included within the EM, members are requested to submit any relevant “vanilla” (common circumstance case) examples to the ATO for consideration. The ATO will provide clarity of its approach and advise the members as soon as practical. Refer agenda item 3 Agenda topic ATO issue of tax products clarifying proposed trust taxation changes |
|
NTLG1106/03 The ATO will be undertaking a review of the Small and Medium Enterprises $100m to $250m turnover program on completion of the activities involved in this work. The ATO will provide details to the NTLG on completion of the review. Refer agenda item 7 Agenda topic ATO approach to audits in the SME market segment |
|
NTLG1106/04 The ATO agreed to include the current status of cases in future Litigation case reports, as well as giving consideration to the inclusion of information outlining trends, as part of the summary tables at the end of that report. Refer agenda item 10 Agenda topic Litigation case report |
|
NTLG1106/05 NTLG Treasury representative to review relevant long standing action items and provide an update for the September meeting. Refer agenda item 17 Agenda topic Action items |
AGENDA ITEMS
Agenda items are provided by the Professional Bodies and the ATO, including the many joint ATO/practitioner/taxpayer liaison forums operating across Australia. They are set out with the description of the item and the response from the ATO or the Professional Bodies.
[_Toc309640813]
1
Introductions
[_Toc201042915]
, apologies, confirmation of minutes of
30 March 2011 meeting
Chair’s opening comments
Michael D’Ascenzo, (The Commissioner) opened the meeting at 9:30am and welcomed new members and guest participants.
Members participated through video conferencing facilities in Canberra and Melbourne, as well as teleconference facilities in Melbourne and Sydney due to the travel disruptions as a result of volcanic ash.
The Commissioner thanked all members for being flexible in arranging to attend the NTLG given the circumstances. The Commissioner also thanked ATO staff who organised the alternative options for the meeting at short notice.
The Commissioner spoke of his commitment to attending 3-4 OECD forums every year, and the ability to be able to manage video conferencing facilities instead of having to fly to Paris or Washington on each occasion. Having the ability to use technology when time and circumstances allow can save a week of travel and associated disruption. It was good to see that everyone had made special efforts to attend the meeting whether they arrived in person, by video conference or by phone.
Teresa Dyson (LCA) was congratulated on her appointment to the Board of Tax.
Birthday greetings were extended to Robert Jeremenko (TI)
A member from ICAA gave a special thanks to ATO officers involved in the TFN reporting project. The member commented that the ATO spent a lot of time on the issues, and met with members at least six times in the consultation process. This was especially appreciated by members. The member also commented that the outcome provided in the March NTLG minutes was seen as a real reflection of consultation, and an understanding of compliance issues. A member from CPA Australia seconded the special thanks commenting that the ATO’s approach was seen as sensible, fair and equitable. Bruce Quigley, Second Commissioner of Taxation accepted the special thanks on behalf of the ATO.
Apologies were accepted from:
· Andrew England (ATO)
· Steve Cane (NTAA)
· Tony Stolarek (ICAA)
Acknowledgement of alternative member:
· Louis Phan (NTAA)
· Susan Franks (ICAA)
Member stepping down from forum
· Martin Jacobs (Treasury)
Request to step down from the NTLG was accepted.
Welcome new member
· Gerry Antioch (Treasury)
replacing Martin Jacobs as the Treasury representative
Confirmation of the draft minutes for the 30 March 2011 NTLG meeting
The post meeting summary was issued to members for comment on 12 April 2011.
Draft minutes were forwarded to members for comment on 20 June 2011.
Bruce Quigley, Second Commissioner apologised for the delay in clearance of the March 2011 NTLG minutes. Members were asked to forward any comments on the minutes to the Secretariat.
Post meeting update
On 8 July 2011 the NTLG Secretariat reminded members to forward through any comments on the March 2011 minutes. Members were advised that if no changes were required, the minutes would be published to ato.gov.au as an endorsed finalised document.
No changes to the minutes were advised by the members. Members have been advised and that the March minutes will now be published to ato.gov.au.
[_Toc183510919][_Toc309640814] Top strategic issues
[_Toc309640815] 2 The application of the share capital tainting rules to employee share schemes
[Item2] The Professional Bodies request a response to the following questions:
1. Does the ATO consider that the journal entries used by a taxpayer when accounting for a bona fide transaction entered into with third parties (and not for the purpose of artificially inflating their share capital account) which require a credit to their share capital account, should qualify as a “transfer” within the contemplation of the share capital tainting provisions?
2. Is the share based payment reserve considered a “share capital account” within the meaning of section 975-300 of the ITAA 1997?
3. Could the amount that is taken to have been transferred to the taxpayer’s share capital account from the share based payment reserve be identified as “share capital”, at all times, pursuant to section 197-10 of the ITAA 1997?
4. On the basis that the ATO does not consider an affirmative answer must apply to each of questions 1, 2 and 3, does the ATO support either an amendment to the share capital tainting provisions or a repeal of ATOID 2009/76 and issue of further ATO guidance to ensure that a taxpayer’s share capital account does not become “tainted” in circumstances where the taxpayer has accounted for their employee shares in accordance with the requirements under AASB 2?
Background (as submitted by the Professional Bodies)
The share capital tainting rules contained in Division 197 of the Income Tax Assessment Act 1997 ( ITAA ) operate by treating a company’s share capital account as having been “tainted” if a company has transferred an amount to their share capital account from another account.
For taxpayers accounting for the grant, and eventual vesting of shares under employee share schemes, it is critical that their general ledger entries do not effect a “transfer” from a liability account or equity account (other than a share capital account) to the share capital account.
The re-write of the share capital tainting rules in 2006 did not address the issue of potential share capital tainting in circumstances where the company has accounted for the issue of share-based remuneration payments in accordance with AASB 2 by crediting their share capital account. No formal ATO guidance was issued at the time of the re-write to clarify the Commissioner’s view on this matter.
In 2009, the Commissioner released ATOID 2009/76 which sets out the Commissioner’s view on the appropriate accounting entries to be recorded in order for taxpayers to adhere to AASB 2 whilst avoiding the triggering of the share capital tainting rules. The recommended journal entries are as follows:
· On grant date:
Debit Share based expense
Credit Share based payment reserve
· On vesting date:
Debit Share based payment reserve
Credit Share based expense
· and
Debit Share based expense
Credit Share capital
The Commissioner accepts that a “transfer” of an amount to a company’s share capital account would not arise where the company has accounted for the provision of shares under its employee share scheme by adopting the “two-step” accounting journal entries set out above on the vesting date.
The issue is whether or not a taxpayer’s share capital account would be “tainted” if the taxpayer had accounted for the eventual vesting of the employee shares through a single “offsetting” journal entry (in compliance with AASB 2) as follows:
Debit Share based payment reserve
Credit Share capital
Paragraph 23 of AASB 2 permits the reclassification from one equity account to another but does not allow for any subsequent adjustments to total equity once the equity instruments vests. The practice is that taxpayers will typically complete a reclassification (as shown above). It is also questionable whether the Commissioner’s suggested journal entries must necessarily “offset” each other and be recognised at the vesting date as a single journal entry (with P&L entries equally offsetting) in order to comply with the paragraph 23 requirements.
If a taxpayer is considered to have tainted their share capital account as a result of the single “offsetting” journal entry performed, a franking debit will arise in their franking account. Once tainted, the taxpayer’s share capital account will remain tainted until the taxpayer makes an untainting election and pays untainting tax.
Distributions from a tainted share capital account are treated as unfrankable dividends (and not returns of capital). This has significant ramifications for those taxpayers who have either recently completed, or are in the process of completing capital management initiatives such as buy-backs, capital returns or demergers.
Industry view/suggested treatment
Journal entries used by a taxpayer when accounting for a bona fide transaction entered into with third parties (and not for the purpose of artificially inflating their share capital account) which require a credit to their share capital account, should not qualify as a “transfer” within the contemplation of the share capital tainting provisions.
Technical references
Division 197 ITAA97, ATOID 2009/76, Paragraph 23 AASB 2.
Impact on clients
Large revenue impact on a small number of large businesses.
Priority
High.
Has previous advice been sought from the ATO?
On 18 March 2011 the NTLG Public Rulings Steering Committee met to discuss a range of potential new issues. One issue raised for consideration was whether further guidance is required on the application of the share capital tainting rules in relation to employee share schemes.
Following the Rulings Steering Committee meeting, it was agreed that the issue should be escalated to this forum.
Has this issue been discussed at any other consultative forum?
See above.
Response:
The ATO will withdraw Interpretative Decision ATO ID 2009/76 as the reasoning in the ATOID is incorrect. The ATO acknowledges the need for further guidance on the ATO view on the operation of the share capital tainting rules in the context of employee share schemes.
The ATO considers that it is the substance of a dealing that will determine whether there is a transfer to a share capital account, rather than the specific journal entries used. An account of share capital is an account of dealings with regard to share capital. The significant element is the dealing, not the entry which represents it.
However, in order to provide further guidance in the form of a public ruling, we will need you to provide us with more detailed information on the transactions and accounting entries arising in some common employee share scheme structures, particularly the detail of the rights of employees prior to the issue of shares (do they have an option, a right or a mere expectation of acquiring a share in the future), the timing of the employee acquiring the share and the legal restrictions on the share after issue.
If detailed examples are not forthcoming, we will not be able to provide in depth guidance in a public ruling on how our view applies to specific arrangements. In that event we would only be able to provide views beyond the general principle set out above in response to requests for private rulings.
Meeting discussion
Members thanked the ATO for the withdrawal of Interpretative Decision ATOID2009/76. However, members drew attention to a fact sheet that is still in use in the community and the ATO was asked to consider withdrawing this fact sheet as well, especially as it accords a lot of importance to journal entries.
Members commented they are also looking for some detailed examples that can be submitted to the ATO for consideration.
Jennie Granger, Second Commissioner agreed to follow up on the status of the relevant fact sheet and details would be provided within the June Minutes.
It was agreed that specific issues will be managed through the Public Rulings Steering Committee
[NTLG110601] Action item NTLG1106/01
The ATO agreed to follow up on the status of the relevant fact sheet and provide details for the June Minutes.
Post meeting updates
· The fact sheet will be amended in line with further ATO guidance on the issue.
· The Commissioner does not accept that ATOID 2009/76 sets out the Commissioner’s view on the appropriate accounting entries to be recorded in order for taxpayers to adhere to AASB 2. The Commissioner does not purport to have a view on the accounting entries required to comply with AASB.
[_Toc309640816] 3 ATO issue of tax products clarifying proposed trust taxation changes
The Professional Bodies wish to discuss the ATO’s approach to and planned timetable for the co-design and issue of tax products concerning the proposed amendments to the taxation of trust income and related provisions issued by the Treasury on 13 April 2011 which will apply retrospectively from 1 July 2010.
Background (as submitted by the Professional Bodies)
The Professional Bodies are of the view that the proposed amendments to the taxation of trust income are likely to raise many issues in relation to which tax practitioners and taxpayers will require or benefit from the issue of ATO guidance. As these proposed amendments will apply retrospectively from 1 July 2010, affected taxpayers will require such guidance prior to the lodgment of the 2011 trust income tax return.
The professional bodies wish to discuss the ATO’s approach to developing such guidance. Specifically, the professional bodies are of the view that the ATO's interpretative products, education products, compliance products and internal systems need to be developed and amended in parallel to the development of the amending legislation in order to ensure that tax agents and taxpayers both can effectively comply with the proposed retrospective changes.
History
Following the issue of a Decision Impact Statement on 2 June 2010 in relation to the High Court’s decision in Commissioner of Taxation v Bamford; Bamford v Commissioner of Taxation [2010] HCA 10, the ATO subsequently withdrew Taxation Ruling TR95/29 and Practice Statement PS LA (GA) 2005/1 effective from 1 July 2010. The ATO also stated in the above Decision Impact Statement that it would withdraw Taxation Ruling TR92/13 concerning the streaming of franked dividends which has not been withdrawn as at 6 May 2011.
The withdrawal of Taxation Ruling TR95/29 impacted primary producers who could not access the primary producer averaging provisions from the year ended 30 June 2011 where they were beneficiaries of a trust which carried on a farming business, and the trust made a loss in a particular year, on the basis that they would not be presently entitled to any income of the trust in that year.
By contrast the withdrawal of Practice Statement PS LA (GA) 2005/1 will result in a beneficiary who is presently entitled to a share of trust income for the year ended 30 June 2011 being assessable on a commensurate share of any net capital gain included in the trust’s taxable income even where the capital gain is distributed to a different capital beneficiary. Accordingly, such gains could no longer be assessed to a beneficiary with a vested and indefeasible interest in the trust capital on or after 1 July 2010 where an inter vivos trust had different income and capital beneficiaries.
Finally the ATO stated in Taxation Ruling TR92/13 that income distributed by a trustee of a discretionary trust retains its character when it is derived by the trustee unless a statute or trust deed provide otherwise. This public ruling has been subsequently relied upon by trustees of discretionary trusts in allocating differential amounts of franked distributions and other classes of net income to different beneficiaries.
The Assistant Treasurer subsequently issued media releases on 16 December 2010, 4 March 2011 and 13 April 2011 concerning the development of appropriate amending legislation to address the uncertainty which arose following the issue of the Bamford Decision Impact Statement on 2 June 2010.
The proposed amendments
The Treasury subsequently issued exposure draft legislation on 13 April 2011 which broadly proposed the following measures effective from 1 July 2010:
· Divisions 392 and 393 of the Income Tax Assessment Act (1997) (the ITAA (1997)) will be amended to allow trust beneficiaries to continue to use the primary production averaging and farm management deposits (FMD) provisions in an income year where the trust does not have any trust income to which a beneficiary can be presently entitled.
This measure largely (but not wholly) restores the position of beneficiaries of farming trusts to access the primary production averaging provisions and FMD provisions which were formerly administratively available under Taxation Ruling TR95/29. However, the proposed amendments potentially impose additional but separate requirements on both ‘fixed trusts’ and ‘non-fixed trusts’ which must be satisfied before such beneficiaries can access the averaging and FMD provisions.
· Subdivisions 115-C and 207-B of the ITAA (1997) will be amended effective from 1 July 2010 to ensure that ‘specifically entitled’ beneficiaries can be streamed franked distributions and capital gains where allowed by the trust deed. As a corollary the insertion of proposed Division 5B in the Income Tax Assessment Act (1936) (the ITAA (1936)) will ensure that such amounts are excluded from the calculation of a trust’s net income for the purposes of Division 6 of the ITAA (1936) as the beneficiaries will be assessed on any such gain or distribution under Subdivisions 115-C and 207-B.
Whilst the proposed amendments appear generally effective the application of the proposed new concept of ‘specifically entitled’ beneficiaries raises a number of practical concerns which require clarification especially as the proposed amendments are to retrospectively apply from 1 July 2010. Such issues include, amongst others, the timing as to when beneficiaries become specifically entitled, the meaning of the term ‘vested and indefeasible interest in trust property’ for specifically entitled beneficiaries, the streaming of ‘notional’ capital gains and the ‘directly related expenses’ which must be taken into account before streaming any franked distributions.
In addition, the Professional Bodies are concerned that the trust tax return form for the year ended 30 June 2011 will need to be amended to reflect disclosure of compliance with the proposed concept of ‘specifically entitled’ beneficiaries in addition to presently entitled beneficiaries, and that appropriate transitional arrangements may need to be introduced. Furthermore, the professional bodies anticipate that the ATO will also be required to fast track system modifications to accommodate this change and would appreciate understanding the ATO’s views on this matter.
· A new section 100AA specific anti avoidance provision will be inserted to address the potential opportunities for tax manipulation that may arise from the inappropriate use of exempt entities as beneficiaries.
The practical application of this proposed specific anti-avoidance provision is unclear especially in respect of the notification of the exempt entity’s present entitlement to trust income.
Industry view/suggested treatment
In our (Professional Bodies) view the development and co-design of relevant interpretative and practical guidance products must occur in parallel with the progression of legislative amendments to ensure that tax practitioners and taxpayers have the required interpretative and practical guidance in completing income tax returns for the year ended 30 June 2011 for non-fixed trusts.
Such products are particularly required given the introduction of various new legislative concepts which are proposed to apply from 1 July 2010. The Professional Bodies also reiterate their commitment to liaising with Treasury on the propose rewrite of Division 6 of the ITAA (1936) into the ITAA (1997) especially in respect of the proposed alignment of ‘income of the trust estate’ with the ‘net income of the trust estate’.
Technical references
Exposure draft legislation issued by the Treasury dated 13 April 2011 respectively entitled ‘Improving the taxation of trust income’ and ‘Primary production averaging and farm management deposits for trusts in a loss year’.
Impact on clients
As per the ATO’s Taxation Statistics for 2007-08 there were approximately 513,850 discretionary or hybrid trusts which lodged income tax returns for the year ended 30 June 2008, and it is expected that a commensurate amount of such trusts will be required to lodge an income tax return for the year ended 30 June 2011.
Priority
This issue is of a high priority. As set out above, this issue affects a significant number of taxpayers many of which are in the SME market and therefore have relatively limited tax compliance resources available. Furthermore, as tax practitioners and taxpayers will have to consider these proposed amendments in the very near future, this issue is urgent.
Has previous advice been sought from the ATO?
Yes. The issue of tax products arising from the proposed legislative amendments was briefly canvassed at the meeting of the NTLG Trust Consultative Group on 4 April 2011.
Has this issue been discussed at any other consultative forum?
Information was not available.
Response:
The issue raised by the professional bodies proceeds on the basis that ‘the proposed amendments to the taxation of trust income are likely to raise many issues in relation to which tax practitioners and taxpayers will require or benefit from the issue of ATO guidance’. In this regard, the ATO has been working with Treasury to ensure, where possible, that areas of potential uncertainty are adequately addressed in the legislation or accompanying explanatory material.
As the proposed legislation is now before the Parliament, we can continue to work with the Trust Sub-group to determine what particular advice will be needed once it becomes law. As you are aware, the ATO cannot provide advice on the operation of the proposed amendments to the taxation of trusts prior to their enactment.
Accordingly, and in recognition of the need for taxpayers to be educated in respect of these potentially significant changes prior to their enactment, the ATO’s general communications approach to date has been to raise awareness of the changes. This is particularly so that trustees can consider their impact when making resolutions to distribute income and or capital for the 2010-11 income year.
To this end the ATO has sought to use the ATO website www.ato.gov.au as the key tool for communicating the latest information on the measure. It can be accessed using this link: http://www.ato.gov.au/content/00274021.htm . We encourage practitioners to check the webpage regularly for updates.
Other channels being used in early June 2011 to alert taxpayers and practitioners to the existence of this page and the contents of the Bill include the following:
· e-Link email to all subscribers (sent 8 June 2011).
· Tax Agent Broadcast - a specific advice sent to approximately 25,000 registered tax agents (sent 7 June 2011).
· SME Communicator article June 2011 - targets SME businesses about issues that may affect them.
· Tax Practitioner webcast June 2011 - an online product targeted at tax agents released on 21 June 2011.
· ME&I Speaker and seminars presentations - these sessions provide free seminars and workshops on tax issues.
· Direct mail-out - targeted at trustees who are self preparers (sent 10 June).
Return form instructions and other guides (such as the Guide to Capital Gains Tax 2011) have also been flagged to alert users to the proposed changes. These publications will be updated electronically once the law is enacted.
Work is also being undertaken to determine how best we might assist practitioners to comply with the law once it is enacted. We will continue to consult Trust Sub-group members in relation to the identification and prioritisation of ATO advice products. NTLG member organisations are encouraged to provide feedback to their Sub-group representatives in this regard. The Subgroup will report to the NTLG on these issues via its Sub-group report.
Meeting discussion
The ATO was thanked for the response.
Royal Assent is anticipated by 30 June 2011.
Members are especially concerned with the transition to 2011 year, but agreed that the ATO has done everything possible and has been working with the industry. Retrospectivity will be a challenge.
The Explanatory Memorandum (EM) is seen to have very generous views, perhaps more generous than the law. Members wanted confirmation of the ATO’s approach to administering the rules, especially while the EM has generous examples. The ATO responded that it will administer according to the law. Members suggested that as the examples in the EM are complicated there are “vanilla” examples that need to be considered. Such examples need to be provided to the ATO.
It was recognised that there are issues around guidance and clarification. The ATO will provide clarity of its approach and advise the members as soon as practicable.
The NTLG Trust Consultation Sub-group is managing the issues and the ATO is happy to continue working with the professional bodies. It was recognised that the Trust Consultation Sub-group needs to convene soon. Jennie Granger, Second Commissioner spoke of a potential meeting on Monday 27 June 2011.
[NTLG110602] Action item NTLG1106/02
In relation to the examples included within the EM, members are requested to submit any relevant “vanilla” (common circumstance case) examples to the ATO for consideration. The ATO will provide clarity of its approach and advise the members as soon as practical.
Post meeting update
The NTLG Trust Consultation Sub-group met (by phone) on 27 and 28 June 2011 to discuss the need for transitional administrative arrangements in respect of the new law (which received Royal Assent on 29 June 2011).
As a result of those discussions, and in recognition of the practical difficulties faced by taxpayers given the enactment of the new law so close to the end of the income year in which it will first apply, the Commissioner has responded quickly to put in place two administrative arrangements for the 2010-11 income year.
The first is the extension of the period within which the requirements for there to be a specific entitlement to franked distributions must be satisfied for the 2010-11 income year (so it matches the period trustees have to make beneficiaries specifically entitled to capital gains and the administrative period allowed to make beneficiaries presently entitled to trust income).
The second administrative transitional arrangement is that staff have been instructed not to select cases for review or audit in respect of the 2010-11 income year for the sole purpose of determining whether the purported streaming of capital gains or franked distributions by a trustee is effective.
Further details of these arrangements can be found on the ato.gov.au website, accessed by using the following link: http://www.ato.gov.au/content/00274021.htm . The ATO would like to thank members of the Trust Consultation Sub-group for ensuring that the members of the Professional Associations they represent were promptly informed of these arrangements. This, coupled with emails from the ATO to tax agents and to subscribers of our eLink update service, should ensure that practitioners are aware of the administrative arrangements for the 2010-11 income year.
The need for ATO guidance on the new law was also discussed at the June meetings of the Trust Consultation Sub-group already referred to. It was agreed that priority issues would, to the extent possible, be dealt with in fact sheets to be published shortly. Where material of a more interpretative nature is required it will be provided by public ruling.
The first fact sheet has now been published. It provides an overview of the new law. It also clarifies a number of issues raised by the Sub-group at the 27 June meeting. It can be accessed via this link to the Trust home page (which has been recently established to house this and other trust specific material):
http://www.ato.gov.au/pathway.aspx?sid=42&ms=businesses&pc=001/003/131&mnu=0.
(The trusts home page can also be accessed from ato.gov.au website by going to the ‘Businesses’ page and selecting ‘Trusts’ under the heading ‘Tax topics A-Z’. From the trusts home page, the fact sheet can be accessed by selecting ‘Improving the taxation of trust income’ under the heading ‘In detail’.)
As a result of feedback received at the 27 June meeting of the Trust Consultation Sub-group, the issue of ‘specific entitlement’ to capital gains and franked distributions will be the topic of our next fact-sheet. Sub-group members have agreed to provide the ATO with examples and other issues they would like clarified.
[_Toc309640817] 4 ATO publication of Commissioner’s submissions in legal proceedings in the Federal Court and the High Court
Will the Commissioner make available, through the ATO’s legal database and on an automatic and ongoing basis, the written submissions filed on his behalf in respect of any tax related proceedings in the Federal Court and the High Court?
For the purposes of clarification, the Professional Bodies note that we do not seek that the Commissioner make available either:
· submissions of the taxpayer; or
· submissions of the Commissioner in relation to any legal proceedings in another jurisdiction.
Background (as submitted by the Professional Bodies)
The Professional Bodies are of the view that the Commissioner should make such submissions available in order to promote openness, transparency and accountability as to the legal arguments he advances, as this would result in ongoing improvements in the relationship between the tax community and the Commissioner.
In the Professional Bodies’ view, the tax community would benefit significantly from full disclosure of the legal arguments that the Commissioner is advancing in the Courts, most especially in relation to seminal cases and that the making available of written submissions to the community is a coherent way of disclosing these arguments.
In addition, we think it greatly benefits the Commissioner too, to be able to explain his position by referring to his written submissions. As discussed at the NTLG GST Sub-committee meeting of 29 March 2011, judgments do not always reflect the arguments that are put by the parties. Further, Decision Impact Statements also do not comprehensively canvass the legal submissions of the Commissioner.
It was also noted at the 29 March 2011 NTLG GST Sub-committee meeting that in the High Court, since 1 January 2011, the submissions of the parties are now being published on the High Court’s website in advance of the hearing (eg Amex GST litigation). This sets an ideal example for the Commissioner to follow.
It is noted that the written submissions filed in the High Court will have already been prepared in accordance with the new High Court Rules that require the parties to prepare written submissions, or redacted versions, appropriate for publication.
If the Commissioner is agreeable to publishing the written submissions lodged on his behalf, the Commissioner will still need to vet / redact those submissions lodged in the Federal Court for any confidential taxpayer information, before publishing them.
Nevertheless, the Professional Bodies are of the view that the benefit to the tax community of the Commissioner making these submissions available would outweigh this burden to the ATO.
Industry view/suggested treatment
As set out above, the Professional Bodies are of the view that the Commissioner should make available, through the ATO’s legal database and on an automatic and ongoing basis (i.e. without the need for specific requests), the written submissions filed on his behalf in respect of any tax related proceedings in the Federal Court and the High Court. These submissions can be published at or about the time they are lodged, and may need to be redacted by the Commissioner prior to publication.
Technical references
Not relevant for this item.
Impact on clients
This issue will have a significant impact on the nature of the relationship between taxpayers, tax professionals and the ATO, primarily because it demonstrates goodwill on the part of the Commissioner in being more open, transparent and accountable about the legal positions being adopted in the Federal Court and the High Court.
Priority
While this issue will affect all taxpayers and tax professionals, most especially in relation to their compliance activities and understanding of technical matters, the issue is not urgent in nature. As such, the Professional Bodies consider this issue to be of a medium priority. However, regard should also be had to any priority ranking assigned to this issue by ATO staff on the NTLG GST sub-committee and the fact that this issue was first raised in that forum at the 21 September 2010 meeting in the context of the GST Litigation Report.
Has previous advice been sought from the ATO?
Yes – see below.
Has this issue been discussed at any other consultative forum?
Yes. As referred to above, this issue was first raised for consideration by the ATO at the 21 September 2010 meeting of the NTLG GST Sub-committee, as follows: “Is it acceptable for copies of the submissions of the parties (filed in Federal Court proceedings) to be made available by the ATO upon request?”
At that meeting, the ATO provided the following response (as recorded in the minutes of that meeting):
“No. The submissions of Counsel for the Commissioner and Counsel for the taxpayer, relate to the specific details of the case and generally go beyond what is referred to directly in a judgment. They should not be made available by the ATO.”
As the meeting discussion (as recorded in the minutes of that meeting) shows, the ATO and external members agreed to revisit this issue should the Confidentiality of Taxpayer Bill be enacted.
This Bill received royal assent on 16 December 2010. It is known as the Tax Laws Amendment (Confidentiality of Taxpayer Information) Act 2010.
Consequently, this issue was raised again at the 29 March 2011 meeting of the NTLG GST Sub-committee, as agenda item 5. After discussion at that meeting at which all members agreed that the issue was appropriate for the Commissioner’s attention and involved the consideration of competing concerns, the ATO noted (as recorded in the agenda for that meeting) that:
“We consider that the question of whether copies of the submissions of the parties in the Federal Court can be made available by the ATO upon request raises broader policy considerations and we have referred this matter to the main NTLG for further consideration.”
As such, this issue has now been referred by the Professional Bodies, at the ATO’s request, to this forum for consideration in relation to all tax related litigation.
As noted above, the Professional Bodies have clarified that this request relates only to the submissions filed on behalf of the Commissioner and in the Federal Court and High Court.
Response:
Once submissions are filed with a Court, they become documents of that Court, and are subject to the rules of the Court. Accordingly, the ATO should not unilaterally publish its submissions in tax-related matters after they have been filed with the Court.
As noted in the question, the High Court now publishes submissions of the parties on the High Court's website in advance of the hearing of a particular matter. Consequently, submissions of both the Commissioner and the taxpayer in tax-related proceedings are readily available on the Internet to any interested person. Accordingly, it is not considered necessary for the ATO to publish its submissions in High Court matters.
However, the Federal Court has not adopted a similar procedure for written submissions. The availability of documents filed with the Federal Court are subject to the Federal Court Rules. In particular, Order 46, Rule 6(2) of the Federal Court Rules provides a list of the Court documents that are available for inspection by any person, subject to the payment of a prescribed fee. Included in the list of documents at subrule (2)(g) is 'a written submission'. However, subrule (1) provides that those documents are available for inspection, 'unless the Court, or a Judge, has ordered that the document is confidential'.
Accordingly, the ATO does not consider that it can publish its written submissions in any Federal Court matter, given that it is possible that the Court may make an order that the submissions remain confidential. In addition, we are concerned that publication of submissions may disclose protected tax information about a particular taxpayer that is prohibited by the new confidentiality provisions, except in certain limited circumstances .
Meeting discussion
The ATO has considered this, but needs to respect the court’s processes even in an “open and accountable” environment. The ATO cannot break confidentiality.
Feedback on the specific example was requested by Jennie Granger, Second Commissioner. It was suggested that Sub-committee minutes may need to be reviewed to ensure the member concerns have been addressed. The ATO reiterated it was happy to continue working with members on this matter.
It was acknowledged that concerns were raised due to the Luxottica case and reasons why the ATO did not appeal. The DIS was not issued until 6 months after a decision was handed down.
Post meeting update
Michelle de Niese Assistant Director of the Corporate Tax Association and Peter Chochula Senior Assistant Commissioner (Strategic Litigation) discussed this issue first raised at the GST NTLG Sub-committee meeting late last year. It was further commented at the Sub-committee meeting that any implications of accepting the suggestion would affect litigation other than GST matters and might better be raised at an NTLG meeting.
The ATO view is that we could not provide to the general public the documents of the Federal Court without its permission and one of our primary concerns was that confidential information about taxpayers could be made widely available on the internet. In particular, this may cause problems for taxpayers with matters held at first instance where there has not been any publication by the court or tribunal of the facts and circumstances of the taxpayer. Submissions in particular cases are shown in a DIS and we would look at our DIS' and rulings to indicate what general arguments were put to the Federal Court.
A Tax Institute member has suggested an approach be made to the Federal Court to see whether changes can be effected regarding the publication of written submissions on its website and if it wanted to take the lead from the High Court about publishing written submissions in cases. However, the ATO considers that is a matter more appropriate for the court to determine in weighing up whether the public benefit derived from the disclosure outweighs an entity's privacy.
It is noted that an interim DIS for Luxottica was published on 6 August 2010 while an appeal was pending before the Federal Court and following the Tribunal decision of 15 January 2010. In addition, the final Luxottica DIS was published within eight weeks of the decision of the Full Federal Court and stated that the ATO intends to amend GSTR 2001/8 to reflect the decisions of the Full Federal Court in Luxottica and the AAT in the Food Supplier case.
[_Toc309640818] 5 ATO approach to precedential case law
Question provided by the Professional Bodies
The Professional Bodies request that the ATO outline internal processes for incorporating Court Decisions into administrative practice. The Professional Bodies would also like to discuss the need for transparency in the application of this process, and the importance of consultation with external stakeholders in implementing the process.
Specifically:
1. If an existing Public Statement (PS) of the ATO (Practice Statement, ATO Interpretative Decision, Taxation Determination or Taxation Ruling, including drafts) is potentially impacted by a Court Decision, does the ATO have any and if so what process for determining whether an amendment should be made to the PS that it is pursuing a case relevant to that PS, either where the ATO's arguments align (in whole or part) with the PS, or where the ATO's arguments are contrary (in whole or part) to the PS.
2. If a matter is before the Courts, that is, where a decision by a Tribunal or Court is the subject of an Appeal:
i. What is the ATO's approach to providing intermediate guidance for taxpayers if no ATO PS exists on the matter?
ii. What is the ATO's approach to notifying taxpayers of any potential change to, or impact on, an existing PS on the matter?
3. If a matter has reached its conclusion (through failure to appeal, inability to appeal, or refusal of special leave to appeal):
i. What is the ATO's approach to providing final guidance for taxpayers in a binding form on the key points of the decision noting that if there is any scope for the ATO not to follow the Tribunal's or Court's decision this should be clearly identified?
ii. To what extent does the ATO seek to consult on the content, utility and timeliness of Decision Impact Statements (DISs)? How is feedback from external representatives on DISs (which is usually sought by a particular due date) taken into account i.e. when can tax agents and taxpayers consider that a DIS has been ‘finalised’?
iii. What is the ATO's approach to reviewing potential PS that may be impacted by the decision (positively or negatively) to provide clear guidance to taxpayers?
iv. In the event that the ATO considers the decision is not a binding precedent or will not be followed, what is the basis for the ATO adopting that view?
v. What steps are taken to ensure that ATO PSs that are contrary (in whole or part) to Tribunal or Court decisions, provide clear guidance to taxpayers about the relevant decision, the specific elements of the facts or the ratio decidendi of the decision that enable the ATO not to apply and follow the decision (in whole or part) and the consequences for taxpayers who choose to rely on the Tribunal or Court decision?
vi. If the ATO does not agree with the decision of a Tribunal or Court, what steps does it take to identify a relevant case (either through the Test Case process or otherwise) to ensure that the relevant issue is resolved by judicial decision?
vii. Before a new case is identified, what steps does the ATO take to ensure that taxpayers are made aware that it is planning to seek judicial determination of a previously litigated point (in whole or part) for clarification?
viii. What disclosures are made to taxpayers as to the consequences for taxpayers of relying on either a Tribunal or Court decision, or a contrary ATO PS in the period during which a subsequent Tribunal or Court decision is made?
Background (as submitted by the Professional Bodies)
The Professional Bodies are of the view that there currently exists, in the tax community, a degree of confusion as to the process by which the ATO determines the effect of Court Decisions (especially when adverse) on its Public Statements and to the ATO’s approach to litigation (including the areas of law in which the ATO is seeking to obtain clarification from the Courts). Furthermore, the Professional Bodies are uncertain as to the role that external consultation plays in this process.
As such, the Professional Bodies are of the view that greater transparency of this process would enable greater understanding of and therefore more effective compliance with tax laws (as affected by relevant Court Decisions). The Professional Bodies would also like to reiterate the importance of consultation with external stakeholders in implementing this process.
Industry view/suggested treatment
Not relevant for this item.
Technical references
Not relevant for this item.
Impact on clients
Understanding of the ATO’s processes for incorporating Court Decisions into administrative practice will impact on all tax agents’ and taxpayers’ compliance with tax laws.
Priority
Medium. While this issue will affect a wide range of tax practitioners and taxpayers, the issue is not urgent in nature.
Has previous advice been sought from the ATO?
Not in relation to this specific issue.
Has this issue been discussed at any other consultative forum?
Not this specific issue.
Response:
The courts are the final arbiters in relation to the interpretation of the law.
Question 1
Following a court or tribunal decision, the ATO undertakes various processes to determine the consequences of the decision and whether there are any administrative implications. These processes are summarised in PSLA 2009/9 Conduct of Tax Office Litigation.
In particular, these processes are summarised under the following headings in Annexure F to PSLA 2009/9 Management of Decisions of Courts and Tribunals:
· Risk Mitigation Strategies (paragraphs 10-12)
· Pre-decision Strategic Internal Litigation Committee (SILC) (paragraphs 22-23)
· Decision SILC (paragraphs 28-33)
· Post-decision SILC (paragraphs 37-44)
The following extract describes the considerations staff must give to the consequences arising from a decision, including amending existing precedential view documents (e.g. public rulings or ATO interpretative decisions) or practice statements, during the post-decision SILC:
38. In every case consideration must be given to whether, as a result of the decision:
° there are any flow on effects in relation to the taxpayer
° any wider risks arise for the Tax Office - where a risk arises a strategy must be developed to manage the risk
° any legislative deficiencies are identified
° any new public rulings should issue
° any existing document setting out the Commissioner's view of the law for the community should be reviewed and, where necessary, amended or withdrawn. This may include public rulings, taxation determinations, or major publications, such as TaxPack. Where a precedential ATO view, such as an ATO Interpretative Decision, a publication or a taxation ruling is to be reviewed, the relevant CoE must be contacted and made aware of the issues, and
° if the matter was test case funded, whether the desired law clarification was achieved in relation to the test case issues.
39. To enable full considerations of the factors listed in paragraph 38 … it will usually be necessary to obtain advice/opinions from counsel and other stakeholders.
40. The Post-decision SILC must identify each necessary action arising from the decision and allocate responsibility for it. The Adverse Decision Report will then set out each of the identified risks and the person responsible for managing that risk. The person responsible for managing the risk will maintain that responsibility after the litigation is finalised, unless and until any formal escalation process alters the responsibility. The SILC will also finalise any recommendations to be made in the Adverse Decision Report.
41. Any technical issues arising from the decision which do not align with an existing precedential ATO view, and is not linked to a PTI, must be referred to the business line for risk assessment using the matrix referred to in Corporate Management Practice Statement PS CM 2003/2: Risk and Issues Management. (For example, where a decision calls into question a position taken in a public ruling.) Where a new PTI is identified, the issue and associated risks must be dealt with in accordance with Law Administration Practice Statements PS LA 2003/10: Management of Priority Technical Issues.
42. If the taxpayer has appealed or may appeal, consideration must be given to whether there is a need to cross-appeal, and whether there is any need to file a notice of contention in relation to findings of facts or conclusions of law adverse to the Commissioner. …
44. The Post-decision SILC should also consider any non-technical issues arising from the conduct of the case. The LSB officer must feed back to the business line (through their litigation co-ordinators or steering committees) any non-technical issues which are relevant to their operations that might improve the quality and efficiency of the Tax Office's litigation process. Similarly, the business line or other members of the litigation team should feed back to LSB any non-technical issues that might improve the quality of LSB's role in the litigation process.
Question 2
Generally speaking, no action is taken in respect of ATO precedential view documents or practice statements before the appeal process has been finalised. On occasions, the ATO may consider it necessary to publish an interim Decision Impact Statement (DIS), for example, where taxpayers may be uncertain about the ATO's approach, pending the outcome of any further appeal processes.
The ATO has had a longstanding practice of maintaining its view of the law pending the outcome of the appeal process, set out in Taxation Ruling No. IT 2250 Income Tax: Issue of assessments where Commissioner appeals against adverse decision of Taxation Board of Review or Court directly in taxpayer's favour: advice to taxpayers: remission of additional tax for late payment which can be found on the ATO's website .
This practice is consistent with the recent decision of Pagone J in Urban Consolidation and Development Pty Ltd & Ors v Commissioner of State Revenue [2010] VSC 49, where his Honour refused the plaintiff's application for a declaration that a notice of determination issued by the Commissioner of State Revenue was ultra vires and a nullity on the basis that the Commissioner was obliged to apply the law as declared in an earlier decision, notwithstanding that the Commissioner's appeal in that case was yet to be heard. His Honour made the point that the Court should not require the Commissioner to apply a decision which the Commissioner, in good faith, and in the exercise of his statutory duties, seeks the Court to overturn on appeal.
Nevertheless, consistently with the response provided to a question at the March 2011 NTLG meeting, pending resolution of an appeal, it is accepted that taxpayers who prepare their returns on the basis of views expressed in a Court decision that is adverse to the Commissioner have a reasonably arguable position to the extent that they adopt the reasoning of the Court. Usually, staff are also instructed, pending resolution of the appeal, not to select cases for active compliance where it would be necessary to apply the view adopted by the Commissioner in the case that is subject to appeal.
Question 3(i), (ii) and (iii)
If a finalised court or tribunal decision has any impact on an existing precedential view document, the ATO will issue a DIS describing what products have been affected, and what administrative treatment is proposed. The affected ATO products will be electronically flagged with a notification linking them to the DIS and vice versa.
A complete description of the DIS process appears in paragraphs 67-90 of Annexure F to PSLA 2009/9. In particular, the following paragraphs from Annexure F provide staff with instructions about the DIS process:
70. The purpose of publishing a DIS is to communicate to the community the Tax Office view on the implications of a particular court or tribunal decision for the Tax Office. A DIS will not usually be published until all appeals have been dealt with and there is a final decision. Court and tribunal decisions are published on the ATOLegals database, with a link to the DIS.
71. Where a DIS indicates that some action needs to be taken (for example a public ruling, law administration practice statement, or ATO interpretative decision needs to be reviewed, amended, replaced or withdrawn), the litigation team will establish a timetable for undertaking that work prior to the publication of the DIS. If it is necessary to amend or withdraw a precedential ATO view document (for example a public ruling or an ATO interpretative decision), or a law administration practice statement, it will be necessary to initiate the usual process immediately (for example an addendum to a public ruling), in accordance with the established practice for that process.
72. The PTI & Public Rulings Branch will be advised of the publication of every DIS which indicates that a public ruling or law administration practice statement is being reviewed, amended, replaced, or withdrawn. It is still the responsibility of TCN or CoE to update these documents. …..
Precedential ATO view
94. A DIS may set out a precedential ATO view. The statement discretely sets out the Tax Office view of the decision and explains the implications on current public rulings. In more complex decisions, the DIS will be unable to set out a final ATO view and will require consideration to be undertaken through the review or development of a public ruling.
95. In accordance with Law Administration Practice Statement PS LA 2003/3: Precedential ATO view, staff must apply the precedential ATO view as set out in the DIS when preparing private rulings and conducting audits.
96. The DIS will indicate whether a pre-existing precedential view document will need to be reviewed, amended, replaced or withdrawn. As indicated earlier, a 'resolved' DIS will be issued to identify the document(s) that reflects a changed precedential view. In these instances, tax officers are required to follow the revised ATO precedential view. Where there is a pre-existing precedential ATO view document it will be electronically flagged and contain cross-reference links to alert staff to the relevant DIS which contains the reconsidered view.
The ATO has, on occasions, issued a draft DIS for consultation. In the normal course, the community is asked to provide comments on decision impact statements within eight weeks of its publication, and the details of a contact officer are provided in the DIS. The contact officer is usually someone who has been closely involved in the litigation process. If the professional bodies consider that, in respect of a particular matter, there should be a broader consultation process, they should raise their concerns with the ATO as soon as possible.
Question 3(iv), (v), (vi), (vii) and (viii)
If the ATO seeks to maintain a position contrary to a final court or tribunal decision, paragraphs 97-106 of Annexure F to PSLA 2009/9 set out the process for reaching this position, advising the public and identifying a test case to obtain judicial clarification and certainty on the correct operation of the law.
The following paragraphs from Annexure F to PSLA 2009/9 provide staff with instructions when the ATO seeks to challenge a court or tribunal decision:
Challenging a final court decision
97. In administering the law there will be rare instances where the Tax Office will maintain a position that is contrary to an existing court or tribunal decision. A decision to not follow a prior decision of a Court that was not appealed will rest with the CTC or Second Commissioner, Law, and the decision should be made as soon as possible. In such cases, the CTC or Second Commissioner, Law must:
· have obtained credible and robust legal advice that the decision is wrong in law
· as soon as possible, put those affected on notice of this view
· seek to have the matter tested as soon as possible, and
· offer test case funding in an appropriate case that will test the Commissioner's position.
98. This position is consistent with advice received from the Commonwealth Solicitor-General. 114
99. The Full Federal Court case of Commissioner of Taxation v. Indooroopilly Children Services (Qld.) Pty. Ltd . 115 criticised the Commissioner's course of action in not following prior single justice decisions or promptly initiating other court proceedings. Following on from the comments by the Federal Court the Commissioner obtained further advice from the Commonwealth Solicitor-General and other legal counsel on whether the Tax Office must always follow a single instance decision of a judge. This further advice 116 confirmed earlier advice that the ATO is not required to follow a single judge decision if, on the basis of credible and robust legal advice, 117 there are good arguments that, as a matter of law, the decision is incorrect and prompt action is being taken to clarify the position. In the rare circumstances where the Commissioner does not appeal a decision which is considered incorrect, the ATO will seek to take prompt action to test the issue. Timeliness in bringing an appropriate test case is critical.
100. The requirement to have credible and robust legal advice that a decision is wrong in law is intended to ensure that any such decision will withstand public scrutiny. The advice received by the Tax Office said:
“The requirement to have legal advice that a decision is wrong before a decision is challenged was principally intended to ensure that such decision would be defensible from the perspective of good public administration. Clearly, it is not appropriate for the ATO to seek to challenge a particular interpretation of the tax laws adopted by a court or tribunal just because, as a matter of policy, it considers it wrong or undesirable. If that is the basis for concern then the appropriate approach is to change the tax law. However, if the basis of the ATO's attack on an earlier decision is that as a matter of law it is wrong, then our earlier advice indicated that it was proper for the ATO to seek an appropriate vehicle in which to test that issue.”
101. The nature of the legal advice that is required will vary depending on the nature of the tribunal or court whose decision is to be challenged. The level or extent of legal advice required to challenge a tribunal decision is likely to be quite different from that appropriate where a challenge is made to an appellate court's decision. Depending on the circumstances of the case, the legal advice can be sought from external counsel, solicitor or from internal Tax Office sources.
102. There is no inherent reason why internal Tax Office legal advice may not suffice depending on the circumstances of the case and the source of the legal advice from within the Tax Office. What matters is that the legal advice is credible and can withstand public scrutiny. That is, the advice should have the hallmarks of independence.
103. It is important in this regard to distinguish between the administrative policy decision to pursue a challenge to a legal decision and the provision of legal advice to support that decision. The policy decision will need to be made by the Second Commissioner, Law or CTC. In making the policy decision, legal advice supporting a challenge is an important element but not the only element to be considered. The legal advice is concerned only with whether there are reasonable legal arguments for a particular interpretation which justify a challenge to a previous decision that, for good reasons, was not appealed from at the time. The policy decision needs to consider broader issues. For this reason, it will usually be undesirable for the legal advice to be given by the person making the policy decision.
104. In many ways the decision to challenge an earlier decision is not that dissimilar to the decision that might have been taken when the original decision was handed down as to whether an appeal should be pursued. The Attorney-General's Legal Services Directions require that an appeal not be pursued unless an agency believes that it has reasonable prospects for success or that the appeal is otherwise justified in the public interest. The same requirement needs to be met where an earlier decision is to be challenged in another case. The legal advice obtained for this purpose needs to be sufficiently robust and credible to ensure the decision can be seen as consistent with the same principles so as to determine whether an appeal is justified.
105. Once legal advice has been received, and the decision has been made to challenge an earlier court or tribunal decision, the litigation team should consult each other to decide on the most appropriate way to communicate the Tax Office view to the public. It may be appropriate, for example, for a DIS to be prepared and published on the Tax Office's external website.
106. When the Tax Office has an appropriate case to test the same issue, the LSB officer must contact the Test Case Litigation Program (via the Strategic Litigation Unit mailbox) so that appropriate funding can be arranged.
The ATO is always seeking to improve the timeliness of the publication of Decision Impact Statements, and the withdrawal or amendment of relevant ATO precedential view documents or practice statements after a litigation matter has been finalised. Every effort is being made to manage the time within which a decision impact statement is published after a decision in a significant case, and the time taken to review relevant existing ATO products. However, sometimes assessing the implications of a decision needs to factor in other relevant decisions of the courts and potential responses by Treasury and the Government.
Meeting discussion
Members thanked the ATO for taking information from the practice statements to include in the response. It is seen as a good document to have for reference purposes.
Members requested a deeper discussion of how the processes work within the ATO. There is a continuum of issues and members are interested in the way matters are practically dealt with by the ATO. Some issues are covered in Practice Statements, others with Decision Impact Statements. Members would like a more practical feel about the ATO’s published response.
Members were advised that Decision Impact Statements need to be consistent and well thought out. For some complex cases, the implications of a decision need to take into account other relevant decisions of the courts and potential responses by both Treasury and the Government. While the ATO issues a DIS for adverse cases and significant court decisions, some take longer than others to prepare and issue. Interim DIS’s are issued when the ATO needs to get information out – especially when there are impacts within the community, tight timeframes and there is need for consultation. It’s necessary to get all views on board.
Members suggested that the issue is broader than just a DIS and were keen to know whether all associated items such as TRs, ATOIDs, TDs, drafts etc, were also flagged, or tagged when items were flagged in the DIS. The ATO said other products were flagged as part of the process. Senior Assistant Commissioner, (Strategic Litigation) Peter Chochula agreed to follow up on the tagging/flagging process and include the response in the minutes.
The timeframe of a DIS was discussed. Generally, it’s 8 weeks after a decision has been handed down, with a 4 week period provided for an appeal to be filed. The majority of DIS’s are issued within 16 weeks. However, some cases take longer as a result of consequences of complex decisions and the need to appropriately review all relevant implications.
A member asked whether the practice statement itself had a consultation process. The ATO confirmed that the practice statement did have a consultation process and there were a lot of views and comments provided. The member suggested that a process of review might be put in as quickly as possible. The ATO questioned whether there was a specific concern about the practice statement, with the member responding that the content could be tighter, with more specific details on how to apply it.
Another member questioned the ‘reasonably arguable’ position and the need for guidance, and suggesting that perhaps a communication strategy is necessary. The member said he would review the practice statement.
Members were encouraged to provide any examples where there are concerns with timeframes or process, and the ATO will consider any suggestions for improvement.
Post meeting update
Subsequent to the NTLG meeting, Peter Chochula, Senior Assistant Commissioner (Strategic Litigation) confirmed that a note is inserted on the relevant Ruling/Determination etc. to state that the document is currently being reviewed as the result of a recent court/tribunal decision. The note provides a hyperlink back to the relevant DIS and is then removed once the DIS is resolved. That is, a DIS is marked 'current' in the Administrative Treatment and, correspondingly, the relevant Ruling/Determination etc has a link to the Implication on current Public Rulings and Determinations part of the DIS.
[_Toc309640819] 6 ATO’s approach to communication of important matters
The Professional Bodies request a broad ranging discussion of the ATO’s approach to communication of important matters to taxpayers and tax agents. This discussion should be guided by the experience of the Change Program and the recommendations that the Inspector General of Taxation (Inspector General) has made about future Information and Communication Technology (ICT) projects.
The Professional Bodies would like to focus on:
· how the ATO proposes to implement recommendation two (regarding communication of adverse effects of significant software release or large ICT implementations). We consider that this recommendation would also be applicable to major system difficulties e.g. Tax Agent Portal outages; and
· how the ATO proposes to implement recommendation three (regarding reporting of output performance and processing details). This recommendation makes a specific reference to consultation with external stakeholders to ensure that there is better transparency and understanding of the system’s operation. As the Professional Bodies are significant external stakeholders, we consider that the first step on this consultative process should occur at the NTLG.
The ATO’s response to the Inspector General refers to the Professional Bodies as being the “main conduit” between the ATO and tax agents. We would like to discuss this statement in some more depth, so that we can mutually understand our expectations and challenges in fulfilling this role.
Background (as submitted by the Professional Bodies)
On 19 April 2010, the then Assistant Treasurer, Senator the Hon Nick Sherry, directed the Inspector General to conduct a comprehensive review of the implementation of the Change Program. The Inspector General has completed his review and handed his report to the government on 3 December 2010. The report was publicly released on 5 May 2011.
The Inspector General made nine recommendations: one directed to the government, and eight directed to the ATO. The ATO agreed with six of the recommendations, partly agreed with two and disagreed with another that recommended that the ATO consults with practitioners over its reconsideration of compensation claims.
The Professional Bodies appreciate that the Inspector General’s review into the income tax release of the Change Program has concluded that the ATO has responded to the recommendations. However, we consider that the report raised important issues about how the ATO implements significant projects (including the impact on tax agents and taxpayers) and crisis management.
Industry view/suggested treatment
The Professional Bodies welcome the ATO’s acceptance of six of the Inspector General’s recommendations. We look forward to working with the ATO to ensure that communications between the ATO, tax agents and taxpayers can be made more transparent, timely and precise.
Technical references
The Inspector General’s report on his review into the ATO’s Change Program.
Impact on clients
The ATO’s approach to communication of important matters potentially affects all taxpayers and their agents.
Priority
High. This is not an interpretative issue.
The Commissioner has responded to the Inspector General’s recommendations and his views are contained in the report. Nevertheless, we think it would be worthwhile for the Commissioner to discuss the challenges involved in effectively adopting the recommendations.
Has previous advice been sought from the ATO?
Not specifically, though communication issues are a theme of many discussions between the Professional Bodies and the ATO.
Has this issue been discussed at any other consultative forum?
The Change Program has been discussed at the ATPF, and is likely to be discussed at upcoming meetings (due to the high impact on ATPF members). The specific approach to Tax Time 2011 will be discussed at the ATPF meeting on 20 May 2011.
It is considered that a discussion at the NTLG is warranted, given that communication is a key issue in the relationship between taxpayers, tax agents, the Professional Bodies and the ATO.
Response:
This item is for discussion at the meeting.
Meeting discussion
David Butler, Second Commissioner and John Ryan, First Assistant Commissioner attended for this Agenda Item.
The ATO spoke of the approach to Tax Time 2011. Apart from the annual changes, there are no major changes to the processing of income tax returns this year. An automatic garnishee process will be introduced in support of Centrelink (non family tax benefits) debts, and there is a new withholding reporting arrangement for closely held trusts.
In summary, the ATO is in a better position than last year, and the system is now bedded down.
The general communication strategy includes:
· Letter from the Commissioner – 24 June 2011.
· Broadcast to registered tax agents – 24 June 2011.
· Weekly updates on ato.gov.au.
· Regular telephone hook-ups with the ATPF members beginning 23 June 2011. These hook-ups will continue on a weekly basis from 6 July until 1 September 2011.
· Commitment from the ATO that members will be kept well informed to ensure early intervention and mitigation of any issues.
A draft of the Commissioner’s letter was made available to members at the meeting, with some useful feedback from members being incorporated into the final version.
The letter includes details on ATO service standards, and examples where some returns will take longer to process. The plan is to process 94% of electronically lodged income tax returns in 14 days, and most of the balance will be processed in 30 days. Examples of reasons why a return will take longer to process are: an extra 3 days is required for information exchanges between ATO and Centrelink (where the taxpayer is receiving family tax benefits); errors within the tax return (for example wrong date of birth or name details); the complexity of the tax return; and, potentially inflated or fraudulent claims. Electronic refunds will be received quicker than postal refunds (cheques).
Members were advised that in preparation for Tax Time 2011, the ATO systems must be shutdown for a short period of time to implement essential changes and undertake checks to ensure returns are processing correctly.
Members were also advised that verification processes this year will begin prior to 1 July 2011 as there are a number of returns that are lodged by ELS prior to 30 June. The actual period of verification is scheduled between 28 June and 5 July. If all goes to plan, from 6 July tax returns will go through the normal process cycle. Tax returns lodged between 28 June and 5 July will take longer because of the verification process. Last year it was 12 July before verification concluded and we resumed normal processing. This year, the ATO expects to have the first round of refunds processed and into bank accounts by 14 July.
[P9_591][Content]The ATPF were provided with an overview of the processing cycle at the May 2011 meeting. This document was found very useful in understanding the factors that could cause delays in processing tax returns.
Members were advised that a lodgment is not visible on the portal if processing of the return has been suspended for any reason. As such, if there is a delay between lodging a form electronically and viewing that lodgment on the portal it is an indicator that the return has been suspended and there will be a delay of between two to three days before the lodgment is visible. The ATO advised that where possible, tax agents need to consider this situation and please recheck the portal before calling the office. The Commissioner encouraged members to use online facilities where possible as this frees up the ATO staff to help those with more urgent concerns.
Regular updates will be available on ato.gov.au and via eLink communications.
The ATO spoke about the obligation of taxpayers when making a claim – the onus is on the taxpayer to ensure compliance. Members then raised issues with the concept of reasonable care, especially as some Professional Associations are running workshops for their members on the issue. It would appear there is a lack of information available to Tax Agents on this issue and taxpayers are not keeping the necessary substantiation. Members noted this issue would also be discussed with the Board of Tax on Thursday 23 June 2011. The ATO commented that this is good feedback and confirmed the issue needs to be taken up with the Board of Tax.
Proof of Identity for agents contacting the ATO was raised as a concern, but it was noted that an ATPF members are working with the ATO on this issue.
One member commented that the Professional Associations are very grateful to have the Tax Time working group happening again this year. The member thanked David Butler, Second Commissioner for the time invested in Tax Time, commenting that in particular the updates provided last year worked well, and took away uncertainty.
Another member thanked the ATO for the opportunity for the open and consultative approach for Tax Time.
The ATO commented that last year there were a couple of issues where the ATO held returns longer than usual, but it is good news this year as there is no similar requirement to hold back returns due to verification.
There was recognition that the Professional Associations are the main conduit in communicating with all practitioners.
Post meeting update
The following communications were made available by the ATO on 24 June 2011:
Message from the Commissioner of Taxation
Broadcast sent on 24 June 2011 from the Commissioner of Taxation asking all agents to assist us with a successful tax season.
Refer link http://ato.gov.au/content/00283797.htm
Our commitment to service during Tax Time 2011
Tax Time is the period between 1 July and 31 October each year, during which around 60% of income tax returns are lodged with the ATO. As we progress Tax Time 2011, we would like to share with you some detail on the work the ATO has been doing to improve the service we provide to the community.
Refer link http://ato.gov.au/content/00283932.htm
System maintenance and issues
This page contains scheduled downtime and details of issues currently affecting our online services.
Refer link http://ato.gov.au/content/50846.htm
This information was provided to members as part of the post meeting summary on 5 July 2011.
[_Toc309640820] 7 ATO approach to audits in the SME market segment
The Professional Bodies would like to better understand the strategies and risk identification methodologies employed by the ATO in its compliance approach to the SME market segment.
Background (as submitted by the Professional Bodies)
Some members of the tax profession have identified a markedly different approach to compliance monitoring in this segment, notwithstanding that the ATO’s 2010/11 Compliance Program states that the compliance approach and support mechanisms that are employed for this segment are similar to those employed in other business segments.
One of the main observations made by members of the tax profession is that auditors in the SME market segment are more likely to make assumptions about the risk profile of the taxpayer they are reviewing, rather than using publicly available information or data provided during the course of the investigatory and fact finding components of the review. Some tax advisers have also observed that auditors may refer the taxpayers they are auditing to the ATO’s wide-ranging powers to access information and issue amended assessments if the taxpayer fails to comply with all requests made by the auditors.
Whilst the compliance risks and business approach of taxpayers in the SME market segment is clearly different and distinct from that which exists in say the large business and international segment, the Members would like to better understand how those factors influence the approach adopted by ATO auditors in the carrying-out of compliance work in this segment.
Also, it would be beneficial to understand what quality assurance processes exist within the ATO to independently monitor the activities of front-line auditors in this particular market segment.
Industry view/suggested treatment
Not relevant for this item.
Technical references
Not relevant for this item.
Impact on clients
ATO audits in the SME sector can present significant challenges and result in significant compliance costs for affected taxpayers. As such, greater transparency around this process and an opportunity for the professional bodies to discuss this issue and consult on the ATO’s processes in this area would aid in decreasing unnecessary stress and costs for such taxpayers.
Priority
Medium. The Professional Bodies are of the view that this issue is of a medium priority. While the issue is significant and affects a large number of taxpayers, it is not urgent at this point in time.
Has previous advice been sought from the ATO?
Not on this specific issue.
Has this issue been discussed at any other consultative forum?
Not this specific issue.
Response:
The ATO will provide a presentation on this topic at the meeting.
The key points include:
· Compliance monitoring and risk assessment in the SME and private wealth market segments.
· Risk reviews and Audits in the SME and private wealth market segments.
· Quality assurance, training and technical support for auditors.
Meeting discussion
Gary Andrews, Assistant Deputy Commissioner attended for this agenda Item.
Some key points included within the presentation:
· Turnover is between $2m and $250 million. The market accounts for $70 billion.
· There are 175,000 businesses within the SME market, of which 98% are privately owned and therefore less transparent.
· We have around 850 staff involved in review and audit activities in this market.
· The ATO aims to encourage willing participation in the system and manage non compliance across the market. Activity in the market provides a good deal of intelligence.
· The ATO sees effective engagement along with credible compliance activities as the way to increase participation and voluntary compliance.
· The Risk differentiation framework (RDF) assists the ATO identify levels of risk and apply differentiated responses to those risks.
· Most taxpayers belong in the “Lower Risk Taxpayers” segment of the risk matrix. The ATO is fairly comfortable with this group in regard to their level of compliance, and seek to assist them by providing education and guidance to allow them to continue to comply voluntarily.
· There are relatively fewer taxpayers in the “Higher Risk Taxpayers” segment. Our focus on this segment is based on comprehensive reviews, audits and sometimes prosecution actions.
· We are currently in the third year of a 4 year program designed to risk review the approximately 1300 businesses with a turnover of between $100m and $250m. We have seen a significant increase in tax paid by businesses in the segment over the first 3 years of this program.
· A collective capability model is in place to support our active compliance staff. This includes team level technical support, senior technical leadership with the business line, case leadership within the business line, the ATO’s centres of expertise and the Tax Counsel Network.
· Active compliance staff had 19,000+ hours of structured technical skilling in the year to 31 March, with an ongoing focus on skilling and capability development based on individual needs and work priorities.
· We are increasing our focus on face to face interaction with advisers and clients to ensure that our positions and decisions are fully explained and understood.
Questions raised during the presentation
The ATO was asked for a definition of “wealthy”. The ATO replied that the definition has been included in the Wealthy and wise booklet for some time. The definition of “wealthy” as published in the Wealthy and wise booklet is included below for the Minutes:
“When we describe someone as highly wealthy we mean an Australian resident who, together with associates, effectively controls $30 million or more in net wealth.
In addition, we now have a specific focus on “Wealthy Australians. When we describe someone as a ‘wealthy Australian’ we mean an Australian resident who, together with associates, effectively controls between $5m and $30 million in net wealth.’
The Tax Office’s compliance effort is driven by tax risk, which informs how we allocate our limited resources.
We also have a responsibility to the Australian people to ensure everyone pays the right amount of tax in accordance with the law. For Australia’s wealthiest citizens, this means providing us with detailed information on their often inherently complex business and private interests so that we can determine whether there is a tax risk.
The definition of high wealth is for the purposes of tax administration only. Apart from the requirement to respond to our requests for information, there are no special tax obligations on wealthy individuals over and above those that apply to taxpayers generally.
Members were advised that the way in which the ATO assesses risk has not changed.
Members were interested in whether the 1300 businesses involved in the risk review were advised of the program. The ATO responded that yes, all 1300 business were told they were to be part of the risk review process.
A new product, the preliminary risk review (PRR), was developed specifically for this program. It is designed enable minimum cost and interaction with the business.
If the ATO finds any areas of concern during the PRR stage the particular business is contacted to clarify issues. Sometimes extra information will be required to be provided and in some instances these cases are escalated to more comprehensive reviews.
Members asked about the actual time taken for the PRR. The ATO responded that the target is generally 60 days, with 80% of cases completed in this time.
Comprehensive reviews have a target of 120 days and the ATO runs about 78% of cases within this target. Extended timeframes generally reflect the degree of complexity.
In relation to escalation of reviews, about 52% of cases are closed at the initial PRR stage, 40% will close at the next stage, and 10% will follow to audit stage. One member commented that he has concerns with some cases that have been delayed. The ATO asked for specific examples so they could be followed-up.
Members were concerned with 28 day deadline provided to tax agents as it can be difficult to negotiate in this timeframe. This concern seemed to reflect a particular situation within the ATO and it has been dealt with. If there are significant issues then the ATO needs to be made aware and appropriate action taken.
The ATO was asked how it would measure success. The ATO commented that the program is running to schedule and the 1300 cases will be reviewed in the 4 years as planned. From an intelligence perspective, the ATO now has a much better understanding of the risks and are developing key relationships with businesses and individual clients. While publishing of specific data is restricted, a review of the program will be completed after finalisation of all the activities involved in the program.
The Commissioner spoke of the complexities of the market, especially private wealth. There are also issues with anti avoidance, offshore investments, transfer pricing, phoenix activity and other complex structures that add to the challenge of protecting revenue.
In relation to the Integrated Quality Framework (IQF) process members asked about the use of panel providers. The ATO advised there is a panel consisting of accountants and lawyers who are brought in as part of the IQF case review process. These panel providers are paid on a fee-for-service basis.
The ATO has been investing in skilling for its active compliance staff and there is a good mix of skills that can be called upon. The Commissioner added that the ATO works on the basis of the sum of the skills we have across the office and we bring together the right skills. This is a good thing. We do not want to proceed on the wrong basis. Where the ATO receives criticism on this account, the criticism needs to be looked at in context. There are cases that are audited and proceed to litigation.
Members asked about the ATO’s use of access powers. The use of access powers is carefully managed to ensure that the formal powers are used only where it is necessary to ensure a clear and correct outcome for the matter and in some cases where the taxpayer is uncooperative or obstructing us from achieving the correct outcome. But numbers are low in comparison to overall case activity.
The formal “s264” interview processes are being used more often as it is sometimes the only way to get all information and facts to enable a decision to be made on the tax outcome of the matter.
Members were also interested in the difference between SNC and general audit activity. The ATO advised that SME for example would begin a case and if evidence of fraud or criminal activity was evident the matter would be referred to SNC for their review and action as necessary. Members were encouraged to provide any details of cases where they had concerns with the process.
The Commissioner also spoke about recent criticism in the media, and the ATO was keen to dispel the myths. Members agreed, saying they are often not contacted for input to articles that appear in the media and a different slant could be provided if a broader range of people were asked for comment.
Members were advised that the ATO acknowledges when it makes mistakes, that it needs to fix them. Tax professionals are encouraged to raise specific process issues with the ATO. There are escalation processes in place and the Commissioner guarantees that taxpayers and their agents will not be adversely affected if they raise such issues. If there are issues and concerns members need to raise them through the appropriate channel. Anecdotal information, if it proves to be misleading because the full facts were not disclosed harms community confidence in the tax system.
The Commissioner reiterated the offer for representative bodies, with the agreement of the taxpayer, to review alleged concerns on the basis of the facts available to the ATO. This could be done for “improvement purposes” only, and separated from any work being done on the actual case.
Members were quite supportive of the work the ATO is doing and appreciative of the collaborative approaches.
Gary Andrews, Assistant Deputy Commissioner offered to visit and speak with members as well as attend meetings of tax professionals regarding all SME or high wealth focussed compliance activities.
[NTLG110603] Action item NTLG1106/03
The ATO will be undertaking a review of the Small and Medium Enterprises $100m to $250m turnover program on completion of the activities involved in this work. The ATO will provide details to the NTLG on completion of the review.
Post meeting update
Members were provided with a copy of the power point presentation as part of the post meeting summary, on 5 July 2011. Disappointingly comments were made in the media following the NTLG discussions which were not aligned with the tenor of the discussions.
[_Toc309640821] 8 Risk management by the ATO
The Professional Bodies would like the ATO to deliver a short presentation to the group outlining the internal data analytics process undertaken in respect of identifying high-level tax information about market segments and particular industries.
Background (as submitted by the Professional Bodies)
Specifically, it would be useful to better understand how the ATO arrives at conclusions in respect of matters such as effective tax rates and the relative capital intensity of certain industry sectors, and on what basis those conclusions are drawn.
It would be beneficial to understand what, if any, external publicly available information is utilised in such processes also.
The objective on the part of [OLE_LINK1]the Professional Bodies in putting forward this request is to obtain a clearer understanding of the underlying basis for assertions made by the ATO about the tax data trends identified in various sectors and segments.
Industry view/suggested treatment
Not relevant for this item.
Technical references
Not relevant for this item.
Impact on clients
While this issue does impact on taxpayers’ compliance activities, as set out above, the main objective on the part the Professional Bodies in putting forward this request is to obtain a clearer understanding of the underlying basis for assertions made by the ATO about the tax data trends identified in various sectors and segments.
The results of the discussion on this topic may lead to follow up issues or matters for discussion in subsequent meetings.
Priority
The Professional Bodies are of the view that this issue is of a medium priority. While the issue is significant and affects a large number of taxpayers, it is not urgent at this point in time.
Has previous advice been sought from the ATO?
Not on this specific issue.
Has this issue been discussed at any other consultative forum?
Not this specific issue.
Response:
The ATO will provide a presentation on this topic at the meeting.
The key points include:
· Enterprise risk management in the ATO.
· Health of the system assessments (HOTSA).
· Use of legislated and third party data to inform risk assessment.
· Future directions for managing risk.
Meeting discussion
Shane Reardon, Chief Knowledge Officer attended for this Agenda item.
Some key points included in the presentation:
· The ATO enterprise risk approach consists of four key segments: Tax & Super Administration, Stakeholder Engagement, Enabling Capabilities, and Other Business. Within these segments are 22 separate “Enterprise Risks”, each risk with a senior officer appointed as a risk manager.
· Looking more specifically at the Tax and Super Compliance enterprise risk, part of our risk management process is to conduct annual strategic reviews called “Health of the system assessments” (HOTSAs). Some of the HOTSA questions include:
° Are the appropriate revenues/transfers/payments received
° Is there community confidence in the system
° Do clients understand their obligations
° Are risks identified and acted upon,
° How do we assess the role of intermediaries.
Some contextual information which helps inform risk managers in conducting their HOTSA processes:
· At 30 June 2010, 15 million ITRs were lodged, collections were approximately $180 billion, and 11 million refunds were issues.
· This financial year, the ATO will data match and/or analyse over 520 million transactions to support a range of compliance and service activities. Examples include:
° Investment, Employment & Private Health Insurance: 91 million transactions.
° Superannuation – 21 million transactions.
° Share ownership and disposal – 237 million transactions
· There are a number of systems in use to help assess risk: the Analyst work bench is used to gather intelligence on taxpayers using information acquired through third parties (eg AUSTRAC, ASIC etc); the Reporting and Profiling Tool is used to gather and analyse ATO held information from Business Activity Statements and Income tax returns; and Analytics processes are used to conduct deeper interrogation of our data and information holdings for the most complex matters.
· Members were shown some examples of a “relationship chart” that provides association of taxpayer data fields.
· The ATO is expanding its ability to differentiate based on assessment of risk.
The ATO spoke about the richness of data provided by AUSTRAC. Further, the ATO has very skilled specialists in this field who are called upon to assist other tax administrations and as well, have been guest lecturers at various universities. Due to the sophistication of our systems and the advances made in prefilling, we are seeing good levels of voluntary compliance. Members were keen to know about gap analysis and whether there are any reliable statistics available. The ATO replied that we did not conduct tax gap analysis but we did do profiling against high level national accounts data.
Due to the engagement and interest in Agenda Items 7 and 8, the ATO agreed to make “Risk” a standing agenda item on the NTLG.
[NTLG110604] Post meeting update
Members were provided with the power point presentation as part of the post meeting summary, on 5 July 2011.
[_Toc309640822] Updates
[_Toc309640823] 9 Research
This is a standing agenda item set to present and discuss relevant publicly released ATO research topics. Dependent on availability of appropriate subject matter, the ATO will include as part of the agenda twice yearly, at the March and September NTLG meetings.
Action item number NTLG1003/06 refers.
Response:
[_Toc309640824] 9.1 Taxation Statistics 2008-09 (100 people)
The ATO will demonstrate a new on-line presentation, based on Taxation Statistics 2008-09, that shows all the individual taxpayers in Australia as though they were 100 people.
[_Toc309640825] 9.2 Professionalism Survey
The ATO will also present findings of the biannual Professionalism Survey that evaluates ATO employees ’level of ‘overall professionalism’ as perceived by taxpayers and intermediaries who have had an interaction with the ATO in the previous six months.
· The ATO currently conducts a biannual Professionalism Survey to evaluate ATO employees’ level of ‘overall professionalism’ as perceived by taxpayers and intermediaries who have had an interaction with the ATO in the previous six months.
· The November 2010 report covers the period January to July 2010.
· For each wave of the Professionalism Survey, the ‘professionalism score’ is compared to the predetermined benchmark score of 3.7 out of 5.0 - which translates to the ATO aiming for at least 74% of clients being satisfied or very satisfied with the level of professionalism they receive from ATO staff.
· The survey also measures ATO professionalism in terms of nine pre-defined characteristics of professionalism, and asks specific questions on client satisfaction with each of these.
· Business areas participating in this wave of the survey were GST Field, GST Pre-Issue Refund Integrity (GST PIRI), Operations Debt Business (OPS Debt Business), Operations Debt Individuals (OPS Debt Individuals), Lodgment Compliance, Small and Medium Enterprises (S&ME), Micro Active Compliance (MAC), Employer Obligations, Individuals, Superannuation, Excise Collections, Fuel Tax Credits, Tax Agents, and Large Market.
Meeting discussion
The Taxation Statistics 2008-09 (100 people) presentation was unable to be delivered on the day.
Michael Monaghan, First Assistant Commissioner provided a brief presentation on the professionalism survey.
The key points included in the presentation:
· The survey took place in November 2010.
· Publishing of the survey results is scheduled for 6 July 2011.
· Some results provided by both taxpayers and tax agents were “up and down”.
· Some issues are currently being investigated.
· The November 2010 survey showed that the ATO achieved an overall professionalism score of 4.03, which is 0.33 above benchmark score.
· There has been a slight decrease from the May 2010 survey which was 4.06 in May 2010.
· Overall the result translates to 80% of ATO clients were satisfied or very satisfied with the level of professionalism they received from their interaction with ATO staff.
Post meeting update
Prior to the 22 June 2011 NTLG meeting, members were advised that the ATO expected to release the following survey reports on 6 July 2011:
· Community perceptions survey, June 2010
· Professionalism survey executive report, November 2010, and
· General interest charge free arrangement initiative evaluation, 2010.
Publishing of these reports has since been delayed until mid August to allow for deeper analyses.
On 5 July 2011, members were provided with the link to the 100 people presentation and the professionalism survey power point presentation, as part of the post meeting summary.
[_Toc309640826] 10 Litigation case report
This is a standing agenda item and is included in the agenda twice yearly, at the June and December NTLG meetings.
Action item number NTLG0706/11 refers
Response
This update is a summary of significant litigation matters, as at 3 June 2011, including matters that:
· have received a recent decision;
· are in progress;
· are awaiting a decision.
The last significant litigation update provided to the NTLG was up to and including 27 November 2010.
Significant litigation matters – recent decisions
|
Matter, Venue/Date handed down, Outcome (to ATO) |
Case issue and decision |
|---|---|
|
Matter AID/WATCH INCORPORATED Taxpayer’s appeal from the decision of the Full Federal Court [2009] FCAFC 128 . Venue/Date handed down High Court,1 December 2010 [2010] HCA 42 Outcome (to ATO) Adverse |
Issue Whether the taxpayer should be denied charitable status on the basis that its main activities are ‘political’ and, hence, its main purpose is a political purpose. The taxpayer, a non- governmental organisation, whose objectives are to monitor, research, campaign and undertake activities in relation to the delivery of overseas aid, and whose main activity is to persuade the government to its point of view and to attempt to bring about change in government activity and government policy, argued that its main purpose is not a ‘political’ purpose and it is entitled to endorsement as a charitable institution. Decision The High Court held that there is no general doctrine in Australia which excludes ‘political objects’ from charitable purposes. The taxpayer’s activities were held to be charitable because they contributed to the public welfare, being a purpose beneficial to the community. |
|
Matter American Express International Inc & American Express Wholesale Currency Service Pty Limited Taxpayer’s application for special leave to appeal to the High Court against the decision of the Full Federal Court [2010] FCAFC 122 Venue/ Date handed down High Court, 4 May 2011 [2011] HCATrans 114 Outcome (to ATO) Favourable |
Issues · The case concerns whether late payment fees in respect of credit card services, and ’liquidated damages’ in respect of charge card services, constitute revenue derived from the making of financial supplies; and · if so, whether the supplies made to charge card or credit card holders were not financial supplies because they were supplies under a payment system. The taxpayers adopted a methodology which did not characterise the late payment fees in respect of credit card supplies and 'liquidated damages' in respect of charge card supplies as revenue for input taxed supplies. This resulted in an increase in the amount of their input tax credits and a corresponding reduction in their GST liability. Decision The taxpayer's application for special leave to appeal to the High Court was refused, after a full hearing of the matter by the Full Court. This confirms the decision of the Full Federal Court, favourable to the Commissioner, that the supply of the right to use an Amex charge card or a credit card is an input taxed financial supply, and the fees payable by card holders (if they do not pay the monthly charge card bill in full, or do not pay the minimum monthly payment due on a credit card bill) were revenue from input taxed financial supplies. |
|
Matter ASHWICK (QLD) NO 127 PTY LTD Commissioner’s appeal against the decision of the Federal Court [2009] FCA 1388 Venue/ Date handed down Full Federal Court , 8 April 2011 [2011] FCAFC 49 Outcome (to ATO) Adverse |
Issues · The deductibility of bad debts written off in respect of loans between group companies; · the deductibility of interest incurred on such loans; · the deductibility of losses arising from the bad debt write-offs and interest deductions transferred to other group companies; and · the application of Part IVA to the arrangement giving rise to the majority of the claims for deductions. Various companies in the Fosters group claimed deductions for amounts of unpaid principal or interest on intra-group loans that were written off as bad debts. Deductions were claimed by other group companies in respect of the interest incurred on the intra-group loans. Ashwick and two other companies claimed deductions for losses transferred to them by the group companies which claimed the deductions for bad debts and interest. Decision The Court held that the unpaid principal and interest written off as bad debts were allowable deductions. The Court further held that Part IVA did not apply. |
|
Matter AURORA developments pty ltd Taxpayer’s appeal against the Commissioner’s objection decisions. Venue/ Date handed down Federal Court, 18 March 2011 [2011] FCA 232 Outcome (to ATO) Favourable |
Issues · Whether the supply of land, on which certain works were carried out pursuant to a special condition of the contract of sale, is the supply of a going concern under s 38-325 of the GST Act. · Whether the day of supply is the date on which the contract is entered into or the date of completion (settlement) of the contract? Decision The Court held that the sale of a residential property development site by the taxpayer was not a GST-free supply of a going concern, because the taxpayer had abandoned its development project on the land, and, therefore, was no longer carrying on its project enterprise in respect of that land, but was engaged in an en globo sale of the land as part of its general business undertaking as a property developer. The Court also held that, under the contract, settlement was treated by the parties as the day of supply. This matter was test case funded. |
|
Matter AXA ASIA PACIFIC HOLDINGS LTD Commissioner’s application for special leave to appeal against the decision of the Full Federal Court [ 2010] FCAFC 134 Venue/ Date handed down High Court, 11 March 2011 [2011] HCATrans 063 Outcome (to ATO) Adverse |
Issues · Whether the parties were dealing at arm’s length within the meaning of the scrip for scrip provisions in Subdivision 124-M of the ITAA 1997 · Whether Part IVA of the ITAA 1936 applies to deny a tax benefit (the deferral of a capital gain). The case concerned the indefinite deferral of a capital gain and challenges the ATO’s position set out in Taxation Ruling TR 2005/19. Decision The High Court refused to grant the Commissioner special leave to appeal the decision of the Full Federal Court. This confirms the Full Federal Court decision that the taxpayer was entitled to the benefit of the scrip for scrip roll-over provisions to indefinitely defer a capital gain of $383 million on the basis that the parties involved were dealing with each other at arm's length. The Full Federal Court also held that Part IVA did not apply to the transaction. The High Court, in refusing the Commissioner’s special leave application, considered that the arm's length issue was factual, and that, on the tax benefit issue, the deliberations of the Full Federal Court in earlier decisions should not be disturbed. |
|
Matter BHP Billiton Limited Commissioner’s appeal against the decision of the Full Federal Court [2010] FCAFC 25 Venue/ Date handed down High Court, 1 June 2011, [2011] HCA 17 Outcome (to ATO) Adverse |
Issue Whether Division 243 of the ITAA 1997 applies to reduce the taxpayer’s capital allowance deductions on the basis that a particular loan was limited recourse debt for the purposes of Division 243 and the deductions were excessive having regard to the amount of debt that was repaid. Decision The Court accepted the Full Federal Court's construction of s 243-20(1) and (2) as confined to situations where, at the time of borrowing, the debtor is not fully at risk in relation to expenditure because of contractual limitations on the lender's rights of recourse on a relevant event of default, or where, at the time of borrowing, the debtor, or someone else has the capacity to bring about that state of affairs subsequently. Their Honours also concluded that to describe a creditor's rights of recourse as 'capable of being limited' is to refer to a power of a person to limit or bring about a limitation on those rights, and that such a power must exist at the inception of the loan, whether it arises as a result of an arrangement or a circumstance or conduct, or in some way other than the way covered by s 243-20(1). Hence, s 243-20(2) would not be satisfied by the existence, at the inception of the loan, of a possibility of a person acquiring a capacity to limit, or a power to cause the relevant limitation of a creditor's rights of recourse at some point in the future. Their Honours also said that, otherwise, all loans used by a debtor to acquire property, including loans for special purpose projects involving a corporate group and intra-group financing, must be characterised as giving rise to obligations which must be treated as limited recourse debts, even though the provision is directed at a debtor taxpayer who has not been fully at risk in relation to an amount of expenditure. In their view, such an interpretation carries the potential for discouraging investment in special purpose projects. Their Honours also rejected the Commissioner's contention that the relationship between BHPDRI and Finance was not at arm's length. |
|
Matter British American Tobacco Australia Services Ltd Taxpayer’s application for special leave to appeal against the decision of the Full Federal Court [2010] FCAFC 130 Venue/ Date handed down High Court, 8 April 2011 [2011] HCATrans 094 Outcome (to ATO) Favourable |
Issue Whether Part IVA of the ITAA 1936 applies to a scheme which enabled the taxpayer to obtain a tax benefit (the non-inclusion of a capital gain in its assessable income) by claiming CGT roll-over relief on the sale of certain assets to a related company, which immediately sold the assets to unrelated companies and applied capital losses to off-set the resulting capital gain that otherwise would have been taxable in the hands of the taxpayer. The taxpayer entered into a scheme which involved selling cigarette brand assets to a merger partner entity under roll-over before they were immediately on-sold for the same price to the third party. This allowed the merger partner entity to apply capital losses to off-set the capital gains that otherwise would have been taxable in the hands of the taxpayer. Decision The High Court refused the taxpayer’s application for special leave to appeal. The High Court said that the issue of whether Part IVA applied involved the uncontroversial application of settled law to the facts. The Full Federal Court held that Part IVA applied to the scheme, and that the primary judge had applied the correct principles in relation to scheme, tax benefit and dominant purpose. |
|
Matter patrick Carberry Taxpayer’s application for a review of the Commissioner’s objection decision. Venue/ Date handed down Administrative Appeals Tribunal, 10 May 2011 [2011] AATA 303 Outcome (to ATO) Adverse |
Issue Whether an amount received by the taxpayer under a State government financial assistance program was to be included in the applicant’s assessable income because it is ordinary income, a bounty or subsidy assessable under s 15-10 of the ITAA 1997, or a capital gain as a result of the happening of CGT event C2 or H2. The taxpayer was seeking to exclude from his assessable income a payment received under the program as a result of a reduction in the taxpayer’s entitlements to extract water for irrigation. Decision The Tribunal held that a payment received by the taxpayer from the NSW Government as consideration for a reduction in the taxpayer's water extraction rights was not ordinary income and was not a bounty or subsidy. It was a capital receipt, but because the CGT event did not occur in the relevant income year, there was no impact on the taxpayer's tax position for that year. |
|
Matter Citigroup Pty Ltd The taxpayer and Commissioner appealed against different aspects of the Federal Court decision [2010] FCA 826 Venue/ Date handed down Full Federal Court, 10 May 2011 [2011] FCAFC 61 Outcome (to ATO) Partly Adverse |
Issues · Whether Part IVA applies to cancel a foreign tax credit claimed by the taxpayer. · If Part IVA applies, whether the taxpayer is liable to pay the general interest charge on the increased tax liability from the date that tax liability was due and payable. The taxpayer entered into a complex off-shore arrangement which resulted in the taxpayer claiming a foreign tax credit exceeding the tax payable in Australia on the amount of profit returned as income. In separate proceedings, the taxpayer sought a declaration that GIC was not payable on the increased tax liability. Decision The Full Federal Court upheld the decision of the primary judge that Part IVA applies to cancel the benefit of foreign tax credits claimed by the taxpayer. However, the Court dismissed the Commissioner's appeal in the s 39B proceedings, confirming the decision of the primary judge that s 204(3) of the 1936 Act did not impose GIC on the amount owed by the taxpayer, because the cancellation of the credits did not mean that there was unpaid tax on which GIC would be payable - the Commissioner's only remedy was to recover the excess under s 160AN(5) 'as if it were tax due and payable'. |
|
Matter Colonial First State Investments Ltd Taxpayer’s appeal against the Commissioner’s decision to disallow an objection against a private ruling. Venue/ Date handed down Federal Court, 18 January 2011 [2011] FCA 16 Outcome (to ATO) Partly Adverse |
Issues · Whether the taxpayer is a relevant beneficiary of a Wholesale Fund for the purposes of s 97 of the ITAA 1936? · Whether the taxpayer is presently entitled to a share of the income of the Wholesale Fund? · Whether the short term or long term capital gain accounts (the “gain part”) forms part of the income of the Wholesale trust estate under s 97? · If so, whether the “gain part” should be included in the assessable income of the redeeming unit holder as the redeeming unit holder’s ‘share’ of the s 95 net income of the Wholesale fund? · Whether the taxpayer has a fixed entitlement to a share of the income or capital of the Wholesale fund under s272-5(1) of schedule 2F of the ITAA 1936? The taxpayer was proposing to direct capital gains, including trust net income, to redeeming unitholders, and argued that the proportionate approach does not apply in respect of the distributions to redeeming unit holders, on the basis that the trust deed is effective in equating income for tax purposes with income for trust accounting purposes. Decision The Court accepted the propositions made by the Commissioner, that: · The taxpayer is not presently entitled to a share of the income of the wholesale fund within the meaning of s 97(1) of the ITAA 1936. · The "gain part" does not form part of the income of the wholesale trust estate for the purposes of s 97(1). · The unit holder's liability under s 97, in respect of the s 95 income of the wholesale fund, depends upon the ratio which the "gain part" bears to the total income available for distribution after provision for the trustee's proper revenue expenses in the income year. · The wholesale trust would not be a fixed trust and, therefore, the taxpayer would not have a fixed entitlement to a share of the income or capital of the wholesale fund for the purposes of s272-5(1) of schedule 2F of the ITAA 1936? However, in respect of the issue of allowable deductions under Division 102 and Subdivision 115-C of the ITAA 1997, her Honour rejected the Commissioner's proposition that, because of the interposition of a custodian, the taxpayer is not a beneficiary of the wholesale trust. |
|
Matter CO-OPERATIVE BULK HANDLING LIMITED Commissioner’s appeal against the decision of the Federal Court [2010] FCA 508 Venue/Date handed down Full Federal Court, 17 December 2011 [2010] FCAFC 155 Outcome (to ATO) Adverse |
Issue Whether the taxpayer, which is the major operator of grain bulk handling in WA, was exempt from income tax on the basis that it is a society or association established for the purpose of promoting the development of Australian agricultural resources, and is not carried on for the profit or gain of its individual members. Decision A majority of the Full Federal Court (Mansfield & McKerracher JJ) dismissed the Commissioner's appeal. The majority agreed with the primary judge that the principal, dominant or main purpose of CBH is to promote the development of Australian agricultural resources by promoting the development of the grain growing industry of Western Australia. |
|
Matter KEVIN AND MIRJA DENLAY Taxpayers’ appeal against the decision of the Federal Court. [2010] FCA 1434 [2010] FCA 1435
Venue/ Date handed down Full Federal Court, 11 May 2011 [2011] FCAFC 63
Outcome (to ATO) Favourable |
Issues Are the amended assessments invalid because they are based on documents from the LGT Bank in Liechtenstein, obtained in contravention of the Criminal Code (Cth), because they were obtained by ATO officers knowing that the documents were stolen by the informant who supplied them? The taxpayers are seeking to have amended assessments set aside on the basis that they are invalid because the Commissioner had used information from a third party who had stolen it, giving rise to conscious maladministration in the making of the assessments. Decision The Full Federal Court dismissed the taxpayers' applications to have their amended assessments quashed. The Court held that there was no conscious maladministration because there had been no bad faith on the part of the Commissioner or his officers. The Court also said that, even if the obtaining of the information involved unlawful conduct by the Commissioner's officers (which, on the facts of this case, it did not), that would not necessarily deny the integrity of the assessment. |
|
Matter ESSO AUSTRALIA RESOURCES PTY LTD Taxpayer’s appeal against the Commissioner’s objection decision. Venue/Date handed down Federal Court, 30 May 2011 [2011] FCA 565 Outcome (to ATO) Adverse |
Issues · Can a liability to make a payment to procure the carrying on or providing of operations, facilities or other things of a kind referred to in s 37, 38 or 39 of the PRRTAA by another person give rise to deductible expenditure by operation of section 41 of the Act, regardless of the “excluded expenditure” provision of section 44 of the Act? · What expenditure is excluded as ‘payments of administrative or accounting costs, or of wages, salary or other work costs, incurred indirectly’ by section 44(j) or as ‘payments in respect of land or buildings for use in connection with’ certain ‘administrative or accounting activities’ by section 44(k) of the Act? · What expenditure disallowed by the Commissioner is deductible expenditure by reason that it: o Was incurred in relation to a petroleum project? and o Was exploration expenditure, general project expenditure or closing down expenditure, being incurred in carrying on or providing relevant operations, facilities or things for the project? and o Was not ‘excluded expenditure’ within the meaning of section 44 of the Act? Decision The Court held that the substantial, if not the sole, purpose of the payments by the taxpayer, under the terms of a contract with a related entity for services, was to carry on or provide operations, facilities or other things comprising the joint venture project. His Honour concluded that, where a payment which a relevant person is liable to make is, as a matter of contract, an indivisible amount for aggregated goods and services, the language of the Act does not require a dissection of the goods and services in order to conclude that only part of the payment is liable to be made by the person in carrying on or providing operations, facilities or other things comprising the project, and that another part is liable to be excluded expenditure under s 44. The Court also held that the mutualised research costs incurred by the taxpayer was not deductible because the payment was not liable to be made in carrying on or providing operations and facilities in or in connection with exploration for petroleum. |
|
Matter Esso Australia Resources Pty Ltd & BHP Billiton Petroleum (Bass Strait) Pty Ltd Taxpayers' appeal against the Commissioner's objection decisions. Venue/ Date handed down Federal Court, 13 April 2011 [2011] FCA 360 Outcome (to ATO) Partly Adverse |
Issues · At what point do marketable petroleum commodities (sales gas and LPG) become excluded commodities resulting in the derivation of assessable petroleum receipts? · Are amounts paid to the taxpayers for increasing the maximum limit for maximum daily quantity (MLMDQ) consideration in relation to the sale of a marketable petroleum commodity? · Were shortfall payments received by the taxpayers “consideration receivable in relation to the sale of gas” and, if so, were they assessable in the year received or the year in which make up gas was delivered? The taxpayers sought to reduce their liability to PRRT on the basis that the amount of their assessable receipts should be reduced, because the taxing point for marketable petroleum commodities is much earlier in the process, which would enable them, in working out their assessable receipts, to offset notional costs. Decision The major issue in this case was at what stage do sales gas and LPG become excluded commodities for determining assessable petroleum receipts in relation to the Bass Strait petroleum project. The Court held in favour of the Commissioner that the sales gas product was produced by the taxpayers when the petroleum from the wellheads completed the production process at the Longford refinery, so that the consideration received for the sales gas product, less expenses payable in relation to the sale of the gas, constituted assessable petroleum receipts. In relation to the other issues, his Honour accepted the taxpayers' contentions that the MLMDQ payments did not relate to the sale of sales gas. His Honour also accepted the Commissioner's contention that a payment received in the 1997 year under Take or Pay provisions was an assessable petroleum receipt, although the taxpayers were not obliged to provide any make up gas by virtue of the payment. His Honour also held that gas used for project purposes, which generated surplus electricity that was sold into the grid, was used in carrying on operations within the Longford facilities and did not give rise to an assessable petroleum receipt. |
|
Matter IBM Corporation & IBM World Trade Corporation Taxpayer’s application for a declaration. Venue/ Date handed down Federal Court ,12 April 2011 [2011] FCA 335 Outcome (to ATO) Favourable |
Issues · Whether the fees payable to the taxpayers under a licence agreement are ‘royalties’ in whole or in part? · If the fees payable under the agreement are not wholly but only in part royalties, what portion of the fees payable are royalties? The taxpayers were seeking to reduce the amount of royalty withholding tax that is withheld from fees paid to them by IBM Australia under a software licence agreement, on the basis that only part of the fees constitute royalties because the agreement is a distributorship agreement under which the principal right granted to IBMA is the right to use, distribute and market IBM computer programs. Decision The Court held that the agreement is not a distribution agreement which confers distribution rights independently of the grant of intellectual property rights and, therefore, the full amount of the payments constitutes royalties. |
|
Matter Luxottica Retail Australia Pty Ltd Commissioner’s appeal against the decision of the AAT [2010] AATA 22 ]. Venue/ Date handed down Full Federal Court , 23 February 2011 [2011] FCAFC 20 Outcome (to ATO) Adverse |
Issues · How is the discount from the normal selling price offered by the taxpayer on spectacle frames, on condition that customers acquire an entire pair of prescription glasses, treated for GST purposes? · Should GST be calculated on the discounted frame price (the taxpayer’s position), or should the discount be apportioned between the frame and the lenses (the Commissioner’s position)? The taxpayer was seeking to reduce the amount of GST payable on the supply of an entire pair of prescription glasses on the basis that GST should be calculated on the discounted frame price (in a situation where the supply of the frame is subject to GST and the supply of the lenses is GST-free). The Taxpayer argued that the discount offered on the purchase of the frame should not be apportioned between the price of the frame and the lenses. Decision The Court held that the value of a taxable supply that is partly GST-free must be determined as a matter of practical common sense, taking into account the relevant circumstances of the particular case. In this case, the AAT had not made an error of law by adopting a different approach from the Commissioner in determining the value of the supply. |
|
Matter McMENNEMIN, FRANK & DIANNE Commissioner’s appeal against the decision of the AAT [2010] AATA 573. Venue/ Date handed down Full Federal Court, 17 March 2011 [2011] FCAFC 37 Outcome (to ATO) Adverse |
Issue Whether the AAT has jurisdiction to review the Commissioner's discretion to disregard, or reallocate to another financial year, excess non-concessional superannuation contributions? This case concerns contributions to self-managed superannuation funds in excess of the $1 million transitional non-concessional contributions cap and whether the AAT had jurisdiction to review the exercise of the Commissioner’s discretion. Decision The majority of the Full Federal Court held that the AAT was correct to conclude that it did not have the jurisdiction to review the Commissioner’s decision to refuse to make a determination to disregard or reallocate excess non-concessional superannuation contributions. The majority rejected the Commissioner's submission that the refusal to make the determination was 'sufficiently connected' or 'integral' to the process of assessment of a taxpayer's liability to excess contributions tax that it was reviewable under Part IVC of the TAA. Their Honours said that the submission requires a departure from the scheme established by Part IVC without explicit legislative instruction in that regard. |
|
Matter Secretary to the Department of Transport (Victoria) Commissioner’ application for special leave to appeal against the decision of the Full Federal Court [2010] FCAFC 84 Venue/ Date handed down High Court, 10 December 2010 [2010] HCATrans 330 Outcome (to ATO) Adverse |
Issue Whether the taxpayer was entitled to input tax credits for the GST component of payments made to taxi-cab operators under the State government multi-purpose taxi program that provides a subsidy for taxi travel to Victorian residents who suffer severe and permanent disabilities. Decision The High Court refused the Commissioner's application for special leave to appeal. This confirms the majority decision of the Full Federal Court that the Department was entitled to input tax credits in respect of payments made to taxi operators under the State government program. In refusing special leave, the High Court was not satisfied that the application, which they considered concerns matters of characterisation, raises any general principle of public importance that would warrant the grant of special leave. |
|
Matter SNF (Australia) Pty Ltd Commissioner’s appeal against the decision of the Federal Court [2010] FCA 635 Venue/Date handed down Full Federal Court, 1 June 2011 Topic Transfer pricing |
Issues · Whether Division 13 of Part III of the ITAA 1936 authorises the Commissioner to adjust the purchase price of products acquired by the taxpayer from related parties on the basis that the taxpayer gave more than an arm’s length consideration in respect of those purchases. · Whether the taxpayer’s evidence as to comparable uncontrolled prices (CUP) determined the arm’s length consideration of the related party transactions under Division 13, or whether the application of the transactional net margin method (TNMM) was appropriate in determining the arm’s length consideration. Decision The Full Federal Court accepted the conclusion by the primary judge that the essential task is to determine the arm's length consideration in respect of the acquisition. One way to do this is to find truly comparable transactions involving the acquisition of the same or sufficiently similar products in the same or similar circumstances, where those transactions are undertaken at arm's length, or if not taken at arm's length, where suitable adjustment can be made to determine the arm’s length consideration that would have taken place if the acquisition was at arm's length. The Court concluded that this statement is consistent with the Model Law, the commentary that accompanies it, and the guidelines. Ultimately, the Court concluded that, in this case, the taxpayer had proved that the prices paid by it were less than the prices paid by independent comparable purchasers, which were arm's length prices. Hence, the taxpayer's prices did not exceed arm's length consideration. |
|
Matter Sunchen Pty Ltd as Trustee for the Sunchen Family Trust Taxpayer’s appeal from the decision of the Federal Court [2010] FCA 21 Venue/ Date handed down Full Federal Court, 8 December 2010 [2010] FCAFC 138 Outcome (to ATO) Favourable |
Issues · Whether the subjective intention of the purchaser, a property developer, is a relevant factor in determining if premises are used predominantly for residential purposes; and · Whether the acquisition of the property relates to an input taxed supply and what is the meaning of 'residential premises to be used predominantly for residential accommodation' for the purposes of the GST Act. The taxpayer claimed an input tax credit for the GST component of the purchase price of land (which had a house constructed on it that was occupied by a residential tenant), on the basis that the property was to be used for property development, and not used ‘predominantly for residential accommodation’. Decision While there are differences in the reasoning of the judges, the majority adopted the Commissioner’s submissions. The majority (Edmonds & Gilmour JJ) held that the question of whether residential premises are 'to be used predominately for residential accommodation' should be determined objectively by reference to the attributes of the property. |
|
Matter WENTWORTH DISTRICT CAPITAL Commissioner’s appeal against the decision of the Federal Court [2010] FCA 862. Venue/ Date handed down Full Federal Court, 28 March 2011 [2011] FCAFC 42 Outcome (to ATO) Adverse |
Issue Is a community bank exempt from income tax as an association established for community service purposes? The taxpayer was seeking tax exempt status as an entity established for community service purposes, on the basis that it was established to facilitate face-to-face banking services in a rural town where such banking services are not otherwise available. Decision The Court held that the taxpayer was exempt from income tax because its main or dominant purpose - to facilitate face-to-face banking in Wentworth by making it commercially viable for Bendigo Bank to operate in Wentworth - was a community service. The conduct by the taxpayer of the shopfront operations of Bendigo Bank on a not-for-profit basis continued its purpose of facilitating the provision of banking services in Wentworth. |
|
Matter Virgin Blue Airlines Pty Ltd This is the taxpayer’s appeal against the decision of the Federal Court [2010] FCA 631 Venue/ Date handed down Full Federal Court, 30 November 2010 [2010] FCAFC 137 Outcome (to ATO) Adverse |
Issue Was car parking provided to the taxpayer’s employees in a car park located 2 km from the airport terminal where the employees worked “in the vicinity of” their primary place of employment, within the meaning of section 39A(1)(f) of the Fringe Benefits Tax Assessment Act 1986? The taxpayer argued that it was not liable for fringe benefits tax in respect of car parking benefits provided to its employees at Melbourne Airport where the parking is within the Melbourne Airport area, but approximately 2 km away from Terminal 3 (which is the primary place of employment). Decision The Full Federal Court said that the statutory test is whether the car park is in the vicinity of the employee's primary place of employment. It is the spatial and geographical separation between them that is important. In their view, it is ultimately a matter of evaluative judgment, and they held that a car park which is approximately 2 km away from the primary place of employment of the taxpayer's employees 'is not near, proximate or close to that place'. |
Significant litigation matters – in progress
A list of strategic issues currently in litigation is provided for information. These cases have not yet been heard and raise issues that are likely to have wider law clarification implications beyond the particular case:
|
Matter,/Venue/Hearing, Topic |
Issue/Background |
|---|---|
|
Matter ALLEN (TRUSTEE), IN THE MATTER OF ALLEN’S ASPHALT STAFF SUPERANNUATION FUND This is the taxpayers’ appeal against the decision of Federal Court [2010] FCA 1276 . Venue/Hearing Full Federal Court 10 August 2011 Topic Superannuation - special income provisions |
Issues Whether the special income rules operate where: · A fixed trust is established, with the superannuation fund (which is a self-managed fund) as sole beneficiary, and income is distributed from a discretionary trust to the fixed trust, and then to the superannuation fund; and · The amount “derived” by the superannuation fund is ultimately sourced from a net capital gain derived by the discretionary trust. Background The taxpayer entered into arrangements promoted by a firm of solicitors to divert income into a self-managed superannuation fund to shelter that income from higher rates of tax. The special income provisions, (since replaced by the non-arm’s length income rules), are anti-avoidance provisions designed to prevent income from being diverted into complying superannuation funds to take advantage of the concessional rates of taxation. The primary judge held [2010] FCA 1276 that the income derived by the superannuation fund as a result of its acquisition of a fixed entitlement to income of the fixed trust was special income within the meaning of s 273(7) of the ITAA 1936. |
|
Matter GRAHAM BARGWANNA & MELINDA BARGWANNA AS TRUSTEES OF THE KALOS METRON CHARITABLE TRUST This is the Commissioner’s application for special leave to appeal against the decision of the Full Federal Court [2011] FCAFC 18 Venue/Hearing High Court Special Leave Application No hearing listed. Topic Status of fund established for public charitable purposes |
Issue Whether a fund which is applied ‘substantially’, but not wholly, for the charitable purposes for which it was established satisfied the requirement of s 50-60 of the ITAA 1997 that ‘the fund is applied for the purposes for which it was established. Background In this case the taxpayers sought income tax exemption for a fund established for charitable purposes, although the fund had been applied for other than charitable purposes. The Court held that the relevant question is whether, having regard to the whole administration of the relevant fund, it is to be concluded that it ‘is applied’ to the relevant charitable purposes. The Court concluded that the decision of the primary judge was correct, but his Honour’s approach was erroneous. The Court allowed the appeal and remitted the matter to the AAT for further consideration and decision in accordance with law. Test case funding has been approved for the High Court proceedings. |
|
Matter Confidential This is the taxpayer’s application for a review of the Commissioner’s objection decision. Venue/Hearing Administrative Appeals Tribunal No hearing listed. Topic Deductibility of personal superannuation contributions. |
Issues · Whether the Applicant was engaged in an employment activity in the year ended 30 June 2009? · If so, whether receipts received under the income protection policy are attributable to that employment activity? Background The taxpayer claimed a deduction for a personal superannuation contribution. The Commissioner disallowed the deduction on the basis that the taxpayer did not satisfy the conditions of s 290-160 of the ITAA 1997, because amounts received under an income protection insurance policy were attributable to his activities as an employee. This matter is test case funded. |
|
Matter Consolidated Media Holdings Limited This is the taxpayer’s appeal against the decision of the Federal Court [2011] FCA 367 Venue/Hearing Full Federal Court No hearing listed. Topic Taxation treatment of consideration for off-market share purchase. |
Issue Whether the consideration received in respect of a share buy-back has been correctly classified as a dividend for the purposes of s159GZZZP Background Crown Limited, a wholly-owned subsidiary of the taxpayer, undertook a buy-back of some of its shares to the value of $1 billion. Rather than debiting its share capital account to reflect the buy-back, Crown created a share buy back reserve (SBBR) and debited the SBBR instead by an amount of $1bn. No other transactions were recorded in the SBBR. As this was an off-market share buy-back the provisions of s159GZZZP were triggered. The taxpayer argued that the whole amount should be treated as a dividend as no amount had been paid out of Crown’s share capital account. The taxpayer sought to claim a s 46 rebate on the deemed dividend, so no tax was paid on the transaction. |
|
Matter DAVID & HELEN CLARK This is the Commissioner’s application for special leave to appeal against the decision of the Full Federal Court [2011] FCAFC 5 Venue/Hearing High Court Special Leave Application No hearing listed. Topic Transfer of control of trust with carry forward capital losses |
Issue Whether certain events, including the change of trustee, established a lack of continuity in the trust estate so that the net capital losses of earlier years cannot be applied to reduce a capital gain made in a subsequent year. Background Effective control of a trust with capital losses was transferred to the taxpayers, who injected capital into the trust to fund the trust’s subsequent property development activities. The trustee then sought to reduce a later capital gain to nil by applying the capital losses arising from the earlier income years. A majority of the Court held that there was no lack of continuity of the trust estate, noting that the arrangements were effected without making any alterations to the terms of the trust deed. The dissenting judge held that, where a trust has been effectively deprived of all assets and re-endowed, it cannot be said that the original trust estate has continued. Test case funding has been approved for the High Court proceedings. |
|
Matter NOZA Holdings Pty Ltd Commissioner’s appeal against decision of the Federal Court [2011] FCA 46 Venue/Hearing Full Federal Court 8-9 August 2011 Topic Debt deductions in respect of intra group finance structure |
Issue Whether the taxpayer, as head company of a multiple entry consolidated (MEC) group, was entitled to a deduction under section 25-90 of the ITAA 1997 for a dividend paid by a member of the group by way of endorsement of a promissory note. Background This case concerns the transfer of two 15-year royalty income streams from the US to Australia and back to the US within a company group through a series of intra-group transactions. The taxpayer claimed debt deductions in respect of an intra-group financing structure which sought to take advantage of different treatment between Australian taxation laws and those of the USA. The primary judge concluded that Noza incurred a loss or outgoing of $222 million when CSA declared a dividend of that amount, because the declaration created a debt pursuant to s 254V(2) of the Corporations Act. Her Honour also found that, even if the declaration did not create a debt, Noza incurred a loss or outgoing of that amount when CSA declared the dividend, because AFC had declared a dividend in favour of CSA and endorsed a promissory note to enable CSA to declare and pay the dividend to CSF. However, her Honour also concluded that Noza was not entitled to claim the whole of the amount declared as a dividend, because a component of that dividend was, in substance and in form, a return of capital or principal. She did not accept that the difference between the expected market yield and the dividend rate was a 'cost' in relation to a 'debt interest' for the purposes of s 820-40(1)(a) of the ITAA 1997. Accordingly, her Honour held that only $171 million is deductible under s 25-90 of the ITAA 1997. Her Honour also held that Part IVA did not apply to the scheme. The Commissioner is not pursuing an appeal against that aspect of the decision. |
|
Matter ANTHONY WHITWORTH RUSSELL This is the taxpayer’s application for special leave to appeal against the decision of the Full Federal Court [2011] FCAFC 10 Venue/Hearing High Court special leave application. No hearing listed. Topic Application of the double tax agreement with New Zealand in respect of personal services income |
Issues · Whether the Court failed to properly consider the application of the International Tax Agreements Act 1953 and the Double Taxation Agreement with New Zealand in Schedule 4 of the Act and its effect on the personal services provisions in Part 2-42 of the ITAA 1997. · Whether the Court should have allowed the partnership input tax credits for expenses in relation to an accountancy practice? Background The first issue concerns the taxpayer’s income tax liability and his personal services income (PSI) payments made to an interposed foreign company. The Full Court held that the ITAA 1997 does not purport to tax the profits of the New Zealand company. Rather, it treats part of the New Zealand company’s income as being, for Australian tax purposes, that of the taxpayer and taxes it in his hands. The second issue concerns the partnership comprised of the taxpayer and his spouse that purportedly carried out a number of activities including an accountancy practice and naturist retreat. The Court agreed with the primary judge's conclusion that the partnership was not carrying on an accounting practice, and was not entitled to claim input tax credits. |
|
Matter EDUARD SENT This is the Commissioner’s and the taxpayer’s appeals against a decision of the AAT [2011] AATA 198 . Venue/Hearing Federal Court No hearing listed Topic Taxation treatment of payments made to an ‘executive share trust’ |
Issues · Whether any part of the payment of $11.6m made by a company on 21 December 2001 to an ‘executive share trust’ on behalf of the taxpayer was derived as ordinary income by the taxpayer under subsection 6-5(4) of the ITAA 1997, or was included in his statutory income under paragraph 26(e) of the ITAA 1936 in the 2002 income year. · Whether any part of the payment of $11.6m was exempt income under section 23L of the ITAA 1936, being income derived by way of the provision of a fringe benefit. · Whether Part IVA of the ITAA 1936 applied to include any part of the payment of $11.6m in the assessable income of the taxpayer. Background The taxpayer was appointed the CEO of a public company. The taxpayer and the company agreed to restructure the taxpayer’s employment agreement, and the company made a payment of $11.6 million into an ‘executive share trust’ in exchange for the taxpayer giving up performance bonuses payable under the initial employment agreement. It was intended that the trustee of the trust would lend the money to the taxpayer, who would then use it to purchase units in the trust, and the trustee would use that money to purchase shares in the company. The AAT decided that only part of the payment attributable to bonuses that had accrued to the taxpayer for services already rendered was ordinary income derived by the taxpayer when it was applied on his behalf. However, the AAT held that the balance of the payment was not income because it was uncertain whether any of the accruing bonuses would ever be payable. For the purposes of Part IVA, the AAT accepted that there was a scheme and a tax benefit was obtained by the taxpayer. However, the AAT found that the dominant purpose of the scheme was other than enjoying a tax benefit. Test case funding has been approved for the Federal Court proceedings. |
|
Matter DESLEY SOONG This is the Commissioner’s application for special leave to appeal against the decision of the NSW Court of Appeal [2011] NSWCA 26 Venue/Hearing High Court special leave application No hearing listed Topic Personal liability of company director |
Issue Whether the Commissioner ‘gave’ the director penalty notices on the date on which the notices were posted, or on the date they were received. Background The taxpayer, a director of three companies, was given a DPN in respect of each company. She did not comply with the notices within 14 days of the date on which the DPNs were posted, and placed each company into voluntary administration on the 15th day after the notices were posted. The NSW Court of Appeal decided that the earlier Court of Appeal decision in Deputy Commissioner of Taxation v Meredith [2007] NSWCA 354 was wrongly decided. The Court held that the notices were deemed to have been effected at the time of delivery in the ordinary course of the post. Test case funding has been approved for the High Court proceedings. |
|
Matter Lansell House Pty Ltd and Perfek Pty Ltd This is the taxpayer’s application for special leave to appeal against the decision of the Full Federal Court [ 2011] FCAFC 6 Venue/Hearing High Court Special Leave Application No hearing listed Topic Definition of product as bread or cracker for GST |
Issues · Whether the product known as Mini Ciabatte is subject to GST on the basis that it is food that is, or consists principally of, crackers. · Whether the primary judge erred in refusing the taxpayers leave to file and rely on a further supplementary affidavit which they first sought to file on the second day of the hearing. Background Both taxpayers sold a product imported from Italy, known as Mini Ciabatte, which is described on its packaging as ‘Italian flat bread’. The Commissioner ruled that the Mini Ciabatte was subject to GST because it was food of a kind specified in item 32 of the table in clause 1 of Schedule 1 to the GST Act. The Full Federal Court referred to the primary judge's conclusion that the words of item 32 'are ordinary English words in common usage'. The Court also said that the primary judge was able to form his own view as to the significance of similarities or differences between biscuits, crackers and bread, having regard to the evidence before him. In relation to the second issue, the Court held that the taxpayers had not shown that the primary judge erred in the exercise of his discretion not to accept the further affidavit. |
|
Matter Andrew vincent Mills This is the taxpayer’s appeal against the decision of the Federal Court [ 2011] FCA 205 Venue/Hearing Full Federal Court No hearing listed Topic Application of 177EA to deny imputation benefits |
Issue Whether Part IVA applies to deny imputation benefits attached to distributions to investors, on the basis that the arrangement was entered into or carried out for a purpose of enabling investors to obtain the imputation benefits. The taxpayer is seeking to obtain the benefit of a franking credit where the issuer of securities made distributions to security holders out of funds that had not been subject to Australian tax. Background The primary judge held that the purpose of the Bank in issuing hybrid stapled securities was to enable holders of the securities to obtain an imputation benefit in respect of distributions sourced from New Zealand branch funds, and that the Commissioner did not make any error in making a determination under Part IVA to cancel the franking credits that were provided to investors out of funds that had not been subject to tax in Australia. |
|
Matter Natalie Newton T/AS Combined care for the elderley This is the taxpayer’s appeal against the decision of the Federal Court [2010] FCA 1440 Venue/Hearing Full Federal Court No hearing listed Topic Superannuation contributions - exclusion of work of a ‘private or domestic nature’ |
Issues Whether workers were paid to do work wholly or principally of a domestic or private nature within the meaning of subsection 12(11) of the Superannuation Guarantee (Administration) Act 1992 (the Act) Background The taxpayer did not make superannuation contributions for workers she engaged as part of her business to provide community support services to her clients, on the basis that the work they do is ‘wholly or principally of a domestic nature’. The Federal Court allowed the Commissioner’s appeal against a decision of the AAT. Although his Honour said that the language of s 12(11) is by no means clear, he held, on balance, that the Commissioner has established that there was an error of law on the part of the Tribunal in construing s 12(11). |
Significant litigation matters – heard by the AAT, Federal Court or High Court, and awaiting decision
|
Matter, Venue/Date Heard, Topic |
Issue/Background |
|
Matter Futuris Corporation Limited This is the Commissioner’s appeal against the decision of the Federal Court [2010] FCA 935. Venue/Date Heard Full Federal Court 21-22 February 2011 Topic Application of Part IVA to a CGT reduction arrangement |
Issue Whether Part IVA applies to a CGT reduction arrangement which uses the provisions of Division 19A to achieve an increase in the cost base of shares of a wholly-owned company. Background The Federal Court found that the taxpayer did not obtain a tax benefit under the scheme. The Court also accepted the taxpayer’s argument that it was reasonable to expect, in the absence of the scheme identified by the Commissioner, that another arrangement would still have been entered into that would not have involved the taxpayer being assessed on a capital gain of the amount identified by the Commissioner. However, his Honour also noted that, if a tax benefit had been obtained in connection with the scheme identified by the Commissioner, then he would have concluded that the taxpayer had entered into the scheme for the dominant purpose of obtaining a tax benefit. |
|
Matter NORMAN LEIGHTON AS TRUSTEE OF THE LEIGHTON FAMILY TRUST Taxpayer’s appeal against the decision of the Federal Court [2010] FCA 1086 Venue/Date Heard Full Federal Court 20 May 2011 Topic Liability of non-resident as trustee of the net income of a trust estate |
Issues · Whether the Commissioner is entitled to assess the taxpayer as trustee of the net income of a trust estate, derived from share trading activities in Australia, under the former s 98(3) of the ITAA 1936. · Whether the 20% increase in the base penalty of 75% was correctly imposed by the Commissioner. Background The taxpayer, who is a resident of Monaco, is arguing that he is not liable for tax, as trustee of a trust estate, arising from share trading activities in Australia undertaken on behalf of two non-resident companies of which the taxpayer is a director. The primary judge held that the taxpayer was a trustee within the extended definition of trustee in s 6(b) of the ITAA 1936. He administered and controlled the share trading and income of the two non-resident companies on whose behalf he undertook the share trading activities. Her Honour also held that the trust estate included the shares held and the income earned from the share trading. She noted that the corpus of the trust changed over time consistent with the share trading. Her Honour also upheld the decision to increase the base penalty. |
|
Matter Qantas airways ltd Taxpayer’s appeal from decision of the AAT [2010] AATA 977 Venue/Date Heard Full Federal Court 24 May 2011 Topic GST treatment of forfeited airfares |
Issues Has the taxpayer made a supply for consideration where a person does not use the service paid for and the payment made by the customer is not refundable or no refund is claimed? Background The taxpayer is seeking to obtain a refund of GST paid in respect of domestic air travel reservations where passengers are ‘no shows’ on booked flights and the purchase price is either non-refundable or a refund claim has not been made. The AAT held that the taxpayer makes a taxable supply of a service for consideration when a customer makes a booking and pays for a flight which is not taken. The AAT found that the statutory definition of supply has the consequence of attracting GST on an airline reservation and that the GST is not refundable where the passenger is not carried as the result of a cancellation or the passenger not attending to travel, assuming that no refund is made to the passenger. This case will test the ATO’s position on cancellation fees, which is set out in GSTR 2009/3. |
|
Matter RCI PTY LTD Taxpayer’s appeal against the decision of the Federal Court [2010] FCA 939. Venue/Date Heard Full Federal Court 16 -18 May Topic Application of Part IVA to a CGT reduction arrangement |
Issue Whether Part IVA applies to a scheme to use an exempt dividend to reduce the market value of the taxpayer’s shareholding in a US subsidiary, which reduced the taxpayer’s capital gain when the shares in the subsidiary were later sold. Background The taxpayer received an exempt s 23AJ dividend, paid by way of intra-group round robin debt from an unbooked revaluation, to reduce the market value of a US subsidiary that was later sold as part of a major international reorganisation of the company group. The primary judge concluded that Part IVA applied to the arrangement. Her Honour concluded that the dividend payment to the taxpayer was a step in the corporate reorganisation of the group and the US subsidiary paid the dividend for the purpose of reducing the capital gain realised upon disposal of the shares in the US subsidiary. |
|
Matter Roy Morgan Research Pty Ltd Taxpayer’s appeal against the decision of the Full Federal Court [2010] FCAFC 52 Venue/Date Heard High Court 30- 31 March 2011 Topic Constitutional challenge to the Superannuation Guarantee Charge |
Issues Whether the superannuation guarantee scheme is unconstitutional on the basis that it is not a tax, because it is not imposed for a public purpose and, hence, is not supported by any head of power, or is an acquisition of property on other than just terms. Background The taxpayer did not treat its interviewers as employees, and did not make superannuation guarantee payments on their behalf. The Court held that the interviewers were employees at common law, or under the extended definition in s 12(3) of the SGAA (although, in the Court’s view, the Commissioner did not need to rely on the extended meaning of ‘employee’ on the facts of this case). The Full Federal Court held that the superannuation guarantee charge (SGC) is imposed for a public purpose and is a tax within s 51(ii) of the Constitution. The Court also held that, in the absence of a countervailing consideration, the circumstance that the SGC is paid into the Consolidated Revenue Fund establishes that it is imposed for a public purpose. The Court further held that the legislation is properly characterised as a law with respect to invalid and old-age pensions. |
Significant litigation matters Finalised without a decision
|
Matter, Venue, Topic |
Outcome |
|
Matter CONFIDENTIAL Taxpayer’s appeal against the Commissioner’s objection decision. Venue Federal Court Topic Consolidations – foreign exchange gains |
Outcome The Federal Court dismissed the taxpayer’s appeal by consent. |
Current Part IVC Litigation – Case Analysis – Venue/Market Basis
|
Current Part IVC Litigation – Case Analysis – Venue Basis |
||
|
Venue |
Total |
% of Total |
|
High Court |
14 |
1.6% |
|
Full Federal Court |
34 |
3.5% |
|
Full Federal Court from AAT |
1 |
0.1% |
|
Federal Court First Instance |
169 |
16.9% |
|
Federal Court from AAT |
20 |
2% |
|
AAT |
736 |
73% |
|
STCT |
21 |
2% |
|
Federal Magistrates Court |
2 |
0.2% |
|
State Court of Appeal/Full Court |
3 |
0.3% |
|
State Supreme Court |
4 |
0.4% |
|
Grand Total |
1004 |
100% |
|
Current Part IVC Litigation – Case Analysis – Market Segment |
||
|
Market Segment |
Total |
% of Total |
|
Excise |
25 |
2% |
|
GST |
187 |
19% |
|
Large Business |
85 |
8% |
|
Mass Marketed Schemes |
71 |
7% |
|
Micro Enterprise and Individuals |
321 |
32% |
|
Small Medium Enterprises |
206 |
21% |
|
Superannuation |
109 |
11% |
|
Grand Total |
1004 |
100% |
Meeting discussion
The litigation case report was tabled. Members commented the litigation case report provides a useful summary and asked whether there could be included information outlining trends.
[NTLG110607][NTLG110605] Action item NTLG1106/04
The ATO agreed to include the current status of cases in future Litigation case reports, as well as giving consideration to the inclusion of information outlining trends, as part of the summary tables at the end of that report.
Post meeting update
Members are advised that this information will be included in future Litigation case reports.[_Toc309640828] 11 Public Ruling Steering Committee
This agenda item is to provide an update on the recent activities of the Public Ruling Steering Committee.
Response
Chair
Jennie Granger, Second Commissioner - Corporate Services and Law
Secretariat
Tony Trumble - Public Rulings Unit
Last meeting held
The meeting was held on 10 June 2011.
Next meeting
The next meeting will be held on 2 September 2011.
Minutes
The draft minutes for the meeting held on 18 March 2011 are published to ato.gov.au.
Summary of main issues discussed on 10 June 2011
Log of potential Ruling topics previously identified by NTLG Sub-groups
|
Item number 2 |
TOFA gains and loses and non-assessable non exempt income |
|
The Ruling is expected to be added to the Public Rulings Program to be published in July 2011. |
|
Item number 4 |
Buy-Sell Agreements and Ruling TR 2004/D25 Draft Taxation |
|
The ATO has agreed to publish either a Tax Ruling or a number of Tax Determinations based on case scenarios to be provided by CPA Australia following further recent discussions with the ATO. It is expected that the issue will be added to the Public Rulings Program by September 2011. |
|
Item number 5 |
Application of the share capital tainting rules in the case of employee share schemes. |
|
The issue has been raised with the main NTLG and details provided. The ATO is willing to develop a Tax Determination if the Professional Bodies are able to provide real factual circumstances to be used in a Determination. Corporate Tax Association representative, Frank Drenth, will follow up on this issue. |
|
Item number 6 |
Creation of a new trust |
|
Members agreed that this item could now be considered completed but further consideration of the issue will be required following the finalisation of the Clark case. |
Other issues raised by NTLG Public Rulings Steering Committee members
Royalty withholding tax on computer software - IBM case
A member asked whether the ATO plans to alter its position on royalty withholding tax and computer software as set out in Tax Ruling TR 93/12 following the recent Federal Court decision of Bennett, J. in International Business Machines Corporation v Commissioner of Taxation [2011] FCA 335.
Special Tax Adviser, Kevin Fitzpatrick advised that the ATO does not believe that TR 93/12 needs to be changed as a result of the decision as the decision was not inconsistent with the Ruling but rather the application of the principles in the ruling to a particular set of facts. Special Tax Adviser, Fitzpatrick stated that after the ATO issues a Decision Impact Statement any further clarification required can then be sought.
Other business
TR 92/13
A member raised concerns in regard to the proposed withdrawal of TR 92/13: distribution by trustees of dividend income under the imputation system. The Ruling is expected to be withdrawn on 22 June 2011.
Meeting discussion
Members accepted the report as tabled.
[_Toc309640829] 12 NTLG Sub-group governance report – Superannuation Technical Sub-group
This is a standing agenda item which enables NTLG Sub-groups to provide governance reports and discussions associated with the NTLG Sub-groups.
The Superannuation Technical Sub-group has been nominated to provide its governance report at the 22 June 2011 meeting
As current chair of the Superannuation Technical Sub-group Steve Martin, Assistant Commissioner of the Superannuation Centre of Expertise will attend the meeting to discuss the report.
Response
Chair
Steve Martin, Assistant Commissioner, Superannuation Centre of Expertise
Secretariat
Ivana Vrbenski, Superannuation Centre of Expertise
Membership
The Sub-group is well represented by Superannuation, Accounting and Legal Professional bodies:
[_Toc175561233] Industry groups and professional bodies represented on the sub-group
Accounting Profession Representatives
· Institute of Chartered Accountants in Australia (ICAA)
· Institute of Public Accountants (IPA)
· CPA Australia
· National Tax and Accountants Association (NTAA)
· The Taxation Institute (TI)
· Association of Taxation and Management Accountants (ATMA)
Superannuation Industry Representatives
· Association of Super Funds Australia (ASFA)
· Financial Services Council (FSC)
· Small Independent Superannuation Funds Association (SISFA)
· SMSF Professional Association of Australia Limited (SPAA)
· Superannuation Australia Pty Ltd (Taxpayers Australia)
· Financial Planning Association of Australia Limited (FPA)
· Australian Institute of Actuaries
· Australian Bankers Association (ABA)
Legal Profession Representatives
· Law Council of Australia
Government Representatives
· Australian Prudential Regulation Authority (APRA)
· Australian Securities & Investment Commission (ASIC)
· Department of Treasury
History and background
The NTLG Superannuation Technical Sub-group (the Sub-group) was established in 2005 and held its first meeting on 26 October 2005. The Sub-group was established to provide guidance and a forum for significant interpretive issues to be raised and discussed.
Since the initial meeting the, industry representation has remained reasonably stable over the intervening years. Since the initial meeting the following bodies have joined the Sub-group:
· Financial Planning Association of Australia Limited (FPA)
· Superannuation Aust Pty Ltd
· Australian Institute of Actuaries
· Australian Bankers Association (ABA).
This forum has assisted the ATO to prioritise work on interpretative issues. The forum ordinarily meets four times a year.
The ideals of the Sub-group were set out in the Minutes of the first meeting and are entrenched in the Terms of Reference of the Sub-group’s Charter:
“The forum provides an opportunity for an open and transparent exchange of views in which technical issues can be freely and frankly discussed. The focus of the Sub-group will be on the technical issues arising in relation to superannuation matters.
The agenda for each meeting of the Sub-group will include the following standing items:
° recently published and withdrawn ATO IDs
° rulings and practice statements, and
° the progress of litigation (in practice the ATO will update these topics where there are changes since the last meeting).
The group will not set strategy, determine the ATO's view of the law or make or change government policy.
It will provide guidance and a forum for issues of significance to be raised and discussed. This will help the ATO prioritise work on interpretative issues.
Where necessary, the Sub-group may refer issues to Treasury on the basis that legislative action is required, using the process established by the Technical Issues Management Sub-group of the NTLG.”
[top]The main focus of the Sub-group is to address technical issues in relation to superannuation matters. This covers a broad range of law:
· Contributions into superannuation – deductions, excess contributions taxes, TFN quotation, contributions standards of the regulatory law
· Benefits taxation – annuities, pensions, lump sums, death benefits, disability benefits, foreign superannuation benefits, Departing Australia Superannuation Payments (DASP)
· Superannuation Industry (Supervision) Act regulatory issues in relation to SMSFs
· Superannuation Guarantee – employer obligations, bi-lateral agreements;
· Superannuation Fund Income tax issues, including the tax on no-TFN income
· Lost Member and Unclaimed Monies
· Co-Contributions
· Superannuation Holdings Account (SHA)
· Superannuation Surcharge.
The Superannuation Business line has a peak consultative forum, the Superannuation Consultative Committee (SCC) that addresses issues relating to administrative matters. When face to face meetings are held, the SCC and NTLG Superannuation Technical Sub-group meetings are generally held on the same day and at the same venue.
The Sub-group has assisted in the prioritising of interpretative products, and its focus is on assisting the broader industry comply with the superannuation regime.
Whole of Government approach
The Superannuation sub group has the following Government bodies represented;
· Australian Prudential Regulation Authority (APRA)
· Australian Securities & Investment Commission (ASIC)
· Department of Treasury.
As co-regulator of superannuation funds, our relationship with APRA is an important one. APRA attends and participates in the Sub-group meetings. To provide, as far as possible, consistency in the government response to issues raised, the ATO consults APRA in a number of ways prior to the Sub-group meetings. Technical liaison meetings were commenced in 2010 and these are now ordinarily held prior to each NTLG Sub-group meeting to discuss the proposed agenda and the proposed responses to individual issues. This has proved to be a worthwhile initiative which has continued to strengthen the close and productive relationship the ATO enjoys with APRA.
Treasury is also represented with standing membership of the Sub-group. Treasury is able hear first hand, the issues raised by members which may fall more clearly into the area of legislative policy. Treasury is consulted regularly to assist in answering various questions that industry may present to the Sub-group. Treasury is also a member of the Superannuation Consultative Committee. The Sub-group has been able to use Tax Issues Entry System to get simple legislative corrections addressed following Sub-group meetings.
Whole of ATO approach to resolving issues
The chair and secretariat of this Sub-group is provided by the Superannuation Centre of Expertise. Technical clearance of responses is provided by the standing Senior Tax Counsel. The Centre of Expertise and Tax Counsel are within the Law Sub Plan, which ensures integrity in tax technical decision making, in line with our corporate value of adhering to the rule of law.
There are very effective interactions between the Sub-group and the various ATO Business Lines. The major stakeholders are the Superannuation Business Line and Large Business & International. These relationships have been essential in providing timely and co-ordinated responses on a range of matters. Both Business Lines provide senior officers to attend and participate in meetings, and also to present topics.
Consultation occurs as agendas are developed and meetings are held, to develop the agenda, prepare responses to questions and to prepare an accurate record of the meeting. Any issues that arise out of the minutes are addressed in a timely way.
We negotiate with the members depending on the nature of the issue. Usually if an issue is presented with all the relevant materials, including a proposed answer and technical discussion, issues are resolved very quickly.
The Sub-group is required to provide an update to the main NTLG and Superannuation Consultative Forum about the work undertaken.
To date the Sub-group has:
· Held four meetings per year. At the time of preparing this report an Agenda has been circulated for a meeting to be held on 7 June 2011.
· Minutes of the Sub-group are published on ato.gov.au under Tax Professionals/ Strategies and forums/ National Tax Liaison Group (NTLG).
· The Sub-group usually meets in March, June, September and December.
· Meetings are rotated between Sydney, Canberra and Melbourne. [_Toc175561232]
Compliance with Corporate Management Practice Statement 2006/06
The Sub-group is complying with the requirements set out in the Corporate Management Practice Statement PS CM 2006/06. As required by the practice statement, the Sub-group has reviewed and published a charter and we also conduct a review of membership each year.
The Sub-group also referred to the external stakeholder consultative forum management practice statement when setting up the Sub-group. This document is often referred to in conjunction with the committee management practice statement.
The charter also covers in further detail members’ responsibility, and can be found on ato.gov.au – Superannuation technical Charter .
Annual forum review
A Forum Review is conducted each year. The last Forum Review was conducted by discussion with members at the December 2010 Sub-group meeting (Minutes 8 December 2010; Agenda Item 3). A summary of that discussion has been submitted to the Commissioner in line with the governance reporting framework.
In Summary:
· Members were happy with the charter for the forum and its terms of reference.
· Members stated that the forum is extremely useful and valuable. Many endorsed the positive comments made by others and the high value placed on this forum was taken by the chair to represent a unanimous view. Comments were made that reliance is placed on the answers to technical questions by those in the industry but not present at the meetings.
· Members also stated they find it extremely valuable that they have the opportunity to raise questions within the forum and have technical discussions.
· Members felt that industry was appropriately represented and could not identify any gaps in the membership.
· Members asked that permission be granted for Minutes to be circulated earlier than at the time of publishing. There was also a request for earlier access to meeting Agendas. The chair took on board the comments about timeliness and will consider whether there is any scope to improve the present arrangements. (See next Heading)
[_Toc175561234] Review of meeting processes
At the last annual Forum Review in December 2010 Members expressed the view that there was often insufficient time for members to digest the questions and submissions provided by other members and the ATO’s responses, when the Agendas are issued close to the meeting date. Following the comments provided, we reviewed our processes and made a commitment that we would aim to provide more considered initial ATO responses at least one week prior to NTLG Sub-group meetings.
To achieve these outcomes, we have varied the timing for submissions. The period for questions will now be open from the close of the preceding NTLG meeting for at least four weeks. This means that the time for submissions will close a little earlier and this will enable the ATO to spend slightly longer considering the ATO response to the questions and submissions, and will also allow the time we need to consult with our co-regulator APRA before finalising the Agenda.
The timing should also ensure that we can get draft agendas to members at least one week prior to NTLG Sub-group meetings and hopefully in some instances up to a fortnight prior to the forum convening.
The 7 June 2011 Agenda was issued on 30 May adhering to the commitment made. We were also able to meet with APRA just prior to the Agenda being settled.
We also varied previous arrangements by advising members that they may circulate final minutes to their members prior to the minutes being published on the ATO.gov site. This undertaking was another major issue for members at the December review.
Key achievements since January 2010
5 Year milestone celebrated in the Centenary year
In October 2010 the NTLG Superannuation Technical Sub-group celebrated the forum running for 5 years. Stuart Forsyth, the founding Chair of the Sub-group provided Certificates of Appreciation to members, as well as pins celebrating the ATO’s 100th anniversary.
Stuart made a special mention of the following individuals who have represented their organisation throughout the existence of the NTLG Superannuation Technical Sub-group:
· Reece Agland (Institute of Public Accountants)
· Michael Davison (CPA Australia)
· Andrew Gardiner (National Tax and Accountants' Association)
· Rob Hodge (Association of Super Funds Australia)
· Tony Keir (Association of Super Funds Australia)
· David Shirlow (Financial Services Council)
· Helen Brady (Australian Bankers Association)
· Robert Jeremiah (Small Independent Superannuation Funds Australia)
· Merrie Hennessy (Australian Prudential Regulation Authority).
Meetings
Since January 2010, the Sub-group has met on the following dates;
· 21 March 2011
· 8 December 2010
· 7 September 2010
· 10 June 2010
· 9 March 2010.
Members have submitted 44 technical issues or submissions for discussion and resolution, over those 5 meetings .
Advice products
Since January 2010, we have issued 15 ATO IDs as well as the following Rulings and Determinations;
· TR 2010/1 Income tax: superannuation contributions
· SMSFR 2010/1 : Self Managed Superannuation Funds: the application of subsection 66(1) of the Superannuation Industry (Supervision) Act 1993 to contributions of assets to a self managed superannuation fund by a related party of that fund
· SMSFR 2010/2: Self Managed Superannuation Funds: the scope and operation of subparagraph 17A(3)(b)(ii) of the Superannuation Industry (Supervision) Act 1993
· SMSFD 2010/1 : Self Managed Superannuation Funds: is an SMSF that holds trauma insurance considered to be in breach of the sole purpose test?
· SMSFD 2010/D1 (Draft and) SMSFD 2011/1 : Self managed superannuation funds: for the purposes of the Superannuation Industry (Supervision) Regulations 1994, can a benefit payable with a cheque or promissory note be ‘cashed’ at the time the cheque or note is issued?
Issues identified for the Tax Issues Entry System (TIES) register
Since January 2010 two issues have been placed on TIES as a direct result of industry consultation. These issues have been registered and have been accepted by Treasury.
|
TIES Ref No: 0017-2010 |
To amend s17A(3)(c) of the Superannuation Industry (Supervision) Act 1993 to allow a parent or guardian of a minor to be a director of a corporate trustee in place of the minor member. (Although a parent or guardian can be a trustee of a self managed super fund (SMSF) in place of a member who is under a legal disability because of their age, on the terms of the current legislation a parent or guardian (that is not a legal personal representative of the minor as defined in the SISA) cannot be a director of a corporate trustee in place of that member.) |
|
TIES Ref No: 0030-2010 |
To make an appropriate amendment to the Superannuation Industry (Supervision) Act to ensure that an auditor who issues an audit report after lodgement of the fund’s annual return in circumstances beyond the control of the auditor do not result in a breach under section 35C(6) |
Workshops
Limited recourse borrowing arrangements - 8 November 2011
Under the Superannuation Industry (Supervision) Act 1993 (SISA), superannuation fund trustees are generally not permitted to borrow money. Former subsection 67(4A) introduced a limited exception to the prohibition on superannuation funds borrowing for arrangements entered into on or after 27 September 2007. In 2010 Parliament amended the SISA effectively replacing subsection 67(4A) of the SIS Act with new sections 67A and 67B. Those sections further limit the types of arrangements that can be entered into.
At the Sub-group meeting held on 7 September 2010, members identified a number of issues with respect to legislation that had then not yet been enacted. The ATO requested members to make submissions which identified the industry’s areas of concern.
On 8 November 2010, the LRBA workshop was held at ATO offices in Melbourne.
At this workshop the various issues identified by industry in their submissions were discussed. Two of the key issues identified were:
· what is a ‘single acquirable asset’? and
· the scope and meaning of the terms ‘repairing’, ‘maintaining’ and ‘improving’ for the purposes of sections 67A and 67B of the SISA.
The ATO recognised that these were issues on which an ATO view was needed in order to provide guidance to SMSF trustees and other stakeholders, and a strategy was developed.
Work on a draft Ruling commenced immediately. A draft will be presented to a Public Rulings panel on 16 June 2011 for consideration.[_Toc242161619]
Chair’s observations
The NTLG Sub-group is performing well. The ATO membership is grateful to the external bodies for their contribution and the productive and positive way in which meetings and interactions are undertaken.
It is an effective consultation forum where there is a candid exchange of views at each meeting. The Sub-group operates in a way which is consistent with an ideal of ensuring that the Superannuation system and its administration is fair, efficient and effective and operating in the interests of the wider Australian community.
Forward focus
· Further Limited Recourse Borrowing Arrangements interpretative products to be developed and issued, in particular a Ruling which will be considered by the Public rulings panel on 16 June 2011.
· The Draft Taxation Ruling on Superannuation Income Streams due to be issued on 29 June 2011 dealing with areas of uncertainty in respect of pensions in particular.
· A PTI has been established to deal with Anti Detriment and death benefits issues due to ongoing uncertainty identified through NTLG meetings. The Financial Services Council recently provided a list of death benefit issues that will help the ATO prioritise resolution of the interpretive issues. Some issues may require legislative amendments, and these will be matters for Treasury to consider.
· Excess contributions taxes; various aspects of liaison will be required in this area as views firm.
· Members have been invited to provide submissions on Successor Fund issues, which are expected to require careful consideration and consultation to resolve the issues raised.
· Potentially Super Reform issues will need to be discussed as government moves to introduce new laws.
Meeting discussion
Steve Martin, Assistant Commissioner (and Chair of the Superannuation Technical Sub-group) attended for this Agenda Item.
In presenting the report, the Sub-group Chair highlighted the many industry bodies represented as well as the three other government agencies. He spoke in particular of the valuable relationship that ATO enjoys with APRA and Treasury. Their representation on the Sub-group plays an important part in getting a common appreciation of issues with industry and better enables us to “unblock” issues.
The Sub-group meets four times a year, either in person or by phone, but members prefer a face to face format and the opportunity to discuss issues. It is quite a large forum. At the last meeting there were 30 attendees.
Members of the Sub-group have provided very favourable feedback in reviews of the forum. Based on recent member feedback, the cycle time for the agenda and the minutes have been altered which, it is hoped, will enable Agendas to be circulated earlier and also give more time to consult with our co regulator, APRA. The Chair reflected on the very positive collaborative and cooperative approach that representatives take in dealing with issues.
Some of the achievements of the Sub-group were highlighted. Some of the important issues for the Sub-group have included the issue of TR 2010/1 Income tax: superannuation contributions, as well as significant progress with work on Limited Recourse Borrowing Arrangements (LRBAs) and Excess Contributions Tax.
In October 2010 the NTLG Superannuation Technical Sub-group celebrated the forum running for 5 years. Stuart Forsyth, the founding Chair of the Sub-group provided Certificates of Appreciation to members, as well as pins celebrating the ATO’s 100th anniversary.
Members spoke about their interest in LRBA’s as well as the prudential consequences for custodians especially in light of the Colonial case.
Members provided the Chair with some good feedback in how the Sub-group is managing the issues. One member commented he was impressed with the interactions he has experienced.
[_Toc309640830] 13 NTLG Sub-forum and Panel reports
______________________________________________________________________________
Members are referred to the supplementary “NTLG Sub-forum and Panel reports” document.
Meeting discussion
There were suggestions that Agenda Items 13 and 14 of the Agenda could have been swapped in order as this may have assisted in reading the materials. Having the tabulation provided in front of the Sub-forum reports made more sense to some members. It was also suggested that these two agenda items could be combined.
In relation to Agenda Item 13.3 Corporations Law Working Party report, two new fact sheets “Dividends and the new sections 254T and 44(1A)” and “The new section 254T and the franking of dividends” had been distributed to working party members for comment. It was agreed that NTLG members would also be provided with copies of the fact sheets for review.
The public ruling and superannuation public ruling panel reports were not available for inclusion in the NTLG meeting papers.
Post meeting update
Members were provided with copies of the two fact sheets as part of the post meeting summary, on 5 July 2011.
The public ruling and superannuation public ruling panel reports are provided within the June Minutes at sections 13.16 and 13.17.
[_Toc309640831] 14 Top 3 items of significance under management of NTLG Sub-groups and reportable panels
Open discussion on the top issues of significance within the NTLG Sub-groups and reportable panels.
Response:
This is the first time this item has appeared on the NTLG agenda. The ATO is looking for your views.
Members are referred to the supplementary “NTLG Sub-forum and Panel reports” document.
Meeting discussion
This was the first time the “Top 3” items of significance was included within the NTLG agenda. This Agenda Item is meant to provide insights on how the ATO is managing these most significant issues and whether there are any gaps. This agenda item also provides members with an opportunity to escalate issues if they are not progressing within the Sub-groups.
Members were asked whether the “Top 3” items of significance were reflective of their understanding of issues being managed in the Sub-groups. In most cases, members said the “Top 3” items identified actually were the top issues. For other Sub-groups the following commentary was provided:
Losses and Capital Gains Tax Sub-committee
An NTLG representative on this Sub-committee thought that the two issues as highlighted were important but didn’t think they were the top issues.
Resource Rent Tax Sub-committee
It was acknowledged that the Resource Rent Tax Sub-committee is new and will need to report on its “Top 3” items of significance in the future.
Transfer Pricing Sub-group
As the Transfer Pricing Sub-group no longer exists, it was suggested that any issues remaining would be covered within the new Internationals Sub-group. A member commented that there would be a greater list of issues within the Internationals Sub-group report than just a “Top 3”.
Public Rulings Steering Committee
A member suggested that the ‘creation of a new trust’ is probably not a potential ruling topic. Further guidance on Colonial (that is being dealt with in the Trust Consultation Sub-group) could be highlighted. It was also queried when the Clark case was going to the High Court.
Trust Consultation Sub-group
Members reiterated the need to meet in light of Trust legislation that is due on 30 June.
A member raised concerns that some Sub-groups are not asking their members for input into the “Top 3” items of significance. Due to the timing of this agenda item, many Sub-groups may not have had the time to consider member involvement in the discussions. The ATO will follow-up on this issue and ensure that all Sub-groups follow the new protocol, especially in time for the September agenda process.
[NTLG110608] Post meeting update
On 8 July 2011, the NTLG secretariat issued a communication to NTLG Sub-group chairs and secretariats to ensure members’ views are requested and considered in future discussions about the “Top 3” issues of significance.
[_Toc298826251][_Toc298826955][_Toc298826252][_Toc298826956][NTLG110609][_Toc298826256][_Toc298826960][_Toc298826257][_Toc298826961][_Toc298826258][_Toc298826962][_Toc309640832] 15 Suggested strategic topics for the NTLG
At the March NTLG meeting, some issues were identified as potential strategic topics for the NTLG, ie:
· Consolidations
· Trusts, and
· Managed Investment Trusts (MIT) regime.
Response:
The ATO is looking for your views on strategic topics for future NTLG agenda processes.
Meeting discussion
Some items for consideration included:
· Consolidations (dependant on Board of Tax)
· Foreign Investment Funds
· No lodge tax returns
· Tax System Advisory Board
It was agreed that “Risk” will be an ongoing standing agenda item from September 2011.
Members will consider relevant strategic topics in their submissions for potential agenda items for the September meeting.[Agenda12][_Toc309640833] 16 NTLG - Tax Issues Entry System issues register
Tax Issues Entry System
Issues below have been identified through NTLG Sub-forums. This agenda item provides the opportunity to provide further input.
The Tax Issues Entry System (TIES) is a single entry point for tax professionals and the community to raise minor policy and administrative issues relating to the care and maintenance of the tax and superannuation systems.
Care and maintenance is about ensuring that the existing tax and superannuation laws operate in the intended manner. Care and maintenance issues can include technical defects, anomalies and unintended outcomes. Care and maintenance issues can also involve minor policy changes, though typically they would not have a revenue impact.
Issues that are not care and maintenance include:
· major policy changes;
· interpretative questions about individual circumstances; and
· problems with Australian Taxation Office (ATO) systems and forms.
TIES is jointly administered by Treasury and the ATO. TIES has its own website ( www.ties.gov.au ), including a public register of the issues raised and information on their status. The website provides information and examples of issues that are suitable for TIES and outlines the details required to lodge an issue. Issues can be lodged electronically via the website or by mail, phone or email.
Response:
Up to 17 May 2011 TIES has received 127 issues, 91 of which have been finalised. Of those 91, 82 have been found to be out of scope while 8 have been resolved by legislative change and one by changes to the ATO’s administrative practices.
There are 36 issues currently being progressed. Of the 36, 9 are currently being assessed by the ATO and Treasury, and 27 have been assessed as in-scope and are in the process of being resolved.
NTLG Sub-group issues registered on TIES
|
TIES Number |
0017/2010 |
|
Title |
A parent or guardian, (that is not a LPR of the minor as defined in the Superannuation Industry (Supervision) Act 1993 (SISA)), standing in as director of the corporate trustee for the under age member is not provided for under the SISA and therefore the fund cannot satisfy the SMSF definition. |
|
Date issue received |
17/09/2010 |
|
Current status |
In scope |
|
External ATO Forum/ Committee |
NTLG Superannuation Technical Sub-group |
|
TIES Number |
0021/2010 |
|
Title |
Exempt benefits relating to Australian Traineeship System (TIA) |
|
Date issue received |
4/11/2010 |
|
Current status |
Preliminary Assessment in Progress |
|
External ATO Forum/ Committee |
NTLG FBT Sub-committee |
|
TIES Number |
0023/2010 |
|
Title |
Inconsistency in the meaning of 'entity' between the Tax Administration Act 1953, A New Tax System (GST) Act 1999 and the A New Tax System (ABN) Act 1999. |
|
Date issue received |
15/11/2010 |
|
Current status |
In scope |
|
External ATO Forum/ Committee |
NTLG GST Sub-committee |
|
TIES Number |
0029/2010 |
|
Title |
Interaction of Subdivision 165-CC of the Income Tax Assessment Act 1997 (ITAA 1997) and section 715-90 of the ITAA 1997 for the purpose of applying the same business test to a leaving entity which holds trading stock losses. |
|
Date issue received |
20/12/2010 |
|
Current status |
In scope |
|
External ATO Forum/ Committee |
NTLG Losses and CGT Sub-committee |
|
TIES Number |
0030/2010 |
|
Title |
An auditor who issues an audit report to an SMSF trustee on or after the due date for lodgement of the fund’s annual return is in breach of s35C(6) of the SIS Act. There is no allowance for the auditor not meeting the prescribed time in circumstances beyond the auditor’s control |
|
Date issue received |
21/12/2010 |
|
Current status |
In scope |
|
External ATO Forum/ Committee |
NTLG Superannuation Technical Sub-group |
|
TIES Number |
0031/2010 |
|
Title |
Interaction between the alternative continuity of ownership test under subsections 165-150(2), 165-155(2) and 165-160(2) of the Income Tax Assessment Act 1997 (ITAA 1997) (all references are the ITAA 1997 unless otherwise noted) and the death of the beneficial owner rule under section 165-205. |
|
Date issue received |
21/12/2010 |
|
Current status |
Preliminary Assessment in Progress |
|
External ATO Forum/ Committee |
NTLG Losses and CGT sub-committee |
|
TIES Number |
0002/2011 |
|
Title |
Sale of a business or active asset by a company or unit trust may not be eligible for the 15-year exemption because the discretionary trust has not had the capacity to make income or capital distributions in one or more years (despite having otherwise satisfied the relevant statutory requirements) |
|
Date issue received |
22/12/2010 |
|
Current status |
In scope |
|
External ATO Forum/ Committee |
NTLG Losses and CGT Sub-committee |
|
TIES Number |
0003/2011 |
|
Title |
Income Tax Assessment Act 1997, Division 152, Section 152-70: jointly held shares and small business participation percentage. |
|
Date issue received |
24/12/2010 |
|
Current status |
In scope |
|
External ATO Forum/ Committee |
NTLG Losses and CGT Sub-committee |
Meeting discussion
The ATO understands there have been no new TIES issues since the March meeting.
A member commented that he is involved on a number of Sub-groups and TIES issues are not being discussed at the Sub-group meetings. The ATO will follow-up on this issue and ensure that all Sub-groups follow the new protocol, especially in time for the September agenda process. Updated reporting templates have been on circulation for some time, but due to the timing of particular sub-group meetings, there may not have been the opportunity to consider member involvement in the discussions.
[NTLG110610] Post meeting update
On 8 July 2011, the NTLG secretariat issued a communication to NTLG Sub-group chairs and secretariats to ensure members’ views are considered in future discussions about possible TIES issues, especially if this is not already taking place.
[_Toc309640834] 17 Action items
[_Toc81996419]· 17.1 Report on action items arising from 30 March 2011 NTLG meeting.
· 17.2 Action items for consideration as addressed and closed.
Meeting discussion
Members suggested that Agenda Item 17 needed to be reviewed as item 17.1 was seen as a duplication of work. The same details were included within item 17.2.
It was agreed that for the September agenda, all action items (last meeting and aged items) will be reported on in only one section. The status of the action items will also be clarified, especially if an action item has been referred to a sub-group or business area.
Gerry Antioch, Treasury representative, undertook to review the older action items and provide an update for the September meeting.
The secretariat agreed to reformat the action item registers and reporting processes within the agenda templates. The status of each action item would also be updated and incorporated in the June NTLG minutes.
All sub-groups and business areas will be advised of any changes in status of their particular action items.
[NTLG110611][NTLG110606] Action Item NTLG1106/05
NTLG Treasury representative to review relevant long standing action items and provide an update for the September meeting.
Post meeting update
The following section has been re-formatted based on the discussions at the NTLG meeting.
NTLG action item register
This register contains action items both in progress and for consideration as closed.
|
Action Item |
Status |
|
|
1. |
NTLG1103/01 Communication material on reasonable care to be reviewed with further material developed as required. NTLG meeting - 30 March 2011 Refer agenda item 5 Agenda topic ATO’s approach to imposing penalties for failure to take reasonable care |
Update for the 22 June 2011 NTLG meeting The ATO will publish a fact sheet on taking reasonable care in making statements in returns and activity statements, and how this interacts with safe harbour. Initially, it will be aimed at non-business taxpayers who use tax or BAS agents. Members who would like to work with the ATO in drafting the material or reviewing the material prior to publication should contact Bernice Horton at bernice.horton@ato.gov.au by 7 July 2011. If a number of people nominate to be involved, a conference call will be organised as soon as possible to gain member input. Status For endorsement as addressed and closed Meeting discussion Members determined that this action item be kept open as they would like the opportunity to work with the ATO in drafting and/or reviewing material on taking reasonable care, prior to publication. Members advised they had not yet officially been invited to take part in that process. |
|
2. |
NTLG1103/02 The aspect of the ruling distinguishing between reasonable care and reasonably arguable position is to be considered for review by the ATO. NTLG meeting - 30 March 2011 Refer agenda item 6 Agenda topic Shin and Commissioner of Taxation [2010] AATA 1012 |
Update for the 22 June 2011 NTLG meeting The ATO considers that no change to the aspect of Miscellaneous Tax Ruling MT 2008/1 which distinguishes between reasonable care and reasonably arguable position is warranted at this time. However, this matter will be kept under review pending the outcome of further litigation awaiting decision by the AAT and upon the receipt of any specific examples which the Law Council or other bodies might wish to submit to the ATO for consideration. Status For endorsement as addressed and closed Meeting discussion Members determined that this action item be kept open pending the outcome of further litigation awaiting decision by the AAT. Members were reminded to provide any specific examples for the ATO to consider. |
|
3. |
NTLG1103/03 Practice Statement to be reviewed by the ATO. Member to provide details of a particular case as an example. PALU Secretariat to be copied into correspondence. NTLG meeting - 30 March 2011 Refer agenda item 15 Agenda topic Interaction of Division 7A and section 100A of the ITAA 1936 |
Update for the 22 June 2011 NTLG meeting Division 7A and section 100A As a result of feedback on practice statement PS LA 2010/4, the ATO will be republishing this practice statement. One area where greater clarity has been requested is in respect of the interaction of Division 7A and section 100A. We can advise that we will be including additional commentary to effect that: Actions taken to comply with the requirements of practice statement 2010/4 would not automatically constitute a reimbursement agreement for the purposes of section 100A. Tax officers should review the facts and circumstances of each case and assess if there is in fact a reimbursement agreement for the purposes of section 100A, having regard to the relevant law. The mere presence of a section 109N complying loan agreement would not ordinarily constitute a reimbursement agreement for section 100A purposes. The ATO is also looking to include similar commentary into other Division 7A products such as Facts Sheets. Representations have also been made to prepare a binding ATO view document that expresses this view. As previously advised, as section 100A is dependant on a consideration of all of the facts and circumstances of each case, there are limitations to such an approach. UPE test case With regards to the UPE test case, the ATO met with representatives from a number of professional associations on 28 March 2011. The ATO has provided feedback to the representatives regarding a proposed private binding ruling that would address aspects of Taxation Ruling 2010/3. Following the meeting the representatives advised that they would consult with their respective professional associations and continue their dialogue with the ATO. The need for rulings and other guidance materials on Division 7A topics will be monitored through the NTLG Division 7A Working Party and reported to the NTLG via the report of the Working Party. Status For endorsement as addressed and closed Meeting discussion This action item is to be referred to the NTLG Division 7A Working Party for management, and will be reported back to the NTLG through its group report/s. This action item will be removed from the register. |
|
4. |
NTLG1103/04 FITO and Medicare Levy issues to be co-ordinated offline by a Tripartite process between Treasury, the ATO and NTLG members. NTLG meeting - 30 March 2011 Refer agenda item 18 Agenda topic For Australians working overseas and paying foreign taxes, whether a Foreign Income Tax Offset (FITO) can offset the Medicare levy |
Update for the 22 June 2011 NTLG meeting An initial meeting to discuss FITO and Medicare Levy issues occurred on 21 April 2011. It was agreed at that meeting through tripartite discussions between the ATO, Treasury and members of the NTLG that a more detailed paper would be submitted to the ATO regarding the issues and concerns of the Professional Bodies. On 25 May 2011 the ATO received a joint submission from the Professional Bodies requesting that the ATO review its technical interpretation of the provisions regarding the inability of individual taxpayers to reduce their Medicare levy liability with a foreign tax credit. The ATO is now in the process of considering the issues and concerns raised within the submission. In going forward, tripartite discussions/consultation will continue in order to address the issues raised. Status For endorsement as addressed and closed Meeting discussion Members determined that this action item be kept open whilst the ATO and Treasury consider issues and concerns raised within the joint Professional Bodies submission. |
|
5. |
NTLG1103/05 ATO to consider publishing a Tax Determination on the timing of the tax deductibility of the shortfall interest and general interest charges. NTLG meeting - 30 March 2011 Refer agenda item 20 Agenda topic Timing of the tax deductibility of the shortfall interest charge (SIC) |
Update for 22 June 2011 NTLG meeting The ATO is in the process of preparing a proposal for the draft Tax Determination to be considered by the rulings panel. Status For endorsement as addressed and closed Meeting discussion This action item is to be referred to the Public Rulings Panel for management, and will be reported back to the NTLG through its panel report/s. This action item will be removed from the register. |
|
6. |
NTLG1103/06 ATO to investigate whether employers are still impacted by the Victorian bushfires from 2009 and how many PBRs have been lodged seeking confirmation that the FBT emergency assistance exemption was available after 6 months. NTLG meeting - 30 March 2011 Refer agenda item 23 Agenda topic Governance report - sub forum - FBT |
Update for 22 June 2011 NTLG meeting At the meeting of the FBT Sub-committee of the NTLG on 27 May 2009 the ATO was asked to clarify what time period would constitute a 'long term benefit' under s58N of the FBTAA1986. The ATO responded that it would be reasonable to expect that emergency assistance would be provided by employers to employees in the severe natural disaster circumstances of the Victorian bushfires for a period of at least six months. The ATO also noted that where an employer continued to provide assistance for a period longer than six months the employer should consider lodging a request for a private binding ruling. In response to the question relating to the application of s58N posed at the meeting of the NTLG on 30 March 2011, the ATO notes that the statutory period for the declared disaster has now ceased and that no requests relating to the application of s58N for a period longer than six months have been received. Status For endorsement as addressed and closed Meeting discussion Members agreed that this action item can be closed, the item will be removed from the register. |
|
7. |
NTLG1103/07 ATO to review the Action Item registers with a view to finalising items that have been in progress for a lengthy period. This will be managed out of session. NTLG meeting - 30 March 2011 Refer agenda item 25 Agenda topic NTLG sub-committee reports and action items |
Update for 22 June 2011 NTLG meeting NTLG Secretariat in the process of reviewing long standing NTLG action items with the view to finalising those items that have been in progress for a lengthy period. This action item will continue to be managed out-of-session. Status For endorsement as addressed and closed Meeting discussion Members agreed that this action item can be closed, the item will be removed from the register. |
|
8. |
NTLG1103/08 Consultation to continue on timing of lodgment of the TFN report and what further transitional arrangements might be appropriate. NTLG meeting - 30 March 2011 Refer agenda item 27.4 Agenda topic TFN beneficiaries of closely held trusts |
Update for 22 June 2011 NTLG meeting The ATO has continued to consult out-of-session with a small number of members of the NTLG to better understand the difficulties and work with members to find a practical solution. To further assist taxpayers and their tax agents during this first year, the ATO will provide additional time for the lodgment of the new TFN report. The due date of the TFN report for the 2010/2011 year has been extended to 31 August 2011. A further deferral will be available for tax agents who lodge electronically. They will have until the due date of their client’s income tax return to lodge the new TFN report. To be eligible for this concession, tax agents must lodge electronically their client’s: · TFN report · 2011 Income tax return and all future income tax returns. Status For endorsement as addressed and closed Meeting discussion Members agreed that this action item can be closed, the item will be removed from the register. |
|
9. |
NTLG1012/01 Mark Morris (CPA Australia) to coordinate what should be covered in a public ruling, on behalf of the Professional Associations, by 28 February 2011. Examples are to be sent to the NTLG Secretariat. NTLG meeting - 14 December 2010 Refer agenda item 9 Agenda topic Buy-Sell Agreement and Draft Taxation Ruling TR 2004/D25 |
Update for 22 June 2011 NTLG meeting Buy-Sell Agreements The ATO has agreed to publish either a Tax Ruling or a number of Tax Determinations based on case scenarios to be provided by CPA Australia following further recent discussions with the ATO. It is expected that the issue will be added to the Public Rulings Program by September 2011. Draft Taxation Ruling TR 2004/D25 The ATO does not propose to withdraw this draft Ruling as it still represents the ATO view. The Ruling has not been finalised due to the possibility of law change including more recently a recommendation from the Board of Taxation. The NTLG Public Rulings Steering Committee will now consider whether the Ruling should be finalised, taking the status of potential law changes into consideration. Status For endorsement as addressed and closed Meeting discussion This action item is to be referred to the NTLG Public Rulings Steering Committee for management, and will be reported back to the NTLG through its committee report/s. This action item will be removed from the register. |
|
10. |
NTLG1012/02 Robert Jeremenko (TIA) to coordinate regarding Temporary Residence rules for NZ citizens, on behalf of the Professional Associations by 28 February 2011. NTLG meeting - 14 December 2010 Refer agenda item 10 Agenda topic Temporary residence rules for NZ citizens |
Update for 22 June 2011 NTLG meeting The ATO has considered the Professional Bodies joint submission and has discussed the issue with key stakeholders, including Treasury and the Tax Institute. The ATO is now finalising its view, consultation with Professional Bodies will occur before publishing an ATOID. Status For endorsement as addressed and closed Meeting discussion Members determined that this action item be kept open whilst the ATO finalises its view and consultation continues with Professional Bodies before publishing the ATOID. |
|
11. |
NTLG1012/03 Christine Barron, as Treasury representative, is to discuss issues with relevant Treasury areas and advise the NTLG Secretariat of outcome. NTLG meeting - 14 December 2010 Refer agenda item 10 Agenda topic Temporary residence rules for NZ citizens |
Update for 22 June 2011 NTLG meeting Treasury met with the ATO and confirmed what it understands is the International Centre of Expertise interpretation of the temporary resident rules. Treasury considers that this approach is consistent with the underlying policy. However, there appear to be anomalous outcomes for certain New Zealand citizens who have been issued with a Special Category (subclass 444) visa. Treasury is considering this issue further. Status For endorsement as addressed and closed Meeting discussion Members determined that this action item be kept open whilst Treasury are considering the matter. |
|
12. |
NTLG1012/04 Chief Tax Counsel Kevin Fitzpatrick to follow-up with Senior Tax Counsel Andrew Orme regarding a discrete ruling or determination in relation to the Loyalty issues – refer section on GST public rulings – legislative changes and issues registers and other GST publications within the agenda (Item 20) regarding a potential topic initially proposed to be converted into a public ruling. NTLG meeting - 14 December 2010 Refer agenda item 20 Agenda topic Public Ruling Steering Committee |
Update for 22 June 2011 NTLG meeting A ruling on the GST consequences of loyalty programs is being developed and is listed on the public rulings program, with a proposed issue date for a draft ruling of 24 August 2011. The need for rulings and other guidance materials on GST topics will be monitored through the NTLG GST Sub-committee and reported to the NTLG via the report of the Sub-committee. Status For endorsement as addressed and closed Meeting discussion This action item is to be referred to the NTLG GST Sub-committee for management, and will be reported back to the NTLG through its committee report/s. This action item will be removed from the register. |
|
13. |
NTLG1010/07 Trust consultation date of product publication required. NTLG meeting - 18 October 2010 Refer agenda item 23 Agenda topic Matters referred to Sub-forums, NTLG work program and management of issues |
Update for the 22 June 2011 NTLG meeting At the 5 April 2011 meeting of the NTLG Trust Consultation Sub-group, members were generally of the view that the publication of dedicated rulings at this time would be distracting given the interim retrospective amendments. It was suggested that where possible the issues be discussed in the Decision Impact Statement to be published in respect of the decision in Colonial First State Investments v. Commissioner of Taxation [2011] FCA 16. Refer also ATO response to agenda item 'ATO issue of tax products clarifying proposed trust taxation changes’ as presented in the 22 June 2011 NTLG agenda. The need for rulings and other guidance materials on trust topics will be monitored through the NTLG Trust Consultation Sub-group and reported to the NTLG via the report of the Sub-group. Status For endorsement as addressed and closed Meeting discussion This action item is to be referred to the NTLG Trust Consultation Sub-group for management, and will be reported back to the NTLG through its group report/s. This action item will be removed from the register. |
|
14. |
NTLG1010/04 Members sought clarification of Sub-forums that will be consulted on this item. NTLG meeting - 18 October 2010 Refer agenda item 8 Agenda topic Operation of Section 109XI – Division 7A |
Update for the 22 June 2011 NTLG meeting Draft Tax Determinations TD 2010/D9 (section 109XI) and TD 2010/D10 (section 109T) have now issued as Tax Determinations TD 2011/15 and TD 2011/16 respectively. These Determinations issued on 15 June 2011. As part of the process of developing this ATO view in these two Determinations there was a meeting of the Division 7A Working Group during the formal period for feedback. This provided an opportunity to focus on possible areas of concern and to explain any areas of uncertainty. The feedback on both Determinations was universally supportive of the views expressed. Given the supportive nature of the feedback the ATO proceeded to finalise the Determinations as quickly as possible. Status For endorsement as addressed and closed Meeting discussion Members agreed that this action item can be closed, the item will be removed from the register. |
|
15. |
NTLG1006/09 Dispute resolution to be further discussed with other bodies through the Legal Practitioner Working Party. NTLG meeting - 23 June 2010 Refer agenda items 8 and 9 Agenda topic Alternative dispute resolution procedures and Earlier dispute resolution procedures |
Update for the 22 June 2011 NTLG meeting The working group of the Legal Practitioners Working Party (LPWP) has agreed to a form of words concerning the disclosure warranty for inclusion in the model settlement deed and a form of words for inclusion in the ATO's code of settlement practice that the ATO believes delivers on the intent of IGT recommendation 20, as follows: (a) The existing clause 4.1 of the model deed of settlement should be deleted and replaced with a new clause 4.1 as set out below: 4.1 The taxpayer warrants that to the best of its knowledge and belief it has made a true disclosure of all relevant and material facts to the Commissioner which relate to the issue, prior to entering into this deed. (b) Existing clauses 4.2 and 4.3 of the model deed of settlement should at this stage remain unchanged. (c) An explanation of the intent and consequences in relation to the new clause 4.1 will be inserted into the Code of Settlement Practice at existing paragraph 75. The purpose of this insertion into an ATO policy document is to highlight for less informed taxpayer and those taxpayers without adequate representation, the importance of such disclosure obligations and that such obligations should be seriously considered when entering settlement deeds. Paragraph 75 of the Code of Settlement Practice should be deleted and replaced with the following: 75. The agreement should state that the settlement is conditional upon a true disclosure of all relevant and material facts relating to the issue being settled as known to the best of a taxpayer’s knowledge and belief at the time of settlement. This is reflected in clause 4.1 of the Model Deed of Settlement as set out in Attachment B. The nature of this taxpayer disclosure requirement represents a fair and reasonable balance of the rights and obligations of all parties with respect to the good faith in which settlement negotiations have been conducted. There are important consequences that may flow if this condition is not observed. For example, the Commissioner may choose to terminate the settlement deed or void or vary terms within the settlement deed. A taxpayer’s right of objection or appeal may accordingly be enlivened as a result of the action taken by the Commissioner. The ATO sought feedback from the broader LPWP, which has been supportive of the proposed approach and form of words. The ATO is working through the processes now of having these changes finalised and published within the Code of Settlement Practice. The LPWP working group will continue to work through recommendation 9 of the same IGT review, concerning re-opening of settlements. It is expected the working group will have an agreed position by 30 June 2011, for consideration of the LPWP and finalisation early in 2011-12. Matters relating to Dispute resolution and settlements will be managed through the NTLG Dispute Resolution Sub-committee. Status For endorsement as addressed and closed Meeting discussion This action item is to be referred to the NTLG Dispute Resolution Sub-committee for management, and will be reported back to the NTLG through its committee report/s. This action item will be removed from the register. |
|
16. |
NTLG1006/08 The Law Council of Australia to work with the ATO on mediation training and skilling. NTLG meeting - 23 June 2010 Refer agenda items 8 and 9 Agenda topic Alternative dispute resolution procedures and Earlier dispute resolution procedures |
Update for the 22 June 2011 NTLG meeting The first dispute resolution workshop, organised in conjunction with the Law Council of Australia was held in Melbourne on 31 March 2011. The aim of the workshops is to improve the awareness and understanding of formal and informal dispute resolution options in resolving tax disputes, the broader government ADR initiatives impacting on agencies, as well as practical sessions on how to prepare for ADR and ADR options in the Federal Court and AAT. Workshops will be conducted in Perth on 22 June and Sydney on 29 June, with further workshops to be planned later this year in Brisbane and Adelaide. In going forward, the ATO will continue to work closely with Industry Bodies to address issues and education surrounding the resolution of disputes. The need for rulings and other guidance materials on dispute resolution topics will be monitored through the NTLG Dispute Resolution Sub-committee and reported to the NTLG via reports of the Sub-committee. On 28 June 2011, the NTLG Dispute Resolution Sub-committee will hold its first official meeting. Status For endorsement as addressed and closed Meeting discussion Members agreed that this action item can be closed, the item will be removed from the register. |
|
17. |
NTLG1003/11 ATO to explore possibility of electronic delivery of Notice of Assessment (NOA) NTLG meeting – 31 March 2010 Refer agenda item 17 Agenda topic Change Program |
Update for the 22 June 2011 NTLG meeting In October 2010, the ATO undertook consultation with tax agents to identify potential Tax Agent Portal (TAP) enhancements. The findings from the consultation process identified that an improvement considered to be beneficial to tax agents was to be able to view, print and save copies of Notice of Assessments (NoA). The ATO will continue to explore a phased approach with the delivery of Notice of Assessment's electronically. Status For endorsement as addressed and closed Meeting discussion Members agreed that this action item can be closed, the item will be removed from the register. |
|
18. |
NTLG1003/15 ATO to provide draft practice statement when available. NTLG meeting – 31 March 2010 Refer agenda item 23.2 Agenda topic Other business - IGoT Review into delayed or changed Australian Taxation Office views on significant issues |
Update for the 22 June 2011 NTLG meeting The following Law Administration Practice Statements have issued: · PS LA ID 3326 Technical discussion papers : This practice statement was published as PS LA 2010/5 on 2 December 2010. · PS LA ID 3434 When the ATO will not take action to apply its view of the law in past years or periods : A consultation paper was circulated to the NTLG Professional bodies for comments in August 2010. The draft practice statement (3434) issued for comment on 3 March 2011. NTLG members were emailed advice on the release of the draft practice statement on 3 March 2011. Members were invited to provide comments by 15 April 2011. Status For endorsement as addressed and closed Meeting discussion Members agreed that this action item can be closed, the item will be removed from the register. Post meeting update On 28 July 2011 PS LA 3434 was published by the ATO as PS LA 2011/27 - Matters the Commissioner considers when determining whether the ATO view of the law should only be applied prospectively |
|
19. |
NTLG0912/10 Tax Office to investigate the status of instalment warrants and advise members. NTLG meeting – 2 December 2009 Refer agenda item 18 Agenda topic Matters referred to sub forums Superannuation Technical Sub-group |
Update for the 22 June 2011 NTLG meeting This issue continues to be closely managed by the Superannuation Sub-group, and work done to provide certainty for the community is well advanced. A workshop held on 8 November 2010 with industry members informed the sub-group of the issues of importance to industry in relation to the new sections 67A and 67B of the Superannuation Industry (Supervision) Act 1993 (SISA). Key issues (the meaning of the phrase ‘single acquirable asset, and the meaning of the terms ‘repairing’, ‘maintaining’ and ‘improving’ for the purposes of the SISA) have been addressed in a draft Ruling which will be considered by the Public Rulings Branch on 16 June. Revisions of ATO IDs 2010/162 and 2010/170, as discussed at the workshop, have also been considered. The former is being revised whilst 2010/170 is considered to provide sufficient guidance. We propose to publish a further two ATO IDs by the end of July 2011. These will provide our view on when an 'arrangement' is entered into for a 'limited recourse borrowing arrangement' to assist in determining whether the arrangement was entered into on or after 7 July 2010. The ATO has also reviewed the Q&As already published on our website regarding drawdowns from existing facilities and believes the Q&A does not need to be further amended. These issues will continue to be monitored through the NTLG Superannuation Technical Sub-group. Status For endorsement as addressed and closed Meeting discussion This action item is to be referred to the NTLG Superannuation Technical Sub-group for management, and will be reported back to the NTLG through its group report/s. This action item will be removed from the register. |
|
20. |
NTLG0903/05 NTLG members will be advised of the progress of draft ruling TR2007/D10. NTLG meeting - 27 March 2009 Refer agenda item 17 Agenda topic CGT consequences of earnout arrangements |
Update for the 22 June 2011 NTLG meeting The ATO continues to consider the impact of the Government's announcement re earnouts on TR2007/D10. The draft will be finalised after the proposed legislative changes including transitional provisions are enacted. The interaction issues with the consolidation measure will be considered during this process. The adequacy of the proposed transitional arrangements will be considered through the consultation process on the new measure. The date of commencement of the law change will be a matter for the Government. The ATO does not propose to undertake specific compliance action pending enactment of the law change. As significant developments occur regarding TR2007/D10, NTLG members will be advised through reports of the NTLG Losses and CGT Sub-committee. The need for rulings and other guidance materials covering Losses & CGT topics will be monitored through the NTLG Losses & CGT Sub-committee and reported to the NTLG via the report of the Sub-committee. Status For endorsement as addressed and closed Meeting discussion This action item is to be referred to the NTLG Losses and CGT Sub-committee for management, and will be reported back to the NTLG through its committee report/s. This action item will be removed from the register. |
|
21. |
NTLG0903/02A Progress of draft PS LA or appropriate guidance product in respect of Division 7A issues (109RB). NTLG meeting - 27 March 2009 Refer agenda item 8 Agenda topic Division 7A issues |
Update for the 22 June 2011 NTLG meeting Draft practice statement 2843 issued on 31 March 2011. The period for providing formal feedback was extended by three weeks but has now closed. We are now working through the submissions to finalise this practice statement. During the consultation period the ATO conducted a meeting of the NTLG Division 7A Working Party to work through the draft practice statement. This provided an opportunity to focus on possible areas of concern and to explain any areas of uncertainty. The ATO also co-presented a number of presentations to members of the ICAA and the Tax Institute. Again, the idea here was to engage with practitioners in a meaningful way whilst there was still an opportunity to provide formal comment on the practice statement. Our initial review of the submissions indicates that the draft practice statement has been well received. There were only two substantive issues raised in the various submissions, one relating to appeal rights and the other relating to the time at which corrective action needs to be taken. The NTLG Division 7A Working Party will continue to manage/monitor the issue, with the understanding that significant developments will be communicated through to the NTLG. Status For endorsement as addressed and closed Meeting discussion This action item is to be referred to the NTLG Division 7A working party for management, and will be reported back to the NTLG through its group report/s. This action item will be removed from the register. |
|
22. |
NTLG0806/01 Voluntary disclosure and penalty remissions supporting documents NTLG meeting - 17 June 2008 Refer agenda item 5 Agenda topic Reasonable care |
Update for the 22 June 2011 NTLG meeting The meeting requested, to discuss the concerns expressed about the draft voluntary disclosure ruling MT 20008/D and some minor remission issues, occurred in August 2008. The information provided was considered and relevant changes made in MT 2008/3. Penalty remission issues raised have been actioned. A practice statement to replace Law Administrative Practice Statement PS LA 2006/2 Administration of shortfall penalty for false or misleading statement is being drafted and will issue for consultation in due course. There are no remission issues from the meeting that are dependant on this practice statement for resolution. Status For endorsement as addressed and closed Meeting discussion Members agreed that this action item can be closed, the item will be removed from the register. |
|
23. |
NTLG0709/04 Treasury have been asked to note the support from the NTLG to resolve two issues; the announced but not yet enacted Forex measures; and clarify the scope of the announcement related to the McNeil case. NTLG meeting – 5 September 2007 Refer agenda item 11 Agenda topic NTLG Sub-committee governance report – Superannuation Technical Sub-group |
Update for 22 June 2011 NTLG meeting Treasury have appreciated support from the NTLG to resolve two issues; the announced but not yet enacted Forex measures; and clarify the scope of the announcement related to the McNeil case. Amendments following the decision of the McNeil case received Royal Assent in September 2008. No further action is required on this issue. Legislation to amend the foreign currency provisions ( Forex issue) will be introduced as priorities permit. This issue will continue to be monitored and managed through Treasury. This action item is considered sufficiently addressed. Status For endorsement as addressed and closed Meeting discussion Members determined that this action item be kept open whilst Treasury manage the introduction of legislation to amend the foreign currency provisions (Forex issue). |
|
24. |
NTLG0612/20 The resolution of the issue associated with the Notice of Assessment for trusts is to be pursued. (ROSA) NTLG meeting – 7 December 2006 Refer agenda item 23 Agenda topic Assessment of Trusts |
Update for 22 June 2011 NTLG meeting Treasury will continue to work with the ATO in developing a legislative solution to provide a finite review period for trustees with non-taxable assessments. This development continues as part of the broader process of repealing the remaining unlimited amendment periods in the income tax law. Consultation and implementation on the second tranche of amendments will be subject to a decision of the Government. This action item is considered sufficiently addressed. Status For endorsement as addressed and closed Meeting discussion Members determined that this action item be kept open whilst Treasury continue to work with the ATO in developing a legislative solution to provide a finite review period for trustees with non-taxable assessments. |
|
25. |
NTLG0512/09 The Tax Office to provide an update on GSTR 1999/1. NTLG meeting - 12 December 2005 Refer agenda item 8 Agenda topic Rewrite GSTR 1999/1 |
Update for 22 June 2011 NTLG meeting Goods and Services Tax Ruling GSTR 1999/1 was withdrawn with effect from 30 June 2010 following the repeal of section 106-50 of Schedule 1 to the TAA. The Commissioner's views in GSTR 1999/1 will continue to apply under the general rulings system and will be incorporated into its foundation rulings, that is, Taxation Ruling TR 2006/10 for matters concerning public rulings and Taxation Ruling TR 2006/11 for matters concerning private rulings. Draft addendums to Taxation Ruling (TR) TR 2006/10 and TR 2006/11 issued together on 6 April 2011. Comments on the draft addendums were invited up to 20 May 2011. Status For endorsement as addressed and closed Meeting discussion Members agreed that this action item can be closed, the item will be removed from the register. |
|
26. |
NTLG0512/03 ROSA recommendations - progress report on implementation. NTLG meeting – 12 December 2005 Refer agenda item 7 Agenda topic [_Toc121619986][_Toc126726484]Status of private rulings and ATOIDs - community understanding of limitations and purpose of products |
Update for 22 June 2011 NTLG meeting Implementation of ROSA recommendations in progress. Significant updates anticipated for the September 2011 NTLG meeting, detailing: Advice to Tax Agents Administrative recommendation 2.9 Improving communication with agents Penalties Administrative recommendation 4.4 The ATO should explain more fully, for example in a Ruling or Practice Statement how it exercises the discretion to remit tax shortfall penalties, including in Part IVA cases. To obtain a copy of a more detailed report, email palu@ato.gov.au . Status In progress Meeting discussion Members accepted this update without any changes. |
|
27. |
NTLG0509/07
Discretion set out at section 160APHL(14) of the ITAA 1936
NTLG meeting – 7 September 2005
Refer agenda item 17Agenda topic
Forty-five day holding period rule to unit holders in a unit trust (ATO ID 2005/172) |
Update for 22 June 2011 NTLG meeting Treasury is in the process of rewriting section 160APHL(14) and inserting it into the 1997 Income Tax Assessment Act. Status For endorsement as addressed and closed Meeting discussion Members determined that this action item be kept open whilst Treasury is in the process of rewriting section 160APHL(14) and inserting it into the 1997 Income Tax Assessment Act. |
[Appendix1][_Toc151890501][_Toc151890502][_Toc309640837] 18 Next meeting and close
The next meeting is scheduled for Wednesday 14 September 2011, commencing at 9.30am.
Meeting discussion
The Commissioner reiterated his thanks for the way members conducted themselves in attending the NTLG meeting either in person, by video conference or by phone. It was considered to be a less than ideal situation, and the ATO apologises if members didn’t feel as included in the discussions as they normally would in the face to face format.
The Commissioner acknowledged the importance of the action items and determining their status going forward. It’s crucial to be aware of where the action items are and also have the ability to track them properly.
The clarification of technical issues is an important part of the NTLG, and it’s good to see the outcomes of working with members and the sub-groups on many issues, especially Trusts. Some announcements on key legislation may be available by the next NTLG meeting.
It was a successful meeting. Members were wished a safe trip home.
The meeting closed at 3.00pm.
Copyright notice
© Australian Taxation Office for the Commonwealth of Australia
You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).
