MINUTES	NTLG	7 december 2012	Unclassified
format	Audience	Date	Classification

National Tax Liaison Group Minutes FOR THE MEETING of 20 September 2012 Venue : (McKay Board Room, Level 10 Amungula Building, 26 Narellan Street, Canberra (commencing at 9.30am)
unclassified	For further information or questions, contact Kylie A Bell 07 314 95712

Attendance list

Michael D’Ascenzo (Chair) Commissioner	ATO
Shane Reardon Second Commissioner	ATO
Bruce Quigley Second Commissioner	ATO
Cheryl-Lea Field Deputy Commissioner	ATO
Robert Olding (Guest) Chief Tax Counsel (attending for Chief Tax Counsel Andrew England)	ATO
Kerry O’Loghlin (Guest) Assistant Deputy Commissioner (attending for Assistant Commissioner Cameron Sorensen)	ATO
Gerry Antioch General Manager of Tax System Division	Treasury
Lance Cunningham Director, National Tax - PDO	Institute of Public Accountants
Ray Conwell Director, Deloitte Lawyers Pty Ltd	Law Council of Australia
David Fox (Guest) Assistant Director (attending for Assistant Director Michelle de Niese)	Corporate Tax Association
Bob Duncan President	Association of Taxation and Management Accountants
Teresa Dyson Partner Ashurst Australia	Law Council of Australia
Tony Greco Senior Tax Advisor	Institute of Public Accountants
Robert Jeremenko Senior Tax Counsel	Tax Institute
Ian Kearney Partner – Moore Stephens	CPA Australia
Moira Merrick Director - Deloitte	Institute of Chartered Accountants in Australia
Paul Stacey Tax Counsel	Institute of Chartered Accountants in Australia
Ken Schurgott President	Tax Institute
Tony Stolarek Partner – Ernst & Young	Institute of Chartered Accountants in Australia
Roger Timms Head of Tax and Superannuation	Taxpayers Australia
Steve Westaway Vice President	Tax Institute
Rod Wilson (Guest) Presenter (attending for General Manager Steve Cane)	National Tax and Accountants Association

Guest presenters

Frances Cawthra Chief Finance Officer (Agenda item 5)	ATO
Debbie Hastings First Assistant Commissioner (Agenda items 6, 7, 12)	ATO
Michael Cranston Deputy Commissioner (Agenda items 3, 8, 9 & 10)	ATO
Brett Martin Acting Deputy Commissioner (Agenda item 9)	ATO
Jonathan Woodger Deputy Chief Tax Counsel (Agenda items 3, 4.1 & 4.2)	ATO
Tony Poulakis Assistant Commissioner (Agenda items 3 & 8)	ATO
Robert Puckridge Senior Tax Counsel (Agenda item 9)	ATO
Peter Holloway Assistant Commissioner (Agenda item 11)	ATO
Melinda Balkin Director (Agenda item 9)	ATO

Apologies

Andrew England Chief Tax Counsel	ATO
Cameron Sorensen Assistant Commissioner	ATO
Rob Heferen Executive Director	Treasury
Christopher Branson Queens Counsel	Law Council of Australia
Steve Cane General Manager	National Tax and Accountants Association
Frank Drenth Executive Director	Corporate Tax Association
Alexis Kokkinos Pitcher Partners	Institute of Chartered Accountants in Australia
Mark Morris Senior Tax Counsel	CPA Australia
Michelle de Niese Assistant Director	Corporate Tax Association
Andrew O’Bryan Partner – Hall & Wilcox	CPA Australia

Secretariat

Kylie A Bell Assistant Director	ATO
Cindy Baker Assistant Director	ATO
Alice Taylor Director	ATO

Disclaimer 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.

Electronic links to papers (control + click on page number to go to item)

1. Introductions, apologies and confirmation of minutes 7

2. Action item review 11

3. Emerging Law Design 16

4. Standing agenda items 19

4.1 NTLG Sub-forum governance report – International Tax Sub-group 19

4.2 General Anti-Avoidance Rule (GAAR) Panel report 25

5. ATO Staff Resources 29

6. ATO Dispute Management Plan 32

7. ATO actions following the Inspector General of Taxation review of Early and Alternative Dispute Resolution processes and practices 35

8. Update on Trustee Resolution Project 39

9. ATO Administration of new Director Penalty Regime 43

10. Application of Risk Differentiation Framework in the Small to Medium Enterprise Market 52

11. ATO Lodgment Framework for 2013 58

12. ATO process of determining whether to produce a Decision Impact Statement 62

13. Standing agenda items 66

13.1 Top 3 items of significance under management of NTLG Sub-forums 66

13.2 NTLG Sub-forum and Panel reports 86

13.3 Tax Issues Entry System (TIES) Register 88

13.4 Public Rulings Steering Committee report 92

14. Other Business 95

14.1 TIES arising from this meeting 95

14.2 Key Messages 96

14.3 Next meeting and close 102

2012 Forward Program

Potential agenda items or focus areas for discussion at future National Tax Liaison Group (NTLG) meetings are listed below.

To raise an issue for consideration for the 2012 Forward Program, please forward details via email to palu@ato.gov.au .

Potential Items

The following items are proposed for the 12 December 2012 forward agenda:

· Transforming Tax Technical Decision Making (TTTDM) Project – implementation and measuring success

· Clean Energy Regulator – Carbon Pricing Mechanisms

· Superannuation Reforms

· Governance report – NTLG GST Sub-committee

· Annual Forum Review

· List of ATO-Treasury planned consultation for the period of November 2012 – January 2013 (includes ie draft rulings, draft determinations, draft practice statements and discussion papers)

· ATO Christmas shutdown

2012 Proposed Meeting Schedule

The 2012 proposed meeting schedule for the remaining year is as follows:

· 12 December 2012, Canberra

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.

^{[_Toc342482345]}1. Introductions, apologies and confirmation of minutes

· Chair’s opening comments

° Welcome to participants

· Guest participants

° Chief Tax Counsel Robert Olding (ATO)
attending on behalf of Chief Tax Counsel Andrew England

° Assistant Deputy Commissioner Kerry O’Loghlin (ATO)
attending on behalf of Assistant Commisioner Cameron Sorensen

° Assistant Director David Fox (CTA)
attending on behalf of Assistant Director Michelle de Niese

° Director Moira Merrick (ICAA)
attending on behalf of Partner Alexis Kokkinos

° Presenter Rod Wilson (NTAA)
attending on behalf of General Manager Steve Cane

· Members stepping down from forum

° Second Commissioner Law Jennie Granger.

· Changes to NTLG membership

° None advised.

· Apologies accepted from

° Chief Tax Counsel Andrew England (ATO)

° Assistant Commissioner Cameron Sorensen (ATO)

° Executive Director Rob Heferen (Treasury)

° Queens Counsel, Christopher Branson (LCA)

° General Manager Steve Cane (NTAA)

° Executive Director Frank Drenth (CTA)

° Pitcher Partners, Alexis Kokkinos (ICAA)

° Senior Tax Counsel, Mark Morris (CPA Austalia)

° Assistant Director, Michelle de Niese (CTA)

° Partner, Hall & Wilcox, Andrew O’Bryan (CPA Australia)

· Confirmation of the draft minutes for the 9 July 2012 meeting.

° Key messages issued to members for comment on 13 July 2012.

° Draft minutes forwarded to members for comment on 13 September 2012.

° On members endorsement, the Draft minutes will be finalised and published to the ATO website.

Meeting discussion

Meeting commenced at 9:30am.

The Chair opened the meeting and welcomed all members.

The Chair advised that Jennie Granger, previous Second Commissioner of Law has been appointed to the position of Director-General Enforcement and Compliance at Her Majesty’s Revenue and Customs (HMRC) in the UK. The Chair thanked Ms Granger for her involvement and contributions to the NTLG since joining the forum in 2001.

The new Second Commissioner of Law is yet to be announced.

Previous minutes

Members requested an extension to review the NTLG 9 July 2012 Draft minutes. The Chair agreed to extend the review date to 28 September 2012.

Before commencing with the Agenda, Acting Second Commissioner of Corporate Services & Law Shane Reardon and General Manager Gerry Antioch of Treasury provided the following updates on significant matters.

Joint Committee of Public Accounts and Audit (JCPAA)

· On Friday 14 September 2012 the ATO appeared before the JCPAA.

· The hearing went well and the ATO continues have a strong relationship with this Committee.

· The ATO anticipates it will receive the Committee’s report later this calendar year.

· The focus was on Small Business, however a broad range of topics were discussed; including:

° Tax Gap: The Commissioner noted that whilst we are undertaking some preliminary analysis in the area of GST, the figures we are coming to are not of that order. The Commissioner noted that we’d welcome information on the methodology used by the person to reach $41b, which we’d be happy to consider

° Foreign investment in Australia and international taxation issues: The ATO noted that international transactions remain a significant focus area for us in each of our compliance programs.

° Taxation reform: comments from Small Business representative witnesses on what they see as inefficient state taxes and the need for inclusion of GST in conversations regarding reform.

The committee noted that there has been very few tax time complaints this year and performance continues to be strong.

Treasury and the ATO Relationship

· Treasury and the ATO continue to work closely on the development of new tax policy, law and administration.

· The two agencies have recently agreed on a new quality assurance process for law design which includes early involvement of the ATO in policy discussions prior to government decisions and greater collaboration during the drafting of legislation.

· All of this work culminated in a revised version of the Treasury and Australian Taxation Office Tax and Superannuation Protocol, which was published on the ATO and Treasury websites on Monday 17 September (and provided to JCPAA on 14 September); refer to the ATO website and the Treasury website .

· The purpose of the Protocol provides the framework for the working arrangements between the Treasury and the ATO to enable the best possible functioning of the tax and superannuation systems that the Treasury and the ATO share the stewardship of.

· The protocol outlines the following arrangements that form part of the overall Treasury-ATO relationship:

° The integrated tax design processes

° Quality assurance of new law

° Revenue costing

° The law and its administration

There will be a Tax Policy Conference on 25 and 26 September 2012, involving tax and Treasury officers, where senior officers from both agencies will reinforce the importance of working together in a way that produces better laws for the community

Revenue Group Restructure in Treasury

From 24 September, Treasury’s Revenue Group will be reorganised.

· A Law Design Practice (LDP) will be established by formally bringing together Treasury’s tax law design expertise. The LDP will be responsible for law design input into policy development, and for progressing and project managing tax and superannuation law. The LDP will also coordinate priority setting of draft legislation.

· A Corporate and International Tax Division will consolidate tax policy work currently spread between two divisions.

· A Small Business Tax Division will enhance Treasury’s ability to understand and respond to the diverse set of issues facing this sector.

· Tax System Division’s mandate to advance a system-wide approach to tax economics and tax administration policy will be strengthened with responsibility for international treaties work.

· Other Revenue Group Divisions will continue to function largely as now.

The Revenue Group’s new structure is also intended to support significantly enhanced operating arrangements.

Post meeting update

Previous minutes

On 3 October 2012, members were advised that no changes were requested of the NTLG 9 July 2012 Draft minutes, and that the minutes were now considered endorsed without change and are finalised.

The finalised minutes will be published to the ATO website.

^{[Item2][_Toc342482346]}2. Action item review

Record of action items – total three (3) listed for review

Three (3) action items are listed with a proposal to close, pending members’ endorsement.

No. 1	Reference	NTLG1207/01
	Agenda Item #	NTLG meeting – 9 July 2012 Refer agenda item 10
	Agenda Topic	Implementation of the Transforming Tax Technical Decision Making (TTTDM) Project
	Action item	Members invited to provide feedback on how the ATO would measure success in implementing the TTTDM Project. Members to provide feedback to: · e-mailbox: PALU@ato.gov.au
	Responsibility	Members
	Background	The ATO provided members with an overview, covering implementation of the TTTDM Project: · project intent and outcomes; · proposed effectiveness measures; and · proposed approach to the post-implementation review. On the day of the meeting, members were provided with handouts outlining the project’s intent and how the ATO will measure the effectiveness of the TTTDM initiatives.
	Update	On 31 July 2012 members were invited to provide feedback on how the ATO would measure success in implementing the TTTDM. Members feedback requested by 29 August 2012.
	Status	Proposal to close – pending members endorsement On 31 July 2012 members were invited to provide feedback by 29 August 2012 on how the ATO would measure success in implementing the TTTDM. On 18 September 2012 a member provided feedback. The feedback was escalated to the appropriate business area for consideration. The ATO will provide an update on the TTTDM Project – implementation and measuring success at the next NTLG meeting, held 12 December 2012.
MEETING DISCUSSION	Members accepted the advice and agreed with the proposal to close this action item and remove from the register. This action item is now closed.

No. 2	Reference	NTLG1203/02
	Agenda Item #	NTLG meeting - 28 March 2012 Refer agenda item 3
	Agenda Topic	ATO investigation – professional practice structures
	Action item	The ATO to establish a NTLG Professional Practice Structures Working Group, to focus on a broad range of issues relating to professional practice structures. The group will report to the main NTLG and will have appropriate representation from relevant industry and professional associations.
	Responsibility	ATO
	Background	Members requested the ATO establish a NTLG Professional Practice Structures Working Group, to focus on a broad range of issues relating to professional practice structures.
	Update	On 9 July 2012 the NTLG endorsed the creation of the NTLG Professional Practice Structures Sub-group. Deputy Commissioner Michael Cranston of Small & Medium Enterprises, will be the Chair person for this Sub-group. The ATO is currently calling for nominations from industry bodies that represent major professional practices in Australia, including accounting, legal, engineering, architectural, medical and dental. To assist with the nomination process and the creation of this forum, the ATO met with external members of the Legal Practitioners Forum (LPF). At the meeting the members of the LPF discussed some of the issues that could be considered by this new Working Group. The ATO outlined some of the issues it hoped to clarify. (These issues were discussed at the NTLG meeting of 28 March 2012.) The ATO expects the initial meeting of the NTLG Professional Practice Structures Working Group to take place by October 2012. At this stage it is likely that the meeting will take place in either Melbourne or Sydney as this is where the majority of external members are likely to be based. Administrative processes, including the preparation of a draft Charter, have commenced to ensure this meeting will occur as planned. A mailbox for the NTLG Professional Practice Structures Working Group, is in the process of being established. In the interim, if anyone wishes to submit issues for possible inclusion in the Agenda for the inaugural meeting, can do so by sending an email to the PALU mailbox : palu@ato.gov.au
	Status	Proposal to close – pending members endorsement. On 16 August 2012, at the NTLG pre-meeting teleconference, members agreed to close this action item once the invitation was issued, calling for nominations to join the NTLG Professional Practice Structures Sub-group. On 22 August 2012, the ATO issued an invitation to legal and accounting representatives of the Legal Practitioners Forum and the NTLG, to nominate for the inaugural NTLG Professional Practice Structures Sub-group. On 24 August 2012 NTLG members were advised that the invitation had issued and that initially the invitation was only being extended to legal and accounting representatives. However, the broader membership of the NTLG was also welcome to consider a nomination for membership of this Sub-group. Members were also advised that this Action item would now be presented at the 20 September 2012 NTLG Agenda as closed.
MEETING DISCUSSION	Members were advised that the first inaugural meeting for this Sub-forum will be held on 31 October 2012. Members accepted the advice and agreed with the proposal to close this action item and remove from the register. This action item is now closed.

No. 3	Reference	[NTLG110601]NTLG1106/01
	Agenda Item #	NTLG meeting – 22 June 2011 Refer agenda item 2
	Agenda Topic	The application of the share capital tainting rules to employee share schemes
	Action item	The ATO agreed to follow up on the status of the relevant fact sheet and provide details.
	Responsibility	Treasury
	Background	Once the ruling has been finalised a decision will be made either to amend or withdraw the fact sheet. Action item updates provided at previous meetings.
	Update	The proposed amendments have been costed, and Treasury is considering whether to proceed with the amendments
	Status	Proposal to close – pending members’ endorsement. On 16 August 2012, at the NTLG pre-meeting teleconference, members agreed to close this action item with the understanding the Treasury would provide an update on this matter at the NTLG meeting on 20 September 2012. General Manager Gerry Antioch, Treasury will provide an update on the day of the meeting.
MEETING DISCUSSION	General Manager Gerry Antioch, Treasury provided an update for this item. Members were advised Treasury is considering, in consultation with the ATO, amending Division 197 of the ITAA 1997 to provide an exemption for an amount transferred to share capital if the transfer is as a result of the issue of shares to employees under an employee share scheme.[_GoBack] Members accepted the advice and agreed with the proposal to close this action item and remove from the register. Any further issues relating to this matter will be raised out of session with Treasury. Post meeting advice · Members are welcome to discuss the matter and/or provide feedback through to Ms Nan Wang in Treasury on 02 6263 2768. This action item is now closed .

Two new action items were developed as part of the day’s meeting discussion.

No. 1	Action item No. #	NTLG1209/01
	Agenda Item #	Refer agenda item 9
	Agenda Topic	ATO Administration of new Director Penalty Regime
	Action item	The ATO to establish a new Working Party to discuss the legislative changes relating to the Director Penalties Regime and Non-Compliance Tax. The Working Party will report through to the ATO Tax Practitioner Forum (ATPF).
	Responsibility	ATO
	Background	Members requested that a Working Party be established to support administration of the Director Penalty Regime.
	Status	In progress The ATO is in the process of establishing the new Director Penalties Regime Working Party.

No. 2	Action item No. #	NTLG1209/02
	Agenda Item #	Refer agenda item 11
	Agenda Topic	ATO Lodgment Framework for 2013
	Action item	Members request greater communication to promote the role of Relationship Management Program and the services that are provided.
	Responsibility	ATO
	Background	Members were advised that the Relationship Management Program will involve site visits to help people manage the lodgment program. Members requested greater communication to promote the role of Relationship Management Program and the services that are provided.
	Status	In progress The ATO will be consulting with the profession around the Relationship Management Program and full range of support services that are provided.

3. ^{[_Toc342482347]} Emerging Law Design

Emerging law design is a standing agenda item.

This item provides the opportunity for members to discuss the need as required for establishing new Sub-forums or working parties to co-design solutions for the implementation of new legislation, and to support or improve support of existing legislation.

Members expressed an interest in the following topics:

· Part IVA changes

· Fringe Benefits Tax (FBT) – Living Away From Home Allowance (LAFHA)

· Transfer Pricing reforms: Phase 1 & 2

· Budget measure denying Capital Gains Tax (CGT) discounts to non-residents (including where the gain is distributed through a trust)

In addition, Treasury will cover in brief:

· Related party bad debts and Limited recourse debt measures

· Loss carry back provisions

· Control foreign company (CFC) re-write status

Meeting discussion

General Manager Gerry Antioch from Treasury provided updates on emerging law issues.

SPECIFIC UPDATES

Part IVA changes · Extensive consultation has taken place on this matter. · The amendments will be directed at the technical deficiency in the definition of ‘tax benefit’. · The Government is aiming to introduce the amendments in late November. · Views are welcomed through consultation.

Fringe Benefits Tax (FBT) - Living away from home allowance (LAFHA) The Government in reforming the FBT system by limiting the tax concessions for living-away-from-home allowances and benefits: · introduced Tax Laws Amendment (2012 Measures No. 4) Bill 2012 on 28 June 2012, which was referred to the House of Representatives Economics Committee on 28 June 2012; and · moved Parliamentary Amendments to the Bill on 21 August 2012 to address substantive recommendations of the Committee, namely to: ° return the tax treatment of all LAFHA and benefits to the FBT system; ° broaden the concession provided to ‘fly-in fly-out’ and ‘drive-in drive-out’ workers; and ° clarify a number of areas of the Bill as recommended by the Committee. · Temporary residents and foreign residents are not in the same circumstances as permanent residents for the purposes of the transitional provisions of the Bill. Therefore, there is no breach of the nationality provision in the non-discrimination articles in Australia’s bilateral treaties. ° The different treatment that the transitional rules in the reforms give to taxpayers according to their residence status (as opposed to their nationality) is consistent with that body of international law and practice.

Transfer Pricing Reforms – Phase 1 & 2 · Phase 1 of the reforms received Royal Assent on8 September 2012. · It is expected that the Phase 2 Exposure Draft and draft explanatory material will be released for public consultation in late September for a period of 4 weeks.

Budget measure denying CGT discount to non-residents (Including where the gain is distributed through a Trust) · Drafting has commenced on an exposure draft bill. Consultation will be undertaken on the exposure draft. · Capital gains assessed to a beneficiary on an asset held by a trust will be covered by the exposure draft. To exclude such gains would provide for inconsistent treatment between non-resident individuals who hold assets directly and those who hold assets through a trust. Members queried if the legislation will involve asset evaluations and will the legislation specify any budget legislative rules. · Treasury agreed to take member comments as a ‘Question on Notice’. · Members requested the priority of this issue be escalated.

Related parties bad debts and Limited recourse debt measures It is expected exposure draft material will be released for public consultation in early October 2012 with the aim to introduce it by the end of this calendar year.

Loss carry-back provisions · The introduction of the loss carry-back tax reform implements another recommendation of Australia’s Future Tax System review and continues the Government’s commitment to tax reform. · This issue is a priority for Government. · Loss carry-back will make a difference to businesses’ decision making as it reduces impediments to sensible risk taking by giving business more certainty about the tax outcome from an investment that carries risk. · It will be available to companies and to entities that are taxed like companies. It will apply to companies’ revenue losses only and will not include capital losses. This measure will be subject to integrity rules, and limited to the company’s franking account balance. ° Small businesses that operate as sole traders or partnerships can already offset losses from other income streams. They also benefited from the increase of the tax free threshold from $6,000 to $18,200 from 1 July 2012. · There has been good consultation on this issue.

Control foreign company (CFC) re-write status · The initial exposure draft legislation for the control foreign company rules was released for public consultation in February 2011.  While the measure was progressed further in the first half of 2011, competing Government priorities saw the project lose its legislative priority. · Although relatively well progressed, this measure requires the allocation of further drafting resources before it can be completed. Until the reforms are legislated, the existing control foreign company rules will continue to apply.

NTLG members accepted the Treasury updates.

As part of the forward agenda for Treasury, members requested updates on the following issues for the 12 December 2012 NTLG meeting:

· Investment Manager Regime (IMR) 3, now that IMR 1 and 2 have passed; and

· Managed Investment Trusts.

Forward Agenda

Treasury to provide updates on matters concerning the Investment Manager Regime (IMR) and Managed Investment Trusts (MIT).

^{[_Toc342482348]}4. Standing agenda items

^{[_Toc342482349]} 4.1 NTLG Sub-forum governance report – International Tax Sub-group

Standing agenda item

NTLG Sub-forum governance reporting is a standing agenda item.

This item enables NTLG Sub-forums to provide governance reports and discussion associated with the Sub-forums.

The NTLG International Tax Sub-group has been asked to provide a governance report at the
20 September 2012 meeting.

Deputy Chief Tax Counsel Jonathan Woodger attended the meeting as the new Chair of the NTLG International Tax Sub-group and presented the following report.

Report

Purpose of Sub-group

The NTLG International Sub-group examines and identifies opportunities to optimise the administration and operation of Australia's international tax regime, including:

· identifying and addressing administrative and interpretative international tax issues in relation to secrecy havens and in relation to the foreign source income. Foreign source income issues for the purposes of this Sub-group specifically include matters concerning transfer pricing, thin capitalisation, controlled foreign companies, foreign investment funds, transferor trusts, foreign tax credits, foreign income exemptions, foreign hybrid entities and the interaction of the foreign source income measures with other provisions of the tax legislation (for example, Consolidation).

· other matters that may be referred to the Sub-group from time to time.

The Sub-group may identity issues or anomalies requiring resolution by way of legislative or policy change. Where such issues are identified in the course of proceedings, the issue will be escalated to the Technical Issues Management Sub-group of the NTLG.

Sub-group background and history

The NTLG International Sub-group evolved from the former NTLG Foreign Source Income Sub-group and the NTLG Transfer Pricing Sub-group. The previous sub-group arrangements were considered sub-optimal as there was a limited strategic focus on the administration of international tax matters, ‘gaps’ in the existing coverage of international tax and interaction issues within international tax, and those involving other areas of the tax law, were not well accommodated by the previous structure.

As a result, a wider range of international matters such as treaty issues, withholding tax issues and tax issues for non-residents now come within the new Sub-group’s scope.

Compliance with Corporate Management Practice Statement (CMPS) 2006/06

The Sub-group complies with the requirements set out in the Corporate Management Practice Statement PS CM 2006/06 (the Practice Statement) on committee management. In particular,

· The Sub-group has a published Charter .

· All meetings of the Sub-group are minuted and published on ato.gov.au .

Reports on the Sub-group’s ongoing work are presented at the NTLG’s quarterly meetings.

Minutes from each meeting are published on the ATO’s website together with an issues register which itemises action items from the meeting and their progress.

Minutes of the Sub-group’s meetings confirm that meetings are well attended by senior members of the various external bodies who contribute actively and productively to the consideration of often difficult issues.

Membership

The following bodies and firms are represented on the International Sub-group:

· Certified Practicing Accountants of Australia (CPA Australia)

· The Tax Institute (TI)

· Law Council of Australia (LCA)

· Institute of Chartered Accountants in Australia (ICAA)

· Corporate Tax Association (CTA)

On occasions the representation may be expanded to allow members to bring 'subject matter experts' who have appropriate expertise to assist in analysis of issues in meetings and other experts where the formation of a smaller working group is desirable to complete a particular task or consider a particular topic. Such working groups would operate for a limited period of time.

Treasury

A Treasury representative attends meetings of the Sub-group as an observer. The Treasury representative provides an update at all meetings on various international items including the progress of new international tax laws, Tax Information Exchange Agreements, and treaty developments.

ATO

The chair and the secretariat of the Sub-group are ATO officers. Other ATO officers attending the Sub-group are drawn from the Tax Counsel Network and International Centre of Expertise. Specific invitations are extended to other ATO personnel to assist with particular issues as appropriate.

SUB-GROUP OPERATIONS

Meetings

The Sub-group has four meetings per year, rotating the venue between Melbourne and Sydney. Use is made of telephony conferencing facilities to accommodate member’s participation in the meetings where attendance at a venue is not possible.

Last meetings held

The last meetings were held on 16 April 2012 and 23 July 2012.

Next meeting held

The next meeting will be held on 19 September 2012.

Prioritisation and Resolution of Issues

Under the Sub-group’s charter, the Chair is responsible for determining the priority to be given to all issues and for approving agenda items. The chair is guided by the views of members and determines relative priorities having regard to the ATO risk matrix in Practice Statement PS LA 2003/10.

There is no documented timeline for the resolution of issues. However, the Sub-group aims, where possible, to resolve priority matters at the meeting at which they are first discussed, or agree on a timeframe for the resolution of matters. The majority of issues before the Sub-group are resolved at the meeting where they are scheduled for discussion or at the one immediately following. Where alternative strategies are agreed to resolve priority issues (for example, if a Public Ruling is considered appropriate) the timelines adopt the relevant ATO timeframes for those actions). If the Sub-group considers that some legislative action is required adequately to deal with an issue, the matter is escalated to Treasury.

The new Sub-group with broader scope will liaise closely with other Sub-groups (e.g. finance and investment, CGT and losses, trusts, or consolidations) to ensure that any overlaps or interactions are satisfactorily handled and addressed.

Actioning and progress of issues arising from the Sub-group

Matters arising from agenda items and other business at the Sub-group’s meetings that are not resolved at the meeting are recorded in the minutes as action items for the ATO or the relevant members.

These action items and the work on them are reported in the Sub-group’s reports for the meetings of the peak NTLG.

Issues addressed by the Sub-group since 7 December 2011

Over the past seven months the Sub-group has dealt with the following matters:

Interaction of section 23AH of the Income Tax Assessment Act 1936 (ITAA 1936) and the notion of carrying on a business at or through a permanent establishment (‘PE’).

Members sought clarification of the application of section 23AH of the ITAA36 to whether a company carrying on a business at or through a permanent establishment (‘PE’) automatically satisfied (that is, without regard to actual business activity) in two contexts:

(a) where a tax treaty permanent establishment definition does not apply, and, under the definition of permanent establishment in subsection 6(1) of the ITAA 1936, a company is taken to have a permanent establishment? or

(b) where a tax treaty permanent establishment definition applies, and it deems a company both to have a permanent establishment and to carry on business at or through that permanent establishment

This topic had previously been addressed in a number of ATO guidance products but this had lead to some industry uncertainty. It was agreed to address the matter by publishing an ATO product clarifying the ATO view, on a treaty and non- treaty basis. A working draft has been recently provided to members for comment.

Transferor trusts - elections

Members advised of an anomaly in the law where in certain circumstances a transferor of a transferor trust cannot make an election regarding an investment in foreign hybrid limited partnership.

This matter involved the interaction of transferor trusts and foreign hybrids regime. It was agreed that the best method of correcting the anomaly was to advance the matter through the Tax Issues Entry System (TIES) process.

New International Dealings Schedule 2012

Lengthy consultative and co-design discussions were undertaken over several meetings on many aspects of the forms design, the questions being asked and timelines for implementation.

Through discussions with members the ATO has initiated two post implementation reviews. The first (which is well under way) is reviewing the process of development and implementation of the new schedule. The second is to be performed over a longer time frame and will undertake a broader review of effectiveness of International Dealings Schedule having regard to our longer term objectives of better identification and management of international risk and reduced compliance costs.

Members have highlighted in other return forms, anomalies over the course of meetings, which the ATO has addressed.

Update on the state of play regarding section 25-90 (ITAA36) Risk reviews

Members were provided with an update on the status on the section 25-90 risk review project and general outcomes/observations arising from that review.

The overall finding was that any aggressive arrangements were skewed toward certain sectors.

Overall the project found that within the context of tax planning incentives arising out of concessional provisions such as s25-90, the ATO were reasonably satisfied with the level of compliance in the cases reviewed.

Royalty issues – Australian treaties and payment for the use of software.

Members were updated on the worked performed as part of the ATO’s royalty risk review project. Members were advised that reviews had been undertaken on a number of Large Business and International (LB&I) clients in the Information Technology and Software Industries.

In relation to Australian resident companies, these reviews have focused on whether these taxpayers have complied with their royalty withholding tax obligations for payments made under software licensing and distribution agreements with overseas parties.

Where the software and licensing has been provided to Australian customers through a non-resident entity of the corporate group, these reviews have focused on whether the non-resident's Australian clients have met their withholding tax obligations under the licensing programs offered by the non-resident.

The issue has also raised some interpretative issues involving some specific double tax agreements Australian has with other countries.

Thin Capitalisation and securitised entity definition is section 820-39 (ITAA97)

Members raised the matter of Thin Capitalisation rules in Division 820-39 concerning the securitised entity definition is section 820-39.

Members sought clarification on the operation and definitional issues of this exemption. The ATO clarified that the section provides that the exemption is available for situations involving the special purpose entity (SPE) established for the purpose of managing some or all of the economic risk associated with assets, liabilities or investments of a securitisation transaction, or an arrangement involving both origination and securitisation. An ATO ID concerning this exemption for certain special purpose entities was released on 27 April 2012. Members sought further clarification of the ATO’s reasoning in the ATO ID. The Chair indicated the matter will be resolved by converting the reasoning in the ATO ID to a Tax Determination which is currently in progress.

Formation of a Transfer Pricing Working Group (TPWG) of the NTLG International Sub-group.

Through discussion at the meeting all agreed that the Chair endorsed a process agreed upon by members, that each of the Professional Association members currently represented at this sub-group be given the opportunity to nominate two association representatives for the TPWG. The Professional Bodies will be advised through their respective Professional Body representative at this meeting with nominations sent directly to the Secretariat.

The TPWG is intended to focus on administrative issues arising from the Government's transfer pricing reform announcements, specifically the new Cross Border Transfer Pricing Rules. The TPWG is chaired by Assistant Commissioner Michael Jenkins (LB&I, Jurisdictional Income Practice) and reports back to the NTLG International Sub-group.

Working group members will be working under the operating principles contained in the NTLG- International Sub-group Charter.

It was agreed the TPWG will focus on implementation issues members see as benefitting from discussion. The next meeting of this group is set for the 29 August 2012.

Conversion of Foreign Currency Amounts

Members have recently sought clarification of the rules in Subdivision 960-C of the 1997 Act regarding the conversion of foreign currency amounts in respect of a lump sum payments from a foreign superannuation fund. This matter is to be discussed in detail at the next NTLG International Tax Sub-group meeting.

Other Issues.

The Foreign Source Income (FSI) and Transfer Pricing (TP) sub-groups of the NTLG are currently on hold with no meetings having been conducted since the formation of the International Tax sub-group. It is recommended that these two subgroups now be formally dissolved.

Conclusion

The Sub-group has successfully worked steadily through its issue list and new issues raised between governance sessions. The Sub-group is expecting a substantial workload into the foreseeable future, with a major focus on taxation law changes emanating from the recently released Cross Border Transfer Pricing Rules, the reform of the foreign source income anti-tax-deferral (attribution) and other law changes that may come about through the work of Business Tax Working Group (BTWG).

The Sub-group is proving to be a valuable contributor to the delivery of successful ATO outcomes and supporting the taxation industry in achieving its goals.

Meeting discussion

Members accepted this report and noted with support the good work of the NTLG International Tax Sub-group.

Deputy Chief Tax Counsel Jonathan Woodger advised that, as a general observation, the Sub-group has not recently been asked to address any issues of the highest importance or difficulty. Recent meetings for this group have been relatively low key.

The new Transfer Pricing Working Group is currently focusing on administration of the new legislation. All other Transfer Pricing issues are to be escalated through to the main NTLG International Tax Sub-group for management.

Top issues

Section 820-39 of the ITAA 1997 Thin Capitalisation and the application of the securitised entity definition in section 820-39 · Clarification of the ATO’s reasoning in the ATO ID. · Matter will be resolved by converting the reasoning in the ATO ID to a Tax Determination which is currently in progress. · Tax Determination to be taken to the Public Rulings Panel which will consider the correctness of the ATO’s view.

Section 23AH of the ITAA 1936 Development of a Tax Determination on the interaction of section 23AH/23AJ (ITAA1936) · A working Draft Tax Determination is in preparation. · A version suitable for release to Sub-group members for their consideration is anticipated in October 2012.

Paragraph 840-805(4)(a) of the ITAA 1997 MIT withholding tax regime · Payments by MITS to some or all foreign superannuation funds appear to trigger this provision. · Treasury are also aware of the issue and are considering the legislation. Members appreciated that this matter was being dealt with by this Sub-group.

^{[_Toc342482350]} 4.2 General Anti-Avoidance Rule (GAAR) Panel report

Standing agenda item

This is a standing agenda item and is included in the agenda twice yearly, at the March and September NTLG meetings.

Action item number NTLG0609/10 refers.

Report

1 January 2012 to 30 June 2012

Membership of the General Anti-Avoidance Rules (GAAR) Panel at 30 June 2011 was:

· Des Maloney, Special Tax Advisor; Chair (until March 2012);

· Jonathan Woodger, Deputy Chief Tax Counsel; Chair (from April 2012) ;

· Nick Oliver, Assistant Commissioner

· Paul Bray, Assistant Commissioner;

· Tim Dyce, Deputy Commissioner;

· Alan Goldberg QC (consultant);

· Tony Pane (consultant);

· Justice Tony Pagone (consultant);

· Ray Conwell (consultant); and

· David Williams (consultant).

The Panel met four times during the period January to June 2012 considering a total of sixteen issues. Eight of the issues were for preliminary guidance and nine issues were for full guidance, including one matter that was heard for preliminary and full guidance during the period.

The March meeting was held for two and a half days, the June meeting was held over two days and all other meetings were for one day. In accordance with the processes set out in Practice Statement PSLA 2005/24 Application of General Anti-Avoidance Rules , taxpayers were not invited to matters requiring preliminary guidance. However, if these matters return to the Panel for guidance, taxpayers will be invited to attend the Panel meetings. In the nine arrangements that were considered by the Panel for final guidance, the taxpayers were invited to attend the Panel meeting. In all instances the taxpayers concerned chose to be represented by their solicitors or accountants and two taxpayers were also represented by Counsel.

Examples of the types of arrangements considered by the Panel during the relevant period included:

· a section 45B demerger (refer to PS LA 2008/10 and PS LA 2005/21 );

· a global refinancing arrangement involving the receipt of exempt dividend returns under section 23AJ of the ITAA 1936 and the claiming of deductions under section 25-90 of the ITAA 1997 (refer to TA 2009/9 , TD 2009/21 and Noza Holdings P/L v Commissioner of Tax 2011 FCA 46 ;

· a sale and leaseback arrangement (refer to Eastern Nitrogen Ltd v FC of T 2001 ATC 4164 , FC of T v Metal Manufactures Ltd 2001 ATC 4152 and Taxation Ruling TR 2006/13 ;

· a lease and leaseback arrangement ((refer to Eastern Nitrogen Ltd v FC of T 2001 ATC 4164 , FC of T v Metal Manufactures Ltd 2001 ATC 4152 and Taxation Ruling TR 2006/13 ;

· a restructure which involved the tax free movement of profits between two related companies by way of a debt forgiveness mechanism (refer to Grollo Nominees Pty Ltd (1997) 73 FCR 452 and Taxation Ruling IT 2627 ;)

· an arrangement involving the acquisition by investors of preference units in a special purpose trust to fund the redevelopment of a major hospital (refer to FC of T v. Energy Resources of Australia ( 96 ATC 4536 );

· avoidance of CGT on the disposal of non-real estate assets within a corporate group (refer to British American Tobacco Australia Services Limited v Commissioner of Taxation [2010] FCAFC 130 and PS LA 2010/1 .

In the nine matters considered by the Panel for final guidance, the Panel advised that the relevant GAAR could reasonably have application in six of those matters. In two of the other matters, the Panel advised the team that given the difficulty of the case no conclusion could be made by the Panel and that further discussions would be required between the Chair of the Panel and the team. In the other matter the Panel advised that Part IVA did not apply to the arrangement.

In the eight matters the Panel considered for preliminary guidance, the Panel noted that should the relevant GAAR be pursued, the taxpayer would be invited to make a submission to the Panel under the normal procedures. The Panel also:

· noted that based on the information provided, the Panel members were not satisfied that there was a strong case to apply Part IVA (2 matters); and

· noted that it seemed reasonable to continue to pursue the relevant GAAR argument (6 matters).

Meeting discussion

Deputy Chief Tax Counsel Jonathan Woodger of Law and Practice presented this report.

The Panel has been quite active and is expecting a peak in activity during November and December.

Top issues

177C · Three or four cases have tended to fortify the ATO in its belief that there is a problem with the definition of ‘tax benefit’ in the legislation. More generally, uncertainty about the existence of a tax benefit, in light of recent Court decisions, has had a somewhat distracting affect of the analysis at the expense of a proper consideration of the purpose test in section 177D..

177EA: ‘Non-incidental’ · The ATO advised that it is hard to generalise in a scientific way about the issue of when an imputation benefit is merely incidental to a given scheme. Careful judgments need to be made in each case..

Announced Part IVA amendments · The Panel has not yet received any cases involving schemes entered into on or after 1 March 2012, when the government announcement was made. Law to give effect to that announcement has not yet been introduced. However in general the ATO has a good general sense of what the new law is intended to do. It should be possible to manage the uncertainty to a significant degree.

Under the heading of ‘Examples of the types of arrangements considered by the Panel during the relevant period included’ members queried the connection between an issue involving the redevelopment of a major hospital and the High Court case of Energy Resources of Australia. The ATO advised that the issue was an infrastructure project/scheme with financing arrangements. The ATO was unable to advise the relevance of the connection and suggested that this reference might be an error. This matter will be addressed as a post meeting update in response.

Members were advised, on average there are three to four matters received every month. There are 19 matters currently listed for the November and December 2012 meetings.

The ATO is setting up a second GAAR Panel to be chaired by Deputy Chief Tax Counsel
Peter Walmsley. The intention is that there will be two Panels in operation, preferably with some overlap of membership to help achieve consistency. One Panel will usually sit in Sydney and the other in Melbourne. Panel meetings may alternate between the two cities from month to month, or be held concurrently if needed.

Members accepted the report. A member noted the rate of ‘knock backs’ and suggested that there may be more than what the statistics suggest. The ATO said that was probably true overall and perhaps there was something anomalous about the particular statistics presented. The ATO will address this matter as a post meeting update.

Post meeting update

At the meeting on 20 September 2012, members queried the connection between an issue involving the redevelopment of a major hospital and the High Court case of Energy Resources of Australia.

The ATO advises that that case was peripherally relevant to the hospital matter but not in a way relevant to Part IVA, so it was not very helpful to cite it in the report. For future NTLG GAAR Panel reports the ATO will more closely review whether the authorities that are being cited are likely to help members understand the range of GAAR issues the Panel deals with.

A member noted the rate of ‘knock backs’ and suggested that there may be more than what the statistics suggest.

The ATO advises that for the year to date, the overall statistic is that, of the 25 matters brought to the GAAR Panel (including some brought for preliminary guidance only), in 6 cases the Panel recommended that the GAAR should not be applied. In a few of the other 19 matters, the Panel either expressed some reservations about the Commissioner’s prospects or suggested that the Commissioner proceed in relation to only some of the tax benefits originally identified.

^{[_Toc342482351]}5. ATO Staff Resources

As submitted by the Professional Bodies

ISSUE:	In the Budget 2012-2013, it was announced that the Government is seeking greater efficiencies from the Australian Public Service and, as announced in the Mid-Year Economic and Fiscal Outlook 2011-2012 (MYEFO), an additional efficiency dividend on 2.5% will apply to most Commonwealth agencies in 2012-2013. In this regard, Professional Bodies understand that at the Commissioner’s Small Business Consultative Group (CSBCG) meeting on 24 May 2012, it was mentioned that the ATO was to reduce staff by about 1200 as a result of the Budget announcement. The Professional Bodies would like to know: · Will the reduction of ATO staff be across the board or will only certain divisions be affected? If only certain divisions will be affected, which ones? · Does the ATO foresee any potential impact on the ATO’s service levels for taxpayers and tax agents? · Does the ATO foresee any potential impact on the timing for any ongoing ATO projects or consultations? Will this result in any changes to the ATO’s organisational structure? We understand the TTTDM Project and staff reductions have resulted in a movement of staff.
BACKGROUND:	As part of the Government’s commitment to a Budget surplus by 2012-2013, it was announced in the Mid-Year Economic and Fiscal Outlook and the Budget 2012-2103 that the Government would apply an additional one-off efficiency dividend of 2.5% in 2012-2013. In the Budget Paper No.1 2012-2013, Statement 6: Expenses and Net Capital Investment, under Table C5: Estimates of average staffing level of agencies in the Australian Government general government sector, it is projected that the ASL of the ATO will decrease by 1,039.
INDUSTRY VIEW/SUGGESTED TREATMENT:	Professional Bodies would like to have a candid discussion about this item at the NTLG meeting to get a better understanding as to how ATO staff reductions may impact ATO’s functionality which may flow on to capacity to deal taxpayers and tax agents. We are also interested in seeing a diagram of the latest organisational structure of the ATO.
PRIORITY OF ISSUE WHERE ATO VIEW IS REQUIRED:	High
HAS THIS ISSUE BEEN DISCUSSED AT ANY OTHER ATO CONSULTATIVE FORUM?	CSBCG - 24 May 2012

Meeting discussion

Chief Finance Officer Frances Cawthra from ATO Finance attended the meeting to discuss this item.

Members were advised that the ATO expects to continue to meet its published service levels for taxpayers and tax agents. Strategies for managing the ATO’s work and budget have not changed from initial planning.

They remain:

· maintaining a strong message of thrift and tight budget management throughout the ATO and continuing to encourage productivity improvement

· continuing to harvest savings from past investments in new IT systems as they mature

· reviewing and reducing supplier expenditure

· reducing staff numbers through natural attrition by testing the priority to fill roles left vacant by departing staff

· containing the number of non-ongoing and casual staff and the duration of their contracts utilising them to focus on seasonal workload peaks

· reviewing APS classifications required for work types to ensure the right level for the right work.

There are no plans at this stage for a major restructure.

A member advised of some instances where timeliness to produce case documents for the Tribunal had been impacted. The member was invited to provide examples of those instances through to the ATO for further investigation.

Another member raised concerns with the potential of breaches to service standards occurring, if processes were not adjusted accordingly to meet with the reduction of resources.

The ATO confirmed:

· Service standards are now better than previous years

· Business models allow for better focus on serious breaches

· There are a number of announced legislative measures to be managed, however law design and function is still able to be met without impacts on quality

· Resources are being managed to achieve a better budget balance

· It is the decision of management to deliver outcomes effectively

The Chair advised the ATO have personnel that work very hard in pressured positions. Those pressure points are being reviewed and managed, with strategies put in place to help manage this. The ATO recognises and appreciates its personnel and the extra mile many are willing to make to ensure the organisation succeeds.

The ATO is very health, safety and wellbeing conscious and has ensured that its processes and practices enable for a safe working environment.

Treasury advised it is also under pressure with its resources and structure under review. It is a time to consider effective resource management and exploring options.

Note: Figures and situation discussed on this day, relate to our known financial position, any further changes will impact this position, and will need to be responded to as appropriate.

^{[_Toc342482352]}6. ATO Dispute Management Plan

ATO Submission

ISSUE	To consult and obtain member feedback on the draft plan.
BACKGROUND	· Pursuant to a recommendation of the National Alternative Dispute Resolution Advisory Council, the Commonwealth Attorney-General encouraged all government agencies to develop a unique Dispute Management Plan that would outline how that agency would manage all of its disputes at both an agency and individual level; · Whilst developing a Dispute Management Plan is not yet mandatory, the Commissioner has accepted the recommendation, with a view to a late 2012 public release; · The Dispute Management Plan will consist of two parts, an overarching plan supported by a more detailed policy document; · The ATO wishes to consult with appropriate internal and external stakeholders prior to release of the plan; · External stakeholders are to include the ATPF, NTLG and the NTLG Dispute Resolution Sub-committee.
ATO VIEW / SUGGESTED TREATMENT:	Members asked to consider and provide feedback on draft plan.
IMPACT ON CLIENTS:	To encourage greater use of dispute resolution.
PRIORITY OF ISSUE:	Medium Priority set as outlines ATO’s dispute management strategies and will form part of the corporate suite of documents.
HAS THIS ISSUE BEEN DISCUSSED AT ANY OTHER ATO CONSULTATIVE FORUM?	Yes NTLG Dispute Resolution Sub-committee – 13 August 2012 ATPF – 10 August 2012

Meeting discussion

First Assistant Commissioner Debbie Hastings of Law and Practice and Assistant Commissioner Nick Westerink of Operations Support and Capability attended the meeting provided an overview of the ATO Dispute Management Plan.

The ATO advised that there are a number of reforms aimed at dispute resolution and management rather than an adversarial approach or direct to litigation. Not all matters are suitable for alternative dispute resolution. Most interactions don’t end in dispute, and when they do proceed to litigation, 80% will go to the tribunal.

The Commonwealth Government has accepted a recommendation by the National Alternative Dispute Resolution Advisory Council (NADRAC) to encourage all agencies to have a dispute management plan and guidelines about how it will undertake dispute management.

A member advised that some policies appear inconsistent with the Dispute Management Plan, for example the member was advised that the ATO would not release a copy of a fraud and evasion submission and that the submission would only be released on the basis of freedom of information. The ATO will investigate to confirm if such policies exists, and if so why they would be in place. If there is such a policy, it will be published. The member was also invited to provide greater detail in relation to that specific matter.

Another member suggested that Fact papers developed before Position papers often can help to resolve the matter, and that in some instances the audit will not need to proceed. The ATO advised that sometimes when a Fact paper is not yet complete, a position paper can help set out provisions of the law.

The Chair confirmed the importance of taxpayers providing facts, whether the facts agree or disagree, they can help to narrow the dispute.

Members were advised if the outcome is decided in favour (or in part) of the taxpayer, this could be due to the more detail/information contained within the facts. Unfortunately this does not always happen, and can be due to the taxpayer not providing enough information, not providing the information in time, as well as auditors potentially not asking the right questions.

The Chair acknowledged that there is a lot of room for improvement.

The ATO advised members that they are keeping a register of cases that go to the tribunal and is looking into what can be done to better improve this tracking record.

In addition, the ATO advised that ^[top]the update to Practice Statement Law Administration: PS LA 2007/23 - Alternative Dispute Resolution in ATO disputes and litigation is scheduled for release on 30 June 2013.

A member commented that the workshops with the Law Council of Australia held in all capital cities in 2011 were very helpful and valuable. The ATO acknowledged assistance provided by the Law Council.

The key principles in the Dispute Management Plan, including how the ATO will work with taxpayers, tax and legal professional are to:

· avoid disputes where possible

· resolve disputes in the simplest and most cost-effective manner, taking into account the merits and the risks

· resolve disputes as early as possible

· clarify disputes by listening to each other’s views and considering all resolution options and

· manage disputes in a courteous and fair manner.

Members suggested that the figures indicated within the overview of Dispute Management Plan could be further broken down, making the detail more informative, for example ‘adjustment as a result of an audit’ and ‘objections lodged’ ie how many allowed.

The Dispute Management Plan is expected to be published on the ATO website by the end of November 2012.

Post meeting update

In response to a member concern with apparent inconsistencies of policy and release of information, the ATO advises that its approach is to share information with taxpayers in an open and transparent manner to the extent it is appropriate. The ATO response to the Inspector-General of Taxation's recommendation 3.4 of his Review into the ATO's use of Early and Alternative Dispute Resolution encapsulates our approach ( refer extract below ).

The work we are undertaking to implement the recommendations of that review includes: (i) updates to relevant policy documents, including the Taxpayers Charter and amended compliance practices; and (ii) an internal communication strategy to ensure staff are aware of the updated policies. These initiatives will ensure a consistent approach to, and understanding of, these matters across the ATO

Recommendation 3.4 states

Save where disclosure of requested information would seriously prejudice an ongoing investigation, the IGT recommends that the ATO:

· adopt and promote a policy of open and informal information sharing with taxpayers; and

· where information is not to be disclosed on an informal basis, that decision should be signed off by a senior officer with information access expertise and the reasons for this are communicated to the taxpayer.

^{[Recommednation3_4]} ATO Response: Agree

Our approach is to share information with taxpayers in the spirit of this recommendation. This is outlined in the Large business and tax compliance booklet where we set out mutual expectations during compliance activities, including that both parties should provide relevant information in a timely manner.

In responding to disclosure requests, we do take account of our previous disclosures during audits, the time required to respond and administrative costs of such requests. It is our practice to provide clear and complete reasons where information is not to be disclosed on an informal basis.

We also encourage taxpayers and their advisors to take an open and informal approach to information sharing with us.

In addition

On 30 October 2012, the ATO published the Dispute Management Plan 2012-13. It outlines the ATO’s approach and key principles in resolving tax and superannuation disputes.

For more information refer to www.ato.gov.au.

^{[_Toc342482353]}7. ATO actions following the Inspector General of Taxation review of Early and Alternative Dispute Resolution processes and practices

As submitted by the Professional Bodies

ISSUE:	Can the ATO outline, for discussion at the NTLG, the broad timeline and strategy for ATO actions on the early dispute resolution and Alternative Dispute Resolution initiatives outlined in the Inspector General of Taxation report, including the refresh of various practice statements, external communications and internal processes. The Professional Bodies recognise that the NTLG Dispute Resolution Sub-committee will be involved in the detailed implementation of various of the recommendations, so a high level summary will be appropriate for the NTLG.
BACKGROUND:	The Inspector General of Taxation report “Review into the ATO’s use of early and Alternative Dispute Resolution” was released by the Assistant Treasurer on 31 July 2012. The report covers the important processes of early dispute resolution and Alternative Dispute Resolution, which involve taxpayer and ATO engagement to resolve contentious items as soon as possible in the circumstances. These processes have the potential to enhance efficiency by identifying issues and resolving these early, including during tax audit processes, rather than deferring dispute resolution until after tax audits cease. The Professional Bodies recognise that the ATO has processes and Practice Statement PS LA 2007/23 covering several of these issues, which the ATO will refresh, and the NTLG Dispute Resolution Sub-committee will be involved, as per various ATO responses to the recommendations. The Professional Bodies see the potential for tax controversy to increase in significance, due to factors including ATO risk management frameworks influencing compliance approaches and the reportable tax positions, pre lodgment review and enhanced cross-border co-operation and initiatives. Therefore the efficient resolution of controversial issues, as early as possible, is important, commencing with current tax returns and audits arising from them. Therefore it would be useful for the ATO to outline and discuss the broad timeline for ATO actions on the early dispute resolution and Alternative Dispute Resolution initiatives outlined in the Inspector General of Taxation report, including the refresh of various practice statements, external communications and internal processes.
TECHNICAL REFERENCES:	The Inspector General of Taxation report “Review into the ATO’s use of early and Alternative Dispute Resolution” was released by the Assistant Treasurer on 31 July 2012.
IMPACT ON CLIENTS:	Enhanced efficiency in resolving tax disputes and controversies is beneficial in controlling costs and delays for both the ATO and taxpayers in resolving disputes, including current disputes.
PRIORITY OF ISSUE WHERE ATO VIEW IS REQUIRED:	High

Response

Overall, the Inspector General of Taxation (IGT) found that the ATO is committed to resolving disputes early and suggested recommendations aimed at enhancing this approach.

The ATO agrees with the IGT’s comments that early efforts to resolve disputes and formal Alternative Dispute Resolution (ADR) techniques can both play effective roles in resolving disputes. We believe that for most disputes the most appropriate use of both taxpayers’ and our resources is to focus on minimising and resolving disputes as early as possible by direct communication with taxpayers, before considering whether it is necessary to engage a 3rd party ADR practitioner to assist. This is supported by analysis published in Your Case Matters that shows most objections are resolved at that stage and only a small proportion go on to litigation and in turn most of these are finalised prior to hearing (74% in 2011-12).

The IGT Report sets out the extensive amount of work the ATO is already doing to encourage the use of dispute resolution processes. This work has also been favourably commented upon by external bodies such as the National Alternative Dispute Resolution Advisory Council and the Attorney-General’s Department, which have recognised the ATO’s achievements in promoting improved dispute management and ADR within the ATO and by providing a forum for collaboration on ADR issues with other Commonwealth agencies.

The ATO accepted 20 of the 22 recommendations in the report either fully, in principle or in part. They relate to:

· audit conduct and communication;

· taxpayer engagement at all stages (audit, objection and litigation) of a dispute;

· information gathering;

· technical capability and support; and

· the ATO’s Test Case Litigation Program.

Broadly speaking, the ATO intends to implement most of the recommendations by 30 June 2013.

Whilst the ATO agrees with most of the recommendations, we believe it is better to adopt different approaches to different segments of the market and this is reflected in some of our responses. We have already implemented further improvements to our processes in large, complex cases in the Large Business and Small and Medium Enterprises markets in response to the IGT’s previous concerns expressed in his 2011 Report into the Australian Taxation Office’s large business risk review and audit policies, procedures and practices. For instance in the context of large complex cases where the taxpayer is willing to work co-operatively with us, we encourage an iterative process to establishing the facts and the application of the law to the facts. From a practical perspective, a different approach is necessary for higher volume cases, where we generally communicate by correspondence, however we do provide those taxpayers with a contact point and the opportunity to talk to us about their cases.

Practice Statement 2007/23 “Alternative Dispute Resolution in ATO disputes and litigation” is being rewritten and is expected to be finalised by 30 June 2013. The NTLG Dispute Resolution Sub-committee will work in close collaboration with us in both this process and also in developing a plain English guide to dispute resolution in the ATO.

The ATO will also undertake a pilot to assess the effectiveness of using trained in-house ATO officers to act as facilitators with a sample of less complex indirect tax objection cases.

Initial discussions on the pilot were held with the NTLG Dispute Resolution Subcommittee on 13 August 2012 and further consultation will occur at the November 2012 meeting.

In accordance with ATO media release 2012/41 ‘ATO acts responsively to external scrutiny’, the findings, outcomes and implemented improvements of all external reviews from 2010 (including this one) will be published online.

For further information, refer attached link to ‘Outcomes of Audits and Reviews’ on the ATO website, under General Accountability Information .

Meeting discussion

First Assistant Commissioner Debbie Hastings, Law and Practice presented this item.

The ATO accepted 20 of the 22 recommendations in the report either fully, in principle or in part. Most of the 20 recommendations agreed to will be implemented by 30 June 2013.

Key messages

· Negotiation is our primary means of resolving disputes.

· Only a small proportion of our disputes are objected against and an even smaller percentage litigated.

· Practice Statement 2007/23 “Alternative Dispute Resolution in ATO disputes and litigation” is being rewritten and is expected to be finalised by 30 June 2013.

In addition

RECOMMENDATION 3.6 The IGT recommends that, in consultation and collaboration with external stakeholders, the ATO undertake a pilot to assess the utility and effectiveness of using trained in-house ATO officers to act as facilitators to assist in resolving smaller, less complex disputes. Progress report The ATO will undertake a pilot to assess the effectiveness of using trained in-house ATO officers to act as facilitators with a sample of less complex indirect tax objection cases.

RECOMMENDATION 5.2 The IGT recommends that the ATO consults with stakeholders on developing a plain-English guide. Progress report The NTLG Dispute Resolution Sub-committee will work in close collaboration with the ATO in developing a plain English guide to dispute resolution in the ATO.

RECOMMENDATION 5.4: The IGT recommends that, for the purpose of identifying opportunities to enhance its dispute resolution capability, the ATO should: · implement an independent system to collate and assess feedback from all parties, their representatives and ADR practitioners as to the effectiveness of the process, including the conduct of the ATO’s representatives when engaging in ADR and any suggestions for improvement; and · publish this feedback to imbue public confidence in the use of ADR, internally recognise good performance of ATO representatives and to identify areas for improvement. Progress report The ATO will be implementing an independent system to collate and assess feedback from all parties addressing ADR processes. This analysis will help to improve processes. The ATO will publish the feedback on an annual basis.

Post meeting update

The second edition of Your case matters (YCM) has broken new ground by publishing key data and analysis about Australia’s tax and superannuation litigation and provides insight into statistical trends in tax and superannuation litigation over recent years.

For more information, refer:

· Your case matters 2012: Tax and superannuation litigation trends. (Edition 2)

^{[Agenda12][_Toc342482354]}8. Update on Trustee Resolution Project

As submitted by the Professional Bodies

ISSUE:	The Professional Bodies understand from the ATPF meeting on 25 May 2012 that the ATO will conduct limited review activity on trustee resolutions in July 2012. According to the ATO response in the ATPF meet agenda, the limited review activity will be used by the ATO to assess the success of its education campaign on trustee resolutions. Can the ATO provide an update on its findings from the compliance activity undertaken as part of the Trustee Resolution project?
BACKGROUND:	The Professional Bodies raised an agenda item at the ATPF meeting requesting an ATO update on the Trustee Resolution project. The Trustee Resolution project is a result of the previous ATO administrative concession allowing trustees an extra two months after year end to prepare resolutions being no longer applicable. The ATO provided the following response in the ATPF agenda. Agenda response This project is primarily about education. By way of background, the making of effective trustee resolutions is particularly relevant from a compliance perspective. In all cases where the ATO conducts compliance activity in relation to trust that results in amended assessments the ATO will examine the trust deed and the trustee resolution. If the resolution has not been made in time, then the ATO cannot ignore this in coming to a view as to which taxpayer should be assessed on any understatement of income. It is therefore important that trustees are educated about this legal requirement. The ATO has developed its communication campaign for this project in consultation with the National Tax Liaison Group Trusts Sub-committee. The campaign includes a letter to be sent to trustees at their address for service of notice, which for the selected group of taxpayers will be their tax agent’s address. The letter will be sent to approximately 1200 trustees in early May. A copy of the letter content is at Attachment A below. The campaign also includes a fact sheet to be published on www.ato.gov.au in early May, which will provide information to all trustees about the resolution requirements, including practical guidance about the form of acceptable resolutions. A copy of the fact sheet content is at Attachment B below. Although this project is primarily about educating trustees, it does have a compliance element in that some of the trustees that we send the letter to will be selected for follow up in July. The compliance follow up will be in the form of a limited review used to assess the success of our education campaign. This will be done by way of a follow up letter looking to establish that present entitlement to trust income was created by 30 June. We plan to consult with the National Tax Liaison Group Trusts Sub-committee on the content of this follow up letter. A direct response to the questions raised is provided below: a) Clarification as to whether the ATO will be writing to Trustees or Tax Agents; The ATO will be writing to the Trustee at the address for service of notice, in all cases this will be care of a tax agent. b) How the project is to be undertaken; The project consists of an education campaign, letters campaign (1200 soft reminder letters in May 2012) and very limited review activity. The review cases will be chosen from the 1200 letter recipients, in July 2012 where the ATO will ask to be provided with a copy of the resolution).. It is not meant to be a compliance heavy approach. There is no planned continuing compliance activity looking solely at trustee resolutions. The focus of this campaign will be discretionary trusts not unit trusts. c) The number of Trustees/Tax Agents that will be written to; 1200 d) How the communication process is to work; There is a communication strategy which is in the process of implementation, including an article in the Tax Agent magazine and the below fact sheet. e) How will this project interact with any follow up compliance activity; Beyond the 1200 letters and small number of reviews (which will be chosen from the 1200 letter recipients) there is no further compliance action planned looking solely at trustee resolutions. f) If follow up compliance activity is to be undertaken, when is this likely to commence, and will any activity apply retrospectively and if so from when; See e) above. The only compliance activity planned will be in July 2012. The compliance activity will be quite limited as it is focussed on confirming that the trust in question has made the relevant resolution. g) Whether the communication will also refer Trustee/Tax Agents to the ATO’s draft ruling on “the meaning of income of the trust” released as TR 2012/D1. No, however the letter will refer to the ATO website trusts homepage.”
INDUSTRY VIEW/SUGGESTED TREATMENT:	The Professional Bodies would like to know how successful the ATO’s education campaign on trustee resolutions has been.
TECHNICAL REFERENCES:	TR 2012/D1: Income tax: meaning of 'income of the trust estate' in Division 6 of Part III of the Income Tax Assessment Act 1936 and related provisions http://law.ato.gov.au/atolaw/view.htm?docid=%22DTR%2FTR2012D1%2FNAT%2FATO%2F00001%22
IMPACT ON CLIENTS:	Impacts trustees of discretionary trusts
PRIORITY OF ISSUE WHERE ATO VIEW IS REQUIRED:	High
HAS PREVIOUS ADVICE BEEN SOUGHT FROM THE ATO?	Related advice in ATPF meeting held on 25 May 2012.
HAS THIS ISSUE BEEN DISCUSSED AT ANY OTHER ATO CONSULTATIVE FORUM?	Related advice in ATPF held on 25 May 2012.

Response

The requirement for trustees to appoint income by 30 June to ensure present entitlement is now settled as a result of the Colonial First State and Hopkins decisions. If the resolution has not been made in time, then the ATO cannot ignore this in coming to a view as to which taxpayer should be assessed on any understatement of income. It is therefore important that trustees are educated about this legal requirement – thus our communication campaign.

The ATO has developed its communication campaign for this project in consultation with the NTLG Trusts Sub-committee. The campaign included a letter to be sent to trustees at their address for service of notice, which for the selected group of taxpayers will be their tax agent’s address. The letter was sent to approximately 1200 trustees in early June.

Although this project is primarily about educating trustees, it had a compliance element in that some of the trustees that we sent the letter to were selected for follow up in August. The compliance follow up was in the form of a limited review (120) used to assess the success of our education campaign. This was done by way of a follow up letter looking to establish that present entitlement to trust income was created by 30 June. The ATO consulted with the NTLG Trusts Sub-committee on the content of this follow up letter.

As at 5 September 2012, 104 responses have been received. The ATO is satisfied that resolutions have been made by 30 June 2012 in relation to the pool that we chose for follow-up review.

The focus of the campaign has always been education. It was intended, and still is, to deal with any compliance issues by engaging with the relevant trustee and informing them of the ATO’s concerns and requesting that the trustee be mindful of these concerns in lodging any future trust returns. This campaign will be discussed at the meeting of the NTLG Trust Sub-group on
18 September 2012. An update will be provided of any further matters raised at this meeting.

The ATO is grateful for the support provided by the NTLG Trust Sub-committee and would like to take this opportunity to thank the members of that forum and the various professional associations for their assistance in educating practitioners and their clients as to the need for appropriate trustee resolutions by 30 June.

Meeting discussion

Deputy Commissioner Michael Cranston and Assistant Commissioner Tony Poulakis of the Small and Medium Enterprises business line presented this item.

The trustee resolution campaign was discussed at the meeting of the NTLG Trust Consultation Sub-group on 18 September 2012. The campaign is about community education with an element on Compliance. Various channels of communication have been used and information is also available as a guide on the ATO website: Trustee resolutions must be made no later than 30 June . Relevant guidance is also available in the following public rulings:

· Draft Tax Determination TD 2012/D5 : Income tax: for the purposes of paragraph 97(1) (a) of the Income Tax Assessment Act 1936 (ITAA 1936) is a beneficiary's share of net income worked out by reference to the proportion of the income of the trust estate to which the beneficiary is presently entitled? is expected to soon be finalised; and

· Draft Tax Ruling TR 2012/D1 : Income tax: meaning of ‘income of the trust estate’ in Division 6 of Part III of the Income Tax Assessment Act 1936 and related provisions is not yet in position to be finalised.

Although there is still some confusion in the community about when and why trustees are now required to make resolutions by 30 June, those trustees selected for review satisfied the requirement. Some more education work will need to be undertaken until such time as this and related matters are dealt with under the Government’s review of the taxation of trusts.

A member commented that it has been a long process involving a lot of consultation over the draft ruling TR 2012/D1 through the Sub-group and now the wait is on the Division 6 re-write to see the outcome.

The ATO advised that there are still a number of issues to be resolved.

Consultative processes allow for the opportunity to reach some legislative resolution, with a number of difficult issues that have been arising in the area of trusts.

The Chair acknowledged that the law needs to be changed and that general administration practice statements will allow for common sense with application of procedures.

Treasury are to release a discussion paper on the trust re-write provisions. Members of the NTLG Trust Consultation Sub-group have expressed interest to Treasury to take part in the consultation process.

^{[_Toc342482355]}9. ATO Administration of new Director Penalty Regime

As submitted by the Professional Bodies

ISSUE:	The recent Tax Laws Amendment (2012 Measures No. 2) Act 2012 amends and extends the application of the current Director Penalty Notice (“DPN”) regime to make Directors and their associates personally liable for PAYG and the unpaid Superannuation Guarantee obligations of the employer company. These recent changes give rise to a number of situations in which directors may be unclear/unaware of their obligations, rights and responsibilities. The Professional Bodies request a high-level discussion in relation to the ATO’s plans to provide guidance in relation to the following uncertainties (as well as any further such matters that the ATO may have internally identified) with respect to the implementation of this legislation: 1. The circumstances in which the Commissioner will issue a Director with a PAYG withholding non-compliance tax notice rather than a Director Penalty Notice. 2. The circumstances in which the Commissioner will issue an Associate of a Director with a PAYG withholding non-compliance tax notice rather than issuing a Director with a Director Penalty Notice; or a PAYG withholding non-compliance tax notice; 3. The circumstances in which a Director, having been issued with a Director Penalty Notice and then complying with the requirement that the company be put into administration or liquidation, will be issued with a PAYG withholding non-compliance tax assessment thereafter (see Example 1.7 in the Explanatory Memorandum); 4. The method by which the Commissioner will determine whether to apply payments to outstanding amounts of PAYG or Superannuation that have given rise to the issue of a Director Penalty Notice or PAYG withholding non-compliance notice to a Director or Associate of a Director (whether the payments have been specifically directed to those accounts by the payer or not) (refer paragraph 1.161 of the Explanatory Memorandum and paragraphs 48 and 49 of PS LA 2011/20); 5. The circumstances in which the Commissioner will determine that it is “fair and reasonable for the individual to pay” non-compliance tax as the basis for issuing a non-compliance tax notice; 6. The basis on which the Commissioner will determine “what is fair and reasonable in the circumstances” when providing a credit to Directors and Associates after a payment has been made in respect of a non-compliance tax notice; 7. How will the Commissioner communicate to Associates or former Directors details of payments which have been made by the company in respect of PAYG or Superannuation amounts that are to be taken into account in determining a credit entitlement (this is particularly important when the 4 year cut-off for credit is approaching)? 8. How will the mechanism for an Associate to report non-payment of a company’s obligations to “another authority” work in practice (for example, what arrangements will be entered into by the ATO and the police for due recording and reporting of such reports)? 9. What are the circumstances in which the Commissioner will determine that an Associate has taken all reasonable steps in the context of the defences in paragraph 18-135(3)(b)? 10. Confirmation that where it has been concluded that an Associate  has been given “more favourable treatment” than other employees that the defences provided by paragraph 18-135(3)(b) do not apply to that person; and 11. The circumstances in which the Commissioner would treat an Associate as having received “more favourable treatment”.
IMPACT ON CLIENTS:	The Commissioner’s administration of discretions available under these new rules will significantly impact on the tax rights and obligations of company directors.
PRIORITY OF ISSUE WHERE ATO VIEW IS REQUIRED:	High The ATO's approach to the administration of these new rules is of significant concern to company directors.

Response

The Commissioner intends to include policy relating to recovery of the PAYG withholding non-compliance tax (NCT) in Law Administration Practice Statement PS LA 2011/18 – Enforcement measures used for the collection and recovery of tax related liabilities and other amounts.

PS LA 2011/18 includes an Annexure which deals with personal liabilities of company directors and is also being updated to reflect the other changes to the director penalty regime introduced by Tax Laws Amendment (2012 Measures No. 2) Act 2012. Following an internal consultation process, PS LA 2011/18 will then undergo an external review process. This external review process will include consultation with members of the NTLG. The internal process is at the internal vetting stage and, following a three week internal consultation process, is expected to be ready for external consultation by mid October 2012.

The Commissioner is also progressing the publication of a series of frequently asked questions (FAQs) and fact sheets to cover the recent changes to the director penalty regime and the introduction of the NCT. The Commissioner will consider your questions in finalising the proposed publications. We expect the FAQs to be ready for publication by late September and a fact sheet about how the Commissioner will implement the changes to the director penalty regime is undergoing external consultation and we expect this to be published in October 2012. General information about the changes is available on www.ato.gov.au titled Strengthening director obligations

1. The circumstances in which the Commissioner will issue a Director with a PAYG withholding non-compliance tax notice rather than a Director Penalty Notice (“DPN”)

Answer : Liability to a director penalty arises under section 269-20 in Schedule 1 to the Taxation Administration Act 1953 on the due date of the company’s liability and is not dependant on the issue of a DPN. However, the Commissioner cannot commence proceedings to recover the penalty until the end of 21 days after a DPN has issued (section 269-25).

In the final design of the legislation, the issue of DPNs and PAYG withholding non-compliance tax (NCT) notices to individual directors is not an ‘either or’ choice for the Commissioner. NCT notices will not issue automatically, each case will be considered on a case-by-case basis. By law, NCT notices can only issue if the individual director:

· does not have a director penalty liability, and

· if the Commissioner considers it fair and reasonable to do so.

The NCT is considered a ‘tool of last resort’ option for the Commissioner to pursue individual directors and their associates for an amount related to a company’s unpaid PAYG(W) liabilities. In practice, the Commissioner will need to have considered all other recovery avenues, and exhausted the director penalty regime options, before turning to the NCT.

Because an NCT notice cannot issue to an individual where that individual has a director penalty liability for the same period, whether a DPN has issued or not, an NCT notice is unlikely to issue for a company that is not in liquidation or administration.

2. The circumstances in which the Commissioner will issue an Associate of a Director with a PAYG withholding non-compliance tax notice rather than issuing a Director with a Director Penalty Notice (“DPN”); or a PAYG withholding non-compliance tax notice.

Answer : This scenario is not an ‘either or’ choice for the Commissioner. The Commissioner cannot issue an NCT notice to an associate of a director if the director of whom the individual is an associate has a director penalty liability that relates to the company’s failure to pay PAYG amounts withheld. Refer Question 1 answer.

3. The circumstances in which a Director, having been issued with a Director Penalty Notice (“DPN”) and then complying with the requirement that the company be put into administration or liquidation, will be issued with a PAYG withholding non-compliance tax assessment thereafter (see Example 1.7 in the Explanatory Memorandum)

Answer: NCT notices will issue on a case-by-case basis and can only issue if the director does not have a director penalty liability. In Example 1.7 of the EM (see extract below), because Roxy’s director penalty liability was extinguished by her compliance with the terms of the DPN (other than by payment), Roxy is by law liable to an amount of NCT. However, the Commissioner cannot seek to recover that amount of NCT until he issues an NCT notice and before he can issue a notice, he will need to consider if it is ‘fair and reasonable’ in the circumstances to do that.

Note that, under the new reduced remission options rules, if the PAYG withholding liability had not been reported within three months of it becoming due, the only way that Roxy could have her director penalty liability extinguished would be by paying the liability.

(EM extract) Example 1.7: The director is liable to pay PAYG withholding non-compliance tax

Service Co failed to pay to the Commissioner $5,000 for amounts withheld from withholding payments (including employee wages and payments to directors) during the 2012-13 income year.

For the whole of the 2012-13 income year, including at all times when the withheld amounts were due to be paid to the Commissioner, Roxy was a director of Service Co.

During the income year Service Co withheld $3,000 from wages paid to Roxy.

After the Commissioner issued Roxy with a director penalty notice (because the PAYG withholding liability had been reported before three months elapsed), Roxy caused Service Co to appoint an administrator within 21 days and thus the director penalty was remitted.

Roxy is liable to pay the PAYG withholding non-compliance tax.

Factors that may be relevant in determining whether it is fair and reasonable to issue an NCT notice include:

· the company’s compliance record in regard to payment of PAYG withholding liabilities whilst the person has been a director (or an associate of a director);

· whether the individual has been a director (or an associate of a director) of other companies that have failed to meet their PAYG withholding obligations and the extent of that failure;

· the amount of the PAYG withholding non-compliance tax that is payable

· the likelihood and timeliness of collection of the PAYG withholding amount payable by the company

4. The method by which the Commissioner will determine whether to apply payments to outstanding amounts of PAYG or Superannuation that have given rise to the issue of a Director Penalty Notice (“DPN”) or PAYG withholding non-compliance notice to a Director or Associate of a Director (whether the payments have been specifically directed to those accounts by the payer or not) (refer paragraph 1.161 of the Explanatory Memorandum and paragraphs 48 and 49 of PS LA 2011/20);

Answer: Although a director penalty liability arises on the due date of a PAYG withholding liability or the day a superannuation guarantee statement is due to be lodged it may not be until some time later that the Commissioner is able to identify that there is a liability and/or the quantum of that liability. As the debt establishment process would not always be capable of being completed in a timely manner, new subsection 8AAZL(4) of the Taxation Administration Act 1953 allows a refund to be made to a director without the Commissioner first having to attempt to establish if a director penalty liability does exist.

Where a director penalty liability has been established any payment or credit would be applied in accordance with the principles outlined in PS LA 2011/20 Payment and credit allocation.

When an NCT notice issues to an individual director or their associate, the NCT will form part of that individual’s income tax account and payments or credits will be applied accordingly. The NCT is intended to operate in a similar way to the director penalty regime in that, if the NCT is reduced because of a payment or credit, the related PAYG withholding liability will be reduced by the same amount - in a parallel fashion.

(EM extract) Applying payments and credits against unquantified director penalties

1.161 Under the existing payment and crediting rules in Division 3 of Part IIB of the TAA 1953 the Commissioner must treat a payment or credit using one of two methods (allocating the amount first to a running balance account or applying the amount first against a non-running balance account). Although this gives the Commissioner considerable discretion as to how a payment or credit is applied, prima facie there is no discretion not to apply a payment or credit (except in three specified cases).

1.162 Amendments to the payment and crediting rules give the Commissioner a discretion not to treat the amount of a payment or credit using either of the stipulated methods if doing so would require him to apply that amount against a director penalty. A discretion is being included for director penalties because of their unusual nature of being ‘parallel liabilities’. That is, the relevant company has an underlying liability for an equivalent amount (and other directors also have a liability for an equivalent amount). Consequently, where an individual has a director penalty liability and is entitled to a credit, the Commissioner is not compelled to apply that credit against the director penalty liability, although the credit can be applied under the rules in Division 3 of Part IIB in the TAA 1953. [Schedule 1, item 1, subsection 8AAZL(4) of the TAA 1953]

(Extract from PS LA 2011/20)

Payment of company liabilities arising under a remittance provision

Where it can be readily identified that a payment received has been made in respect of a particular liability of a company arising under a remittance provision (for example a PAYG withholding obligation), the ATO will generally allocate the payment to that liability.

Director penalty notices (DPNs)

The ATO may issue a DPN on a director pursuant to Division 269 of Schedule 1 to the TAA (and previously under Division 9 of Part VI of the ITAA 1936). Where payment is received (in full or in part) in relation to a DPN this amount must be allocated to reduce the penalty on the director’s account and the corresponding parallel liability on the company account (for example, the relevant PAYG withholding amounts). Given that personalised payment advice forms are not provided in relation to a DPN, the director must advise the ATO that the respective payment is in relation to the DPN. If the payment is less than the full amount it will reduce the penalty owed on the director’s account by that amount and will be allocated against the company’s earliest PAYG withholding amounts for which the director has a parallel liability.

5. The circumstances in which the Commissioner will determine that it is “fair and reasonable for the individual to pay” non-compliance tax as the basis for issuing a non-compliance tax notice;

Answer: The question of whether to issue an NCT notice will be considered on a case-by-case basis. The ATO is still considering what additional guidance can reasonably be given on how this should be determined.

See answer to question 3.

6. The basis on which the Commissioner will determine “what is fair and reasonable in the circumstances” when providing a credit to Directors and Associates after a payment has been made in respect of a non-compliance tax notice;

Answer: A company may pay some or all of its PAYG withholding liability after the individual director or an individual associate of the director has become liable to pay an amount of PAYG withholding non-compliance tax. If this occurs after the Commissioner issues a notice to enable recovery of the PAYG withholding non-compliance tax from the individual, the individual may be entitled to a credit.

To work out if the individual is entitled to a credit, the Commissioner must replace the amounts originally used to determine the amount of tax payable with amounts worked out taking into account the company’s payment. Where the new circumstances do not impact on the amount of tax payable by the individual, the Commissioner is not required to provide the individual a credit, although a discretion to do so exists. In determining whether to exercise that discretion the Commissioner must have regard to what is fair and reasonable in the circumstances. The ATO is still considering what additional guidance can reasonably be given on how this should be determined.

7. How will the Commissioner communicate to Associates or former Directors details of payments which have been made by the company in respect of PAYG or Superannuation amounts that are to be taken into account in determining a credit entitlement (this is particularly important when the 4 year cut-off for credit is approaching)?

Answer:

The ATO is still considering this matter, particularly any legal impediments to providing company information to former directors or associates of directors.

Following the issue of a PAYG withholding non-compliance tax (NCT) notice to the director or associate, if the company’s PAYG withholding liability is discharged to any extent, the Commissioner may be required to issue a credit notice to the individual. This will be the case when, if the discharge of the company liability had occurred before the Commissioner gave the director or associate an NCT notice, the NCT liability would have been less than it in fact was.

Notices that result in a reduction in the amount of PAYG withholding non-compliance tax (NCT) payable, or that entitle an individual to a credit (or increase a credit entitlement) can be issued no later than four years after the notice of assessment for the individual’s income tax for that income year is issued. The longer period for notices that reduce the tax payable or entitle an individual to a credit (or a greater credit) also allows a greater period for individuals to benefit from the company later meeting its obligation to pay its PAYG withholding liability to the Commissioner.

8. How will the mechanism for an Associate to report non-payment of a company’s obligations to “another authority” work in practice (for example, what arrangements will be entered into by the ATO and the police for due recording and reporting of such reports)?

Answer: The Commissioner does not intend to put in place particular arrangements with any of the regulatory authorities in relation to this scenario. The Commissioner will consider evidence provided by associates of directors in relation to claims that they have made reports to an authority. Relevant authorities might include the Minister, the police, and regulatory

bodies including the Australian Securities and Investments Commission (ASIC). The merits of each application will be considered by the Commissioner.

9. What are the circumstances in which the Commissioner will determine that an Associate has taken all reasonable steps in the context of the defences in paragraph 18-135(3)(b)?

Answer: What constitutes reasonable steps will depend on the facts of each case however, in determining what are ‘reasonable steps’ the Commissioner may have regard to:

· the length and timing of the individual’s relationship with the director as an associate;

· the length and timing of the director being a director and taking part in the management of the company; and

· all other relevant circumstances.

Reasonable steps can include:

· reasonable steps to influence the director to cause the company to notify the Commissioner about the amount withheld;

· reasonable steps to influence the director to cause the company to pay the withheld amounts to the Commissioner;

· reasonable steps to influence the director to appoint an administrator or have the company wound up; or

· reporting to the Commissioner or another relevant authority (which might include the Minister, the police, and regulatory bodies including the Australian Securities and Investments Commission (ASIC)) that the company has not paid the amount withheld to the Commissioner.

10. Confirmation that where it has been concluded that an Associate has been given “more favourable treatment” than other employees that the defences provided by paragraph 18-135(3)(b) do not apply to that person; and

11. The circumstances in which the Commissioner would treat an Associate as having received “more favourable treatment”.

Answer: Paragraph 18-135(1)(d) provides that an individual must pay the NCT if “subsection (3) or (6) apply” (and the other elements of the subsection are met).

Subsection (3)(a) relates to the individual, because of their relationship with the director or the company, knowing or could reasonably be expected to have known about the failure to pay the company liability. Paragraph (b) of that subsection provides the defence of taking reasonable steps.

Subsection (6) relates to the individual having received more favourable treatment.

As only either subsection (3) or (6) needs to be satisfied, if an associate who is an employee is considered by the Commissioner to have been treated more favourably than other employees then subsection (3) does not need to be considered by the Commissioner.

Whether there is more favourable treatment depends on the circumstances of each case. For example, it may be reasonable to conclude that an associate, who is an employee, is receiving favourable treatment if the associate’s wage is higher than other employees doing similar work or where the associate is receiving their entitlements whilst other employees are not. It is not considered possible to provide an exhaustive list of circumstances amounting to favourable treatment, however, the ATO is still considering what additional guidance can reasonably be given on how this should be determined.

Meeting discussion

Deputy Commissioner Michael Cranston of Small and Medium Enterprises, acting Deputy Commissioner Brett Martin and Director Melinda Balkin of the Debt business area and Senior Tax Counsel Robert Puckridge of Law and Practice attended the meeting to present this item.

This new legislation introduces a number of new measures which will have an impact on directors who fail to ensure that their companies comply with their taxation obligations. Whilst some of the new measures are not discretionary (eg: in all cases a director penalty notice must be issued before recovery proceeding can commence), there is scope and opportunity for community consultation to develop policy with respect to the administration of the NCT. The ATO is also working with the community to ensure that directors and their advisors are aware of and understand the impacts of these new measures.

· Law Administration Practice Statement PS LA 2011/18 – Enforcement measures used for the collection and recovery of tax related liabilities and other amounts, includes an Annexure which deals with personal liabilities of company directors. The practice statement will be updated to reflect the changes to the director penalty regime introduced by Tax Laws Amendment (2012 Measures No. 2) Act 2012. The review process will include consultation with members of the NTLG.

· The ATO is progressing publication of a series of frequently asked questions (FAQs) and fact sheets to cover the recent changes to the director penalty regime and the introduction of the non-compliance tax.

There are a number of measures in place between Small and Medium Enterprises and Debt.

· Year to date, approximately1600 Director Penalty Notices (DPNs) have issued, with 17% of these being the new ”lockdown” DPNs, DPNs in relation to liabilities that have remained unreported for more than 3 months are now being issued in relation to high risk and/or high value cases. It should be noted that where liabilities remain unreported for more than 3 months a DPN must still be issued before recovery proceedings can commence, however, in this situation a director cannot achieve remission of the penalty as a result of an administrator being appointed or the company beginning to be wound up.

· The Non-Compliance Tax liability is reviewable pursuant to Part IVC and the ATO is only able to raise this liability within 4 years of the relevant return being lodged. Privacy issues in relation to the disclosure of information to former directors will need to be worked through.

Information has been provided to the community in relation to the legislative changes relating to director penalties and the introduction of the Non-Compliance Tax, and further information sessions in each State and Territory capital city are being presented over the next 6 weeks.

The use of DPNs in relation to liabilities that have remained unreported for more than 3 months (in relation to all other cases) will be reviewed in the next quarter.

Members requested that the ATO establish a Working Party to discuss the legislative changes relating to Director Penalties Regime and Non-Compliance Tax.

Action item

No. 1	Action item No. #	[NTLG120901]NTLG1209/01
	Agenda Item #	Refer agenda item 9
	Agenda Topic	ATO Administration of new Director Penalty Regime
	Action item	The ATO to establish a new Working Party to discuss the legislative changes relating to the Director Penalties Regime and Non-Compliance Tax. The Working Party will report through to the ATO Tax Practitioner Forum (ATPF).
	Responsibility	ATO
	Background	Members requested that a Working Party be established to support administration of the Director Penalty Regime.
	Status	In progress The ATO is in the process of establishing the new Director Penalties Regime Working Party.

^{[_Toc342482356]}10. Application of Risk Differentiation Framework in the Small to Medium Enterprise Market

Risk Management

ISSUE	How is the Risk Differentiation Framework (RDF) being applied in the SME market
BACKGROUND	The ATO has developed a conceptual Risk Differentiation Framework that guides the ATO’s approaches to managing compliance. This framework has been applied in practice in the Large Business market over the last couple of years. The ATO announced in the Compliance Program 2012 – 13 that the framework would be applied to the SME market. The Large Business market consists of approximately 1,400 economic groups compared to over 180,000 economic groups in the SME market. While the concepts and intent of the framework remain consistent the practical application in such a large and diverse market as SME will differ considerably from that applied to the Large Business market. The presentation will discuss the planned application of the RDF to the SME market and what it will mean for taxpayers in the market.
TECHNICAL REFERENCES	· Compliance Program 2012 – 13 · ATO online publication: Tax Compliance for Small to Medium Enterprises and Wealthy Individuals · Hardcopy booklet: Small to Medium Enterprises and Wealthy Individuals; our Compliance approaches
IMPACT ON CLIENTS	Varying intensity of interaction with the ATO depending on their risk profile and associated categorisation in the RDF.
PRIORITY OF ISSUE	Medium
HAS THIS ISSUE BEEN DISCUSSED AT ANY OTHER ATO CONSULTATIVE FORUM?	Yes ATPF SME working group: · 10 June 2011 as agenda item 10 - SME minutes, June 2011 · 28 October 2011 as agenda item 8 - SME minutes, October 2011 – this was mentioned in the context of our agent engagement strategy · 13 June 2012 as agenda item 10 - Draft SME minutes, June 2012 – primarily this was Richard Collis updating the members on the latest version of the RDF Also related to the RDF Compliance Notification and Risk Assessment and Information Sharing projects were presented to ATPF SME working group · 10 June 2011 (agenda item 9) - SME minutes, June 2011 · 13 June 2012 meeting (agenda item 4) - Draft SME minutes, June 2012 Discussion at previous NTLG: · item 3: NTLG minutes, September 2011 · minor reference in item 7: NTLG minutes, June 2011

Response

Deputy Commissioner Michael Cranston, Small and Medium Enterprises will discuss the application of the Risk Differentiation Framework (RDF) in the Small and Medium Enterprises (S&ME) market, including:

Setting the context

The population

· 180,000 SME businesses with turn over of $2M to $250M consisting of 450,000 entities.

· 2,630 High Wealth Individuals (HWI) with > $30M net assets representing 36,000 entities.

· 70,000 Wealthy Australians with net assets of $5M to $30M representing 450,000 entities.

Our Approach as detailed in the “Tax compliance approach for small to medium enterprises and wealthy individuals” publication.

· Building a mutual relationship with clear expectations for the ATO and the Taxpayer and their advisors.

· Working together on compliance approaches e.g. escalation paths to senior officers and use of Alternative Dispute Resolution.

· Commitment to use and improve the RDF.

The differences in the application of the RDF in S&ME compared to Large Business & Internationals (LB&I)

· The concepts and intent are the same however the practical application differs considerably due the size of the Market i.e. 1,400 LB&I groups compared to 180,000 SMEs.

· Due to size of the market and relationship LB&I include qualitative factors in determining their RDF. S&ME is predominately a quantitative system based approach using tax return and third party data.

· LB&I advise all the market of their categorisation. S&ME will inform part of the market trough risk treatment processes, compliance notifications and risk reports.

· LB&I are more mature in applying the RDF. It is the start of the journey for S&ME.

· S&ME is primarily privately held and this brings issues with privacy and secrecy with the use of multiple tax agents across a private group. The application will be improved and refined.

The operation of the RDF

· Categorisation is a systems based assessment of risk i.e. likelihood and consequence.

° Likelihood predominately based on tax and economic performance and the results after applying various risk rules.

° Consequence is based on the wealth, turnover, and reputation.

· The intensity of our interactions with taxpayers increases with their compliance risk.

The type of ATO activities are planned for the taxpayers in the various categories.

· Key taxpayers

° Issue compliance notifications to those who have met all obligations and have few or no risks.

° Provide a risk report to a small number who are verging towards higher risk. The reports will include risk focus areas.

° Other activities include taxpayer visits, advanced pricing agreements.

· Higher Risk Taxpayers

° Undertake audits and reviews of all HWIs over two years.

° Undertake audits and reviews of 20% to 25% of SMEs and wealth Australians over two years. (note that these are large populations compared to HWI)

° Other treatments include expanded returns and where appropriate prosecutions.

· Medium Risk Taxpayers

° Contact all HWIs over two years through specific issue audits and reviews, letter and phone campaigns.

° Contact 20% to 25% of S&MEs and wealthy Australians over two years through specific issue audits and reviews, letter and phone campaigns.

· Lower Risk Taxpayers

° No specific contact planned.

° Education material and targeted communication to keep taxpayers up to date with law changes etc.

· All categories

° General awareness and education activities.

° Lodgement and debt compliance activities.

° Basic integrity checks.

° Pre lodgement awareness notifications.

Meeting discussion

Deputy Commissioner Michael Cranston of the Small and Medium Enterprises (S&ME) business line presented this item.

The ATO recently published online Tax Compliance for Small to Medium Enterprises and Wealthy Individuals and produced a booklet titled: Small to Medium Enterprises and Wealthy Individuals; our Compliance approaches.

Information on the website will be regularly updated. The booklet puts perceptive on Compliance approaches.

The Risk Differentiation Framework (RDF) assists the ATO to:

· form a view of the taxpayer’s relative tax risk, and

· determine the intensity, frequency and nature of our engagement with the taxpayer.

Key highlights of the overview

Tax compliance approach for small to medium enterprises and wealthy individuals

· Building a mutual relationship

· Set clear expectations for both the ATO and Taxpayer

· Promote good tax governance

· Use a transparent approach to manage compliance

· Working together on compliance – key processes and approaches e.g. escalation to senior officers, Alternative Dispute Resolution.

· Commit to use and improve the application of the Risk Differentiation Framework

S&ME and Large Business & International (LB&I) RDF implementation

· Concepts and intent of the frameworks for these markets are consistent between S&ME and LB&I while practical application differs considerably due to different market size. Large market consists of approximately 1,400 economic groups versus 180,000 SME groups & 70,000 wealthy individuals.

· S&ME RDF is systems based with the risk engine using 3rd party and tax return data (quantitative method) while LB&I RDF, while using similar data, has far greater usage of qualitative information.

· Due to markets size, S&ME will inform parts of the market through treatment processes, low risk notification letters and risk reports.

Compliance activities

Higher risk taxpayers: Deter in real time A relatively small number of taxpayers are categorised as higher risk taxpayers because of the relative size of their wealth or turnover, the nature of the transactions they undertake, their effective tax rate, and their compliance history. Higher risk taxpayers can expect close scrutiny from us and a higher level of intensity in our interactions.
Specifically for 2012/13	· undertake audits or reviews of 100% of the HWIs over a 2 year period, and · undertake audits or reviews of about 20% to 25% of SME’s and wealthy Australians over a 2 year period.
General activities	· Reviews and audits · Expanded returns – monitoring · Prosecutions

Medium risk taxpayers: Review periodically Medium-risk taxpayers can expect periodic reviews from us.
Specifically for 2012/13	· contact 100% of the HWIs over a 2 year period. We will use a variety of techniques ranging from comprehensive and specific issue audits and reviews through to making contact by phone or letter on specific issues such as lodgment, and · contact 20% to 25% of SMEs and wealthy Australians over a 2 year period. We will use a variety of techniques ranging from specific issue audits and reviews through to making contact by phone or letter on specific issues such as lodgment, FBT and capital gains tax.
General activities	· Phone calls · Reviews and audits · Verification checks

Low risk taxpayers: Monitor periodically The majority of businesses in the SME market are lower-risk taxpayers.
Specifically for 2012/13	· do not plan to make specific contact with the HWI, SME and Wealthy Australians this year, and · will use education material and targeted communications which will keep taxpayers up-to-date with law changes.
General activities	· Education materials · Targeted communication · Help and support tools

Key tax payers: Monitor and Maintain The compliance of key taxpayers is important to the overall health of the tax system. The ATO is particularly interested in the adequacy of the risk-management and governance frameworks used by them to mitigate tax risks. Key taxpayers can expect consistent monitoring from the ATO.
Specifically for 2012/13	· issue compliance notification (CN) letters to a high proportion of the Wealthy Individuals and SMEs to provide certainty to taxpayers who, based on our data, we consider to have met all of their income tax obligations with few or no risks, and · provide a risk report to a smaller number of SMEs, who are potentially higher risk taxpayers. This report includes their risk focus areas, the level of their risks and the resulting RDF category.
General activities	· Taxpayer visits · Compliance notification letters · Advanced pricing arrangements

Activities across all categorisations

· Engagement with wealthy Australians and HWIs

· Tax return integrity checks

· Lodgment

· Targeted communication

· Education materials

· Pre-lodgment awareness notifications

· Rulings

· Compliance publications

· Tax agent visits

ATO compliance activities will differ based on

· our view of the taxpayer’s likelihood of non-compliance

· the potential consequence of any non-compliance in terms of tax, reputation and precedence

· intensity of the ATO’s interaction with taxpayers increases with their compliance risk.

Application with effectiveness of the framework will be undertaken through the existing ATPF Small and Medium Enterprise Sub-group.

Post meeting update

For information on the key rights and obligations of small-to-medium enterprises and wealthy individuals to assist them adopt and maintain high standards of governance and propriety in their tax affairs, refer to the ATO online publication: Tax Compliance for Small to Medium Enterprises and Wealthy Individuals .

^{[_Toc342482357]}11. ATO Lodgment Framework for 2013

As submitted by the Professional Bodies

ISSUE:	The NTLG to briefly consider as an update the ATPF progress on the ATO new lodgment framework which was noted in the May 2012 tax agent elink as follows: "An email bulletin for tax professionals (Issue 18/12) 9 May 2012 New lodgment program framework coming your way From 1 July 2013, ... In order to be eligible for the concessions offered by the lodgment program, you will need to: · lodge electronically · achieve an 'on time' lodgment program performance of 85% or more. From 1 July 2012, we will begin with a transition year. The key features of the transitional year are: · tax agents will be informed of their 'on time' lodgment program performance for income tax return and FBT annual return obligations · newly registered agents must lodge electronically to receive lodgment program concessions. More information about the new framework will be made available through our regular communication products and on www.ato.gov.au in the near future.” Various discussions have proceeded at ATPF and the Lodgment Working Group (LWG), and the professions note that this framework has differential impacts for large business tax returns, smaller business and individual returns, and FBT and other returns. Questions arise such as: 1. For taxpayers with Substituted Accounting Periods, where the ATO (and the various lodgement program software developers) have not yet "rolled forward" their forms, tax agents (and their clients) are forced to lodge paper. Would agents' complying percentages be negatively impacted? 2. For tax consolidated groups, there will be cases of delays in lodging the joined subsidiary entities' advice that they are consolidated entities, with the potential of distortion of statistics for the agent. 3. With a new client, does the Tax Agent inherit the lodgment history of the client? Does this then distort the performance of the agent relevantly? These issues highlight the benefit of discussing: · The ATO plans for roll-out of the initiative and guidance material · Importance of an appropriate approach to the relevant measurements.
INDUSTRY VIEW/SUGGESTED TREATMENT:	Update on broad-release guidance material, and approaches to appropriately reflect agents’ circumstances.
PRIORITY OF ISSUE WHERE ATO VIEW IS REQUIRED:	Low
HAS PREVIOUS ADVICE BEEN SOUGHT FROM THE ATO?	Yes, briefly at the NTLG, ATPF and the LWG
HAS THIS ISSUE BEEN DISCUSSED AT ANY OTHER ATO CONSULTATIVE FORUM?	Yes, briefly at the NTLG, ATPF and the LWG

Meeting discussion

Deputy Commissioner Cheryl-Lea Field of the Tax Practitioner and Lodgment Strategy business line presented this item.

Work continues on the development of the Lodgment Framework 2013 with both the ATPF and the Lodgment Working Group (LWG), including producing a range of consultative material, products and meeting with a range of clients.

The ATO is looking to provide a range of tools to assist with management of lodgment in line with framework requirements. This will provide assistance for both agents that are effectively managing their lodgment program requirements, as well as those struggling.

Series of events

· The ATO will be writing to tax practitioners during 2012-13 to advise how their lodgment performance has compared in the past against similar practices.

· A Fact sheet for tax practitioners has been developed to provide an update on the new the Lodgment Program framework 2013-14., The fact sheet describes:

° How we are working in partnership with industry representatives in the LWG.

° How we will provide support to tax practitioners to meet the desired standards.

° Importance of updating client lists – Agents are reminded of the importance to review and update their client list in 2012-13 to prepare their practice for the new lodgement program framework.

Members were provided with sample copies of both a draft letter and the draft Fact sheet for review and comment. The letter and Fact sheet will also be reviewed and consulted on through the LWG.

· In October a campaign will begin to raise awareness and promote the 2013-2014 Lodgment Program.

· Relationship Management visits are being arranged to help practitioners to manage the lodgment program.

Members requested greater communication to promote the role of Relationship Managers and the services that they provide. A member from the Association of Taxation and Management Accountants (ATMA) offered their assistance in contributing to the development and strategies for the communication products.

The ATO continues to work closely with the LWG, particularly with a focus on:

· Paper vs Electronic lodgments and how the ATO can better educate and support through Agents through to electronic lodgement activities.

· FBT payments – the LWG will be working closely with the NTLG FBT Sub-committee. A member advised that FBT is a labour intensive process and a lot of the work cannot be done during the year.

Lodgment Program 2013-14 criteria

Practitioners are to meet three criteria to access the Lodgment Program effective 1 July 2013*.

· Register with the Tax Practitioner Board (TPB)

· Submit electronic lodgments

· Achieve an on time lodgment benchmark equal to or above 85% of client base.

*Newly registered agents will submit electronic lodgments effective 1 July 2012.

Tax Practitioner support

The 2012-13 transitional year will provide opportunity to engage with tax practitioners. Information will be distributed to advise practitioners of current level of performance and, assist practitioners to prepare for and meet desired lodgment benchmarks. Assistance will be available for those who may need practical support to manage client lists or to convert to a full electronic lodgment program.

Our focus will be to work with practitioners and assist a smooth transition to the new lodgment framework on 1 July 2013.

We will address unexpected short term difficulties, encountered during the first year e.g sickness etc. We will work with Lodgment Working Group to develop appropriate intervention strategies.

Action item

No. 2	Action item No. #	[NTLG120902]NTLG1209/02
	Agenda Item #	Refer agenda item 11
	Agenda Topic	ATO Lodgment Framework for 2013
	Action item	Members request greater communication to promote the role of Relationship Managers and the services that they provide.
	Responsibility	ATO
	Background	Members were advised that the Relationship Management Program will involve site visits to help people manage the lodgment program. Members requested greater communication to promote the role of Relationship Management Program and the services that are provided.
	Status	In progress The ATO will be consulting with the profession around the Relationship Management Program and the full range of support services that they provide.

^{[_Toc342482358]}12. ATO process of determining whether to produce a Decision Impact Statement

As submitted by the Professional Bodies

ISSUE:	The ATO’s website notes that: “A decision impact statement is a succinct statement of the Commissioner's response to adverse and other significant decisions. The purpose of publishing a statement is to communicate to the community our view on the implications of a particular court or tribunal decision for us. A statement will not usually be published until all appeals have been dealt with and there is a final decision.” The Professional Bodies wish to discuss the process by which a decision is made within the ATO as to whether a decision is “significant or adverse” (and therefore warrants the production of a Decision Impact Statement). In particular, the Professional Bodies wish to discuss whether particular indicia are taken into account in making this decision, and whether such indicia should be publicly accessible in the form of a practice statement.
IMPACT ON CLIENTS:	The ATO’s choice as to whether to produce a decision impact statement in response to a decision is of significant interest to all members of the tax community.
PRIORITY OF ISSUE WHERE ATO VIEW IS REQUIRED:	Medium

Response

The purpose of publishing a Decision Impact Statement (DIS) is to communicate to the community the ATO view on the implications of a particular court or tribunal decision. The ATO follows a consistent approach in determining whether or not a decision requires a DIS. We explain this approach in our published Practice Statement Legal Administration 2009/9: Conduct of Tax Office Litigation (‘PS LA 2009/9’). In particular, the overall process in relation to DIS is detailed in paragraphs [67] to [96] of Annexure F of PS LA 2009/9.

As noted above, and described in PS LA 2009/9 paragraph [67], there are two categories of cases where a DIS must be published:

(1) where the decision is significant; and

(2) where the decision is adverse.

These two categories are described below.

(1) Significant Decisions

A decision will be classified as significant if the ATO has managed the matter as a strategic case internally and the matter has been listed on our monthly Significant Litigation Report. There are several indicia for classifying a matter as strategic or significant, and the Strategic Litigation Unit is responsible for managing this list and ensuring all strategic cases are identified as early as possible.

These indicia are listed in PS LA 2009/9 as Attachment 1 of Annexure F and include:

Generally:

1. Cases where test case funding has been granted.

2. Cases where the revenue at risk is significant.

3. Appeals to the Full Federal Court or state Court of Appeal or the full bench of the Industrial Relations Commission.

4. All cases coming before the High Court.

5. Any case involving an issue which provides a strong possibility that special leave may be sought from the High Court.

6. Any litigation brought against the Commissioner, or initiated by the Commissioner, or to which the Commissioner becomes a party that could have potentially serious consequences for the administration of any of the taxing Acts or of the ATO.

7. Any case where the legislation is likely to be given its intended effect but it is likely that the effect will be shown to be oppressive or unjust such as to attract adverse publicity.

8. Any case which is likely to attract media interest (for example, prominent people/sensitive issues).

9. Proceedings involving general anti avoidance provisions (for example, Part IVA of the Income Tax Assessment Act 1936; Division 165 of the A New Tax System (Good and Services Tax) Act 1999).

10. Any matter where it might be perceived that the proposed Tax Office arguments are inconsistent with an expressed ATO view.

Debt cases:

11. Any matter where the conclusive status of ATO documents is under challenge.

12. Cases where the Commissioner's right to rank as a creditor is challenged.

Other cases:

13. Where there is a fundamental challenge to the operation of a certified agreement of the ATO.

14. Actions against a tax officer for malicious prosecution or misfeasance in public office.

15. Cases where the operation of tax law secrecy provisions is seriously challenged.

16. Cases where the validity of the use of the Commissioner's access powers is questioned, including cases where extensive reliance is placed on legal professional privilege to resist access.

(2) Adverse Decisions

Whether a decision is classified as adverse to the Commissioner is a matter determined by the relevant court or tribunal. Under our current processes, an adverse decision requires a DIS if the appeal process is final, the decision relates to Part IVC litigation and the decision is either wholly or partly adverse. Presently, a DIS must be published for an adverse decision even where the decision is not significant.

PROPOSED ACTION

In order to improve the efficiency and effectiveness of the DIS process the ATO proposes to work towards publishing a register of all decisions in the AAT and Federal Court in relation to appeals under Part IVC of the Taxation Administration Act 1953, as well as declaratory proceedings.

For each decision listed in the register, we would indicate, with reasons, whether:

· An interim DIS is to be published;

· A DIS has been, or will be, published; or

· A DIS will not be published.

It is also proposed that a standing agenda item for the NTLG Dispute Resolution Sub-committee would be whether there are any concerns in relation to those decisions noted in the register in respect of which the ATO does not intend to prepare a DIS.

As foreshadowed at the last meeting of the NTLG, in the interests of effective use of our limited resources, we propose to cease publishing DISs on insignificant adverse cases. By publishing a register of decisions and whether a DIS is proposed, and raising the matter with the NTLG Dispute Resolution Sub-committee, the community will have the opportunity to raise particular matters with us where, contrary to our initial assessment, a case is considered to have broader significance.

During 2011-12, 52 DISs were issued – which is an average of one per week. It is timely for the ATO to review these products with the community to ensure they continue to be effective for purpose, including identification of opportunities for improvement, and that our resources are being applied in the most useful and efficient fashion.

Meeting discussion

First Assistant Commissioner Debbie Hastings of Law and Practice presented this item.

Decision Impact Statements are intended to provide support and certainty to the community, by providing a succinct statement on how the Commissioner will respond to court or tribunal decisions that are significant.

To improve the efficiency and effectiveness of the Decision Impact Statements (DIS) process the ATO proposes to work towards publishing a register of all decisions in the AAT and Federal Court in relation to appeals under Part IVC of the Taxation Administration Act 1953, as well as declaratory proceedings.

For each decision listed in the register, the ATO will indicate, with reasons, whether:

· an interim DIS is to be published

· a DIS has been, or will be, published or

· a DIS will not be published.

It is also proposed that a standing agenda item for the NTLG Dispute Resolution Sub-committee would be whether there are any concerns in relation to those decisions noted in the register in respect of which the ATO does not intend to prepare a DIS.

A member queried why the ATO issues ‘interims’? The ATO advised ‘interims’ provide guidance whilst the matter is being taken to the federal court.

Another member queried the timeline it takes to publish a DIS. The ATO responded the aim is to issue a DIS eight (8) weeks after a decision is handed down, however in complex matters it may take longer.

The ATO advised that it greatly reduced the time it takes to produce DIS over the past 3 years, and in 2011-12 the ATO issued 52 DIS.

The NTLG acknowledged that the DIS together with publication of the register will be from a practical point of view, very helpful for the profession.

^{[_Toc342482359]}13. Standing agenda items

^{[_Toc342482360]} 13.1 Top 3 items of significance under management of NTLG Sub-forums

Standing agenda item

NTLG Sub-forum ‘Top 3’ reporting is a standing agenda item.

This item allows for open discussion on issues of significance across NTLG Sub-forums. This report also includes issues identified from ATPF Working Groups and the Regional Tax Practitioner Working Groups (RTPWGs).

Report

NTLG Sub-forums

Forum	Last meeting held	Next meeting held	Item 1	Item 2	Item 3
Consolidation Sub-group	13 April 2011	Yet to be scheduled. A call for agenda items was made on 27 February 2012. Due to a lack of agenda items being raised by members the decision was made on 26 March 2012 not to call a meeting at that stage with the next meeting to be scheduled as required.	Rights to future income – various interpretive issues. Update Tax Laws Amendment (2012 Measures No. 2) Act 2012 (Act No. 99 of 2012) which contained amendments relating to the rights to future income rules received Royal Assent on 29 June 2012. The interpretative issues listed in the issues register regarding these rules will need to be reconsidered in light of the amended income tax law. They will be reviewed by members at the next sub-group meeting.	Residual tax cost setting – various interpretive issues. Update Tax Laws Amendment (2012 Measures No. 2) Act 2012 (Act No. 99 of 2012) which contained amendments relating to the residual tax cost setting rules received Royal Assent on 29 June 2012. The interpretative issues listed in the issues register regarding these rules will need to be reconsidered in light of the amended income tax law. They will be reviewed by members at the next Sub-group meeting.	No item identified
Corporations Law Working Party ( limited life )	21 July 2011	3 September 2012	Standing item Following finalisation of TR 2012/5, resolution of any on-going issues relating to the application of the franking regime. Update TR 2012/5 issued on 27 June 2012 and on-going questions are being resolved through private binding rulings.	New item Further reform to section 254T of the Corporations Act. Update Joint consultative meeting with Treasury, ASIC, ATO and Working Party members held on 3 September 2012 to discuss options in Treasury Discussion paper.	New item The interaction of Section 254T Corporations Act and the Income Tax Assessment Acts relating to specific interpretative matters which were not addressed in TR 2012/5. Update Specific matters are currently being addressed by the ATO and where necessary, in consultation with Treasury.
Dispute Resolution Sub-committee	13 August 2012	12 November 2012	New item Revision of LAPS 2007/23 ADR in ATO Disputes and Litigation and drafting of ATO plain English guide to dispute resolution - as part of implementation of recommendations of IGT report into early and alternative dispute resolution.	New item Pilot of using trained ATO officers as facilitators – as part of implementation of recommendations of IGT report into early and alternative dispute resolution.	Standing item ATO Dispute Management Plan. Update Member feedback incorporated into draft plan.
Division 7A Working Party ( limited life )	2 December 2011	Yet to be scheduled. A request for agenda items is to issue shortly.	Standing Agenda item UPE test case The ATO still committed to finding a suitable test case, as seen in the 2012-13 Compliance Program. It provides that the ATO is committed to examining taxpayer compliance with TR 2010/3 & PS LA 2010/4. Update Since last NTLG meeting, the ATO has in discussion with Board of Taxation (undertaking a post implementation review of Division 7A) requested that this issue is considered as part of any the review.	Standing Agenda item S109RB Review rights Since last NTLG meeting, the ATO has in discussion with Board of Taxation (undertaking a post implementation review of Division 7A) requested that this issue is considered as part of the review.	Standing Agenda item Interpretation of S109R Since last NTLG meeting, the ATO has in discussion with Board of Taxation (undertaking a post implementation review of Division 7A) requested that this issue is considered as part of the review.
Finance and Investment Sub-group ** Working Groups reporting to the Finance and Investment Sub-group	25 November 2010	Next meeting will be determined by the Chair in consultation with the members.	Debt/equity ITAA 1997 Division 974 Effectively non-contingent obligation (ENCO).	No item identified	No item identified
** Managed Investment Trusts (MIT) Working Group MIT Working Group reports to the Finance and Investment Sub-group	11 August 2011	Next meeting will be determined by the Chair in consultation with the members, following release of the exposure draft legislation.	Pending release of exposure draft legislation - members to consider the draft legislative requirements.	No item identified	No item identified
** Taxation of Financial Arrangements (TOFA) Working Group TOFA Working Group reports to the Finance and Investment Sub-group	7 August 2012	18 October 2012	Consolidation/ Taxation of Financial Arrangements interaction. Update The issue of Consolidation-TOFA interaction has developed substantially since the July report. The relevant amendments to the ITAA 1997 received Royal Assent on 29 June 2012 and apply from 26 March 2009. A TOFA Working Group meeting was held by telephone conference on 7 August 2012 to update members on the impact of the amendments, the means available for members to get assistance from the ATO, and the compliance approach we will be taking. The report for 20 September from the Working Group secretariat has more detail on these developments.	No item identified	No item identified
Fringe Benefits Tax Sub-committee	9 August 2012	8 November 2012	FBT return lodgment arrangements. Update Members expressed some concerns as to the recently introduced updated FBT lodgment process and provided feedback to the ATO.	Reform of Living-away-from-home allowances and benefits. Update Government reforms to Living-away-from-home allowances and benefits first introduced on 28 June, subsequently further amended on 21 August; Tax Laws Amendment (2012 Measures No.4) Bill 2012.	Section 23AG changes and consequential impacts for FBT, treatment of non-cash benefits which do not fall within FBT. Update Treasury to advise on priority of ‘discussion paper’ which it had advised would be issued for public comment.
GST Sub-committee	13 June 2012	12 September 2012	Standing item Tax invoices (The ATO’s approach to tax invoices following the withdrawal of GSTR 2000/17 and pending the finalisation of GSTR 2011/D12). Update Draft ruling GSTR 2012/D3: Goods and services tax: tax invoices was released for comment on 25 July 2012. The period for receiving comments closed on 7 September 2012, but at least one entity has requested an extension of time to comment.	Standing item Trustee Services Amendments to the GST Regulations. Update On 15 June 2012, the ATO emailed the list of issues that have been identified that require guidance by the Commissioner to members and invited them to provide feedback and raise any additional issues. On 2 July 2012, the ATO emailed a preliminary view in the form of a questions and answers document to members.	Standing item Division 81 (2011 amendments and taxes, fees and charges imposed before 1 July 2012 that are payable after 1 July 2012 under Division 81 of the GST Act). Update On 28 June 2012, new regulations were made for the purposes of Division 81 of the A New Tax System (Goods and Services Tax) Act 1999. The regulation extends the operation of the A New Tax System (Goods and Services Tax) (Exempt taxes, fees and charges) Determination 2011 (No. 1) until 30 June 2013. A submission has been made to the Public Rulings Steering Committee listing this as a potential topic for a public ruling.
International Tax Sub-group	23 July 2012	19 September 2012	Thin Capitalisation and the application of the securitised entity definition in section 820-39. Update This issue has arisen since the last Peak NTLG Meeting of 9 July.	Taxation treatment of payments made by an Australian resident to a Singaporean resident for the right to modify software. (Royalties) Update This issue has arisen since the last Peak NTLG Meeting of 9 July.	Development of a Tax Determination on the interaction of section 23AH/23AJ (ITAA1936) (ATO ID 2007/184). Update This issue was number 2 at the last Peak NTLG Meeting of 9 July. A working Draft TD is in progress of preparation, A version suitable for release to Sub-group members for their consideration is anticipated in October.
Losses and Capital Gains Tax Sub-committee	13 June 2012	14 November 2012	Draft Taxation Ruling TR 2007/D10 - CGT consequences of earnout arrangements. At the June 2012 subcommittee meeting, the members confirmed that the announced earnouts new measure remains one of their top 3 items of interest. Treasury confirmed that it cannot provide an indicative timeframe for drafting the earnout measure due to the high volume of government business which the Office of Parliamentary Counsel is progressing. Treasury have taken steps to raise the priority of this measure in the government’s legislative programme but no positive outcome has been confirmed to date. Update This issue was raised because of concerns about the delay in legislating the earnouts measure, with some elements retrospective to 2007. This measure has stalled on the legislative program, and may be affected by the current review of drafting priorities between ATO and Treasury.	Progression of the losses recommendations of the Business Tax Working Group. At the June 2012 subcommittee meeting, the members confirmed that progression of the losses recommendations of the Business Tax Working Group remains one of the top 3 issues worthy of discussion via the subcommittee. This interest has been passed on to the relevant area of Treasury. [Note: The final report of the Working Group was published on 13 April 2012]. Update Work continues on the development of the loss carry back rules for planned introduction in Spring 2012.	Division 855 of the ITAA 1997. At the June 2012 subcommittee meeting, the members confirmed that Division 855 of the ITAA 1997 remains one of their 3 top issues of interest. Members have been asked to identify key irritant areas requiring further clarification and/or discussion. Update No subsequent change in status.
Promoter Penalties Sub-committee ( limited life )	10 May 2012	The next meeting will be held as required – to be advised.	Publication of the second edition of the Guide for tax intermediaries: Good governance and promoter penalty laws is expected by the end of September 2012. Update Undergoing clearance processes.	Publication to www.ato.gov.au of the ‘Areas of focus – Financial Products’ document which was developed in consultation with the Sub-committee. Update Publication to www.ato.gov.au occurred on 19 July 2012 and is linked to the release of the Compliance Program 2012-13.	A short form Good governance guide for smaller intermediaries has been developed in consultation with the Sub-committee has been published to www.ato.gov.au . Update Publication to www.ato.gov.au occurred on 23 August 2012.
Reportable Tax Positions Working Party ( limited life )	18 April 2012	Further meetings will be held as required.	Standing item Integrating the RTP schedule into the ATO’s engagement and compliance approach for large business. Update Implementation and Integration continuing. Internal training to be rolled out from mid September.	Standing item How the ATO will deal with RTP disclosures. Update Developing streamlined review process for disclosures including processes for schedules with no RTP disclosures.	Standing item Application of the administrative penalties regime including voluntary disclosures to the RTP schedule. Update Continuing to develop the ATO approach on this issue.
Resource Rent Tax Sub-committee	25 July 2012	1 November 2012	Standing item Petroleum Resource Rent Tax (PRRT) deductible expenditure. This includes both exploration expenditure and the implications of the implications of the Esso Full Federal Court decision on deductible expenditure for Petroleum Resource Rent Tax. Update In August 2012 the High Court dismissed Esso’s application to appeal against the Full Federal Court decision. A decision impact statement will be issued soon.	Standing item Expanding guidance on market valuation for starting base published on the ATO website. Update Industry has raised a number of issues that require urgent attention and a longer term work program is being developed. The starting base look-back method guidance has been impacted by the Esso Full Federal Court decision.	Standing item Expanding guidance on mining revenue, the attribution at valuation point and the arms length principle. Update A working group will be meeting in late September 2012 to progress some of these issues.
Superannuation Technical Sub-group	5 June 2012	4 September 2012	Taxation and regulatory consequences of TR 2011/D3 (including ECPI). Update Publication of the final version of TR 2011/D3 has been delayed pending policy consideration of a number of policy issues raised by industry bodies with Government with respect to the views expressed in the Draft Ruling. Sub-group members have been advised of that delay.	Taxation and regulatory consequences of death benefits (including ECPI). Update Technical responses to a range of death benefits interpretative issues raised by the Financial Services Council were presented to the September 2012 meeting of the Sub-group.	Successor Fund Transfers. Update Sub-group members have been advised that the ATO has arrived at a view internally in relation to the application of relevant ITAA 1997 provisions to successor fund transfers and is in policy discussions on the issue. Those members have also been advised that the ATO would take a prospective approach to implementing any revised view on the subject. Sub-group members were advised at the September 2012 sub-group meeting that the ATO would consult with industry representatives about a suitable prospective implementation date for any such revised view.
Trust Consultation Sub-group	24 July 2012	18 September 2012	30 June compliance activities. Update Following an initial education letter sent to approximately 1200 trustees, we wrote to 120 of those trustees asking for a copy of any resolution they made to appoint income for the 2011-12 year. As at 5 September, we had received 104 responses. The project will be discussed at the Subgroup meeting on 18 September 2012.	Input into the modernisation of the taxation of trust income reforms. Update Treasury has been developing a further discussion paper which they hope to release shortly. There will be a discussion at the Subgroup meeting on 18 September 2012.	The Commissioner's views of the meaning of the 'income of the trust estate'. Update The ATO's views in TR 2012/D1 will be discussed at the Subgroup meeting on 18 September 2012.

ATPF and Working Groups

Forum	Last meeting held	Next meeting held	Item 1	Item 2	Item 3
ATPF	10 August 2012	2 November 2012	Ongoing issue Tax Time continues to run smoothly and ATO provides tips and reminders to help reduce processing delays. Update/ advice / progress ATPF members (external and internal) continue to meet to discuss progress through Tax Time. No major issues to date and key messages are issued to members following the meetings.	Retention for verification: Activity statement refunds following the Multiflex decision. Update/ advice / progress ATO will prepare a practice statement on the administration of refunds held for checking. ‘Frequently asked questions’ relating to the new legislation and ATO processes will be published to the website shortly.	ATO’s Future Service Delivery Model - presentation on developing our future service focus. Update/ advice / progress Members invited to provide feedback on the ‘Better Ways’ presentation and the future focus for ATO.
Accounting Working Group	15 June 2012	17 August 2012	Ongoing issue Pre-issue refund checks. Update/ advice / progress Members have observed significant improvements to our pre-issue compliance checks on income tax returns. Members will continue to monitor, but overall happy with adjustments to our risk models and process for checking returns.
Active Compliance Working Group	26 July 2012	13 November 2012	New item The role of the Relationship Managers. Update/ advice / progress The ATO continues to provide a range of support and services that shape our engagement and relationship with tax practitioners, including field based support.	Lodgment Program 2012-2013.	Portal enhancements The ability of practitioners to lodge payment summaries online? Update/ advice/ progress BAS Agent portal upgraded with improved functionality.
BAS Agent Advisory Group	30 August 2012	23 November 2012	Taxable payments reporting for businesses in the Building & Construction industry. Update/ advice/ progress A written update regarding the “Employee/contractor decision tool” was provided to members at the 30 August 2012 meeting.	Enhancements for Portal, Standard Business Reporting and lodgment functionality. Update/ advice/ progress Members were provided with a presentation on the future enhancements to the BAS Agent portal at the 30 August meeting.	Tax Practitioners Board update. Update/ advice/ progress A new on-line complaint form has been implemented. There are 15 cases that breach the code of professional conduct. New online application form for BAS Agents is now available. It combines both standard and transitional options.
Electronic Advisory Working Group	3 August 2012	22 October 2012	Update – Reducing paper activity statements for electronic lodgers. Update/ advice / progress Members have been asked to provide feedback to key questions regarding practitioners’ lodging paper activity statements.	Electronic Lodgment Service (ELS) to Standard Business Reporting (SBR). Update/ advice / progress ATO also invites feedback on options of printable payment slips. Members will be invited to participate in co-design activities for ‘ELS2SBR’.	Lodgment Program for electronic interactions. Update/ advice / progress Key messages issued to members on 8 August 2012.
			Key messages on these three items were issued to members on 8 August 2012.
Legal Practitioner Forum	2 April 2012	25 October 2012	No further update since the ATO Tax Practitioner Forum meeting held 25 May 2012. Update/ advice/ progress An out of session meeting was held on 1 August 2012 with Legal Practitioner forum members to discuss the establishment of the NTLG Professional Practice Structures Sub-group.
Lodgment Working Group	20 July 2012	21 September 2012	Ongoing issue Lodgment program differentiation.	Increasing electronic interactions.	Lodgment program 2012-13.
			Update/ advice/ progress Additional meetings on 27 August, 28 September and 31 October have been scheduled with members to consider key support components of this program, including the client list cleanse process.
Small Medium Enterprise Working Group	13 June 2012	25 October 2012	Ramifications of making estimations of trust income prior to 30 June for the trustee resolution.	Electronic Funds Transfer (EFT) vs. Cheque. · Contributions to super funds; and · Treatment of electronic payments and cheque payments to super funds.	Relationship Manager Program.

ATPF Regional Tax Practitioner Working Groups

Forum	Last meeting held	Next meeting held	Item 1	Item 2	Item 3
North Queensland	17 July 2012	9 October 2012	Lack of awareness in the community regarding the flood levy conditions and exemptions.	Lodgment Program 2012-13 client lists and portal reporting functionality.	Tax Practitioner Action Plan 2011-2015, the application of the risk differentiation framework in reference to agent’s individual circumstances.
South-East Queensland	17 July 2012	9 October 2012	New director penalty legislation and impacts in the next twelve months.	Lodgment Program 2012-13 and in particular impacts of the 85% lodgment benchmark.	Client accounts need to include dates in particular on legal action accounts.
NSW	19 July 2012	18 October 2012	Pre-issue integrity checks and reasons for delays in the issuing of Notices of Assessment could be made more transparent. Update/ advice/ progress Notifying agents of processing delays via email and providing reason codes for the delay has assisted in making our processing and refund integrity checks more transparent to agents.	ATO to provide a call back service rather than an agent waiting on the phone while the query is resolved.	Tax Agent Portal enhancements, update requested.
Victoria	17 August 2012	16 November 2012	Ongoing issue Tax Time continues to run smoothly and ATO provides tips and reminders to help reduce processing delays. Update/ advice / progress ATPF members (external and internal) continue to meet to discuss progress through Tax Time. No major issues to date and key messages are issued to members following the meetings.	Retention for verification: Activity statement refunds following the Multiflex decision. Update/ advice / progress ATO will prepare a practice statement on the administration of refunds held for checking. ‘Frequently asked questions’ relating to the new legislation and ATO processes will be published to the website shortly.	ATO’s Future Service Delivery Model - presentation on developing our future service focus. Update/ advice / progress Members invited to provide feedback on the ‘Better Ways’ presentation and the future focus for ATO.
Tasmania	25 July 2012	17 October 2012	Ongoing Lodgment Program 2012-2013, in particular performance benchmark and sanctions.	Trust Distribution Resolutions, regarding “conditional” trust distribution resolutions.	Tax Practitioner Board referrals – with a focus on: · what triggers the ATO to refer an agent to the Tax Practitioner Board. · what are the nature of referrals to the Tax Practitioner Board. · what is meant by reasonable care for the purposes of the Code of Professional Conduct.
			Update/ advice/ progress: Draft tax determination issued regarding trust resolutions. The lodgment program will continue to be included in future meetings and a guest from the Tax Practitioner Board will be invited to the next meeting.
SA/NT	4 July 2012	18 October 2012	New issues: Administrative irritants and the cost of resolution.	Member concerns about the level of service provided by ATO staff, inconsistent treatments/ decisions, lack of direct contact points, perceived decreasing respectful attitude towards tax professionals.	Timing of compliance correspondence.
			Update/ advice/ progress: Items have been escalated to TPALS intelligence team.
WA	24 July 2012	16 October 2012	New issue Lodgment Program 2012-2013. Practitioners have concerns with the 85% performance benchmarks. Update/ advice/ progress Project leaders confirmed feedback will be taken into account. Project leaders will provide further updates and seek feedback at future meetings.	Tax Time 2012 product changes. Update/ advice/ progress Questions and issues associated with Tax Time escalated and responses provided to members.	Company, Superannuation and Trust payment slips on lodgment reminder letters.

Meeting discussion

Deputy Commissioner Cheryl-Lea Field of the Tax Practitioner and Lodgment Strategy business line presented this item.

The ATO will soon be conducting a more comprehensive review of the forums functionality.

The new Top 3 reporting style now includes additional information to help identify:

· whether issues are new or long standing and for how long; and

· what progress has been made with each issue, since the last update/report provided.

The ATO advised that improved Top 3 reporting has enabled better analysis of issues, including meeting regularity and timeliness of issues identified.

The members appreciated the reporting now available via the Top 3 report, and supported the planned improvement.

Members made the following observations with some of the Sub-forums.

NTLG Finance and Investment Sub-group This group has not met for over two years.

NTLG TOFA Working Group – reports to the NTLG Finance and Investment Sub-group This group is currently considering a broad range of issued.

NTLG MIT Working Group – reports to the NTLG Finance and Investment Sub-group This group is on hold waiting on release of the exposure draft.

NTLG Promoter Penalties Sub-committee This is a limited life occasional group.

^{[_Toc342482361]} 13.2 NTLG Sub-forum and Panel reports

Standing agenda item

NTLG Sub-forum and Panel reporting is a standing agenda item.

Members are referred to the supplementary document: “NTLG Sub-forum and Panel reports”.

Reports

This item is for discussion at the meeting.

Note: The Sub-forum reports issued as a separate document.

Meeting discussion

Deputy Commissioner Cheryl-Lea Field of the Tax Practitioner and Lodgment Strategy business line presented this item.

Members were advised of updates received for two Sub-forum reports.

NTLG Superannuation Technical Sub-group report has been updated.

Agenda Item 13.2.14 Updates included: · Changes to meeting dates · Finalisation of TR 2011/D3 · Issues concerning Superannuation Death Benefits · Successor Funds Transfers · Summary of Work Program

NTLG Trust Consultation Sub-group report has been updated.

Agenda Item 13.2.15 Updates included: · Changes to meeting dates · TFN withholding for closely held trusts · Meaning of income of trust estate (TR2012/D1) · Trustee resolution compliance project · Portal enhancement · Approach to compliance · Trustee resolution project Rulings

Members were provided with a copy of the updated reports.

Updates have been included as part of the consolidated supplementary document titled: “NTLG Sub-forum and Panel reports”.

Members accepted the reports provided.

^{[_Toc342482362]} 13.3 Tax Issues Entry System (TIES) Register

^{[TIESRegister]} Standing agenda item

For the period 1 November 2008 to 28 August 2012, 155 issues have been listed on the TIES register. Of these 125 items have been finalised as follows:

· 98 assessed as out of scope

· 2 have been finalised as insufficient information has been provided and the client cannot be contacted

· 24 resolved by legislative change

· 1 resolved by change to ATO’s administrative practices

There are 30 issues currently being progressed:

· 10 are subject to preliminary assessment by the ATO and Treasury

· 20 are in scope and in the process of being resolved

Issues registered by NTLG Sub-forums

New issues

Since 21 June 2012, no new issues have been registered by the NTLG Sub-forums.

Issues in progress

Six (6) issues, received before 21 June 2012, are currently being dealt with:

Tax Issues Entry System (TIES) No.#	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 registered	15 November 2010
Current status	In scope Treasury is considering the legislative measures that would be required to address this issue, however because of complexity, the outcome may be protracted.
External ATO Forum/ Committee	NTLG GST Sub-committee

Tax Issues Entry System (TIES) No.#	0030/2010
Title	An auditor who issues an audit report to an Self Managed Superannuation Fund trustee on or after the due date for lodgment 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 registered	21 December 2010
Current status	In scope An exposure draft ‘Regulations - Prescribed Period for Provision of SMSF Audit’ was released for consultation on 21 September 2011. The consultation period closed on 17 October 2011. Further issues were identified as part of this consultation and Treasury, the ATO and industry have worked together to resolve those issues. Treasury is currently working with the Office of Parliamentary Counsel to develop appropriate amendments.
External ATO Forum/ Committee	NTLG Superannuation Technical Sub-group

Tax Issues Entry System (TIES) No.#	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 registered	21 December 2010
Current status	In scope Treasury is considering the legislative measures that would be required to address this issue.
External ATO Forum/ Committee	NTLG Losses and CGT Sub-committee

Tax Issues Entry System (TIES) No.#	0021/2011
Title	Start and end times for continuity periods are in some cases unable to be determined for the head company of a tax consolidated group. As a result section 709-215 of the Income Tax Assessment Act 1997 cannot be satisfied and a bad debt deduction cannot be claimed by the exiting subsidiary member.
Date registered	5 October 2011
Current status	In scope Treasury is considering the legislative measures that would be required to address this issue.
External ATO Forum/ Committee	NTLG Consolidations Sub-group

Tax Issues Entry System (TIES) No.#	0022/2011
Title	Determination of the effective life of an intangible depreciating asset that is covered in subsection 40-95(7) of the Income Tax Assessment Act 1997 (ITAA 1997) for the purposes of applying the tax cost setting provisions in subsection 701-55(2) of the ITAA 1997.
Date registered	2 November 2011
Current status	In scope Treasury is considering the legislative measures that would be required to address this issue.
External ATO Forum/ Committee	NTLG Consolidations Sub-group

Tax Issues Entry System (TIES) No.#	006/2012
Title	Interaction between transferor trust rules and the foreign hybrids rules
Date registered	4 April 2012
Current status	Preliminary assessment in progress
External ATO Forum/ Committee	NTLG International Sub-group

Issues finalised

Since 21 June 2012, no issues received from NTLG Sub-forums have been finalised.

Meeting discussion

Deputy Commissioner Cheryl-Lea Field of the Tax Practitioner and Lodgment Strategy business line presented this item.

Members queried what happens with items assessed as ‘out of scope’. General Manager Gerry Antioch of Treasury advised that the issues are not suitable for the TIES register and therefore not included.

TIES reporting for the NTLG will now be a ‘current’ yearly report, and will no longer cover statistics dating back, for example to 2008.

No other issues relating to this agenda segment were raised.

^{[_Toc342482363]} 13.4 Public Rulings Steering Committee report

Standing agenda item

Public Rulings Steerting Committee reporting is a standing agenda item.

Reports are included at each meeting, and provide an update on recent activities of the committee.

Chief Tax Counsel Robert Olding will present this report.

Report

Chair

Chief Tax Counsel Robert Olding

Secretariat

Lydia Peraic – Law Practice Management Unit

Last meeting held

The last meeting was held on 3 September 2012.

Next meeting

The next meeting will be held on 12 December 2012.

Minutes

The draft minutes for the meeting held on 6 June 2012 are available on www.ato.gov.au .

Draft minutes for the meeting held on 3 September 2012 are in the process of being published to www.ato.gov.au .

Summary of main issues discussed on 3 September 2012

Log of potential Ruling topics previously identified by NTLG Sub-forums.

Item number 1

Division 7A

Background It was reported in the last update that the ATO had received a submission from the professional bodies. The submission highlighted a number of technical issues that can be considered for inclusion onto the Rulings program. The NTLG Division 7A Working Party has flagged that there may be potential ruling topics as they continue to develop their work program; however, no specific topics have yet been identified for inclusion on the Public Rulings Program. 3 September 2012 – Update The ATO has discussed the issues raised by the professional bodies with the Board of Taxation as part of the post implementation review of Division 7A. As part of these discussions the ATO recommended that these issues be discussed in the proposed discussion paper that will be released by the Board of Taxation. In light of these discussions, the ATO is not inclined to commence drafting any Rulings or Determinations unless there is a significant issue that needs to be clarified before the Board finalises its report. Item closed – but may be revisited after Board of Taxation Review.

Item number 2

Trust Consultation

Background Can Family Trust Distribution Tax (FTDT) apply where the recipient of the benefit is not a beneficiary? Arising from ATOID 2012/12 which deals with writing off a trade debt to an entity where the debtor is not a beneficiary of the trust, the question was asked whether FTDT could apply. 3 September 2012 – Update Item on hold – Institute of Chartered Accountants in Australia (ICAA) to submit a competed template with more detail on the issue.

Item number 3

Capital Gains Tax (CGT) taxing point A1

Background Timing of CGT event A1. This issued was raised at the June meeting. 3 September 2012 - Update This request was discussed in other business with the members of the NTLG Losses & CGT Sub-committee at the last meeting on 13 June 2012. The feedback from members was broadly consistent with our thinking on the original request; that is, that the question of when a contract is entered into is so factually based, and so dependent upon the particular features of the agreement, that it would be difficult to produce a useful generic ruling product. Members also agreed that a private ruling would seem to be the best option for dealing with such case specific requests. Given that feedback, we do not propose to issue a Taxation Ruling for this area of the CGT provisions. Item closed

Item number 4

TOFA – Creation of a considered ATO view following ATO ID 2012/29 rejection of Special Purpose Financial Reports

Background Institute of Chartered Accountants in Australia (ICAA) raised concerns regarding the scope and reasoning of ATOID 2012/29. The ATO previously agreed to review the ATO ID. 3 September 2012 - Update The ATO has reviewed the ATO ID and, given the significance of the issue, proposes to develop a draft Tax Determination (TD) through the public rulings process which will include public consultation. This TD, once finalised, will replace the ATO ID. Item closed

New potential ruling topics identified by NTLG subcommittees

The NTLG GST Sub-committee flagged 4 potential ruling topics put forward by ICAA which were to be discussed further at the Sub-committee meeting on 12 September 2012:

· When undertaking obligation gives rise to a taxable supply under GST law – the Committee decided to ask the GST Sub-committee to consider further once the High Court has delivered judgement in the Qantas case.

· An update to the ruling on GST implications of appropriations – the Committee decided that this matter should be considered in conjunction with the first item and noted it would be necessary to identify whether there are specific interpretative issues that warrant investment of resources in a public ruling.

· GST implications of carbon pricing and emissions units – the Committee agreed that further information regarding whether specific interpretative issues have been identified for a decision to be made on whether a public ruling is warranted or, for example, a guidance product may be more suitable.

· A ruling on the GST treatment of government taxes, fees and charges – the ATO’s Indirect Tax Business Line is to assess whether there are issues that have emerged from these new provisions and the timing and scope of any potential ruling.

New potential ruling topics identified by NTLG PRSC members

No submissions received.

Public Rulings Program Status

The ATO undertook to examine whether more comment could be included in the status update in the Rulings Program especially when the notation is to be advised (TBA) in the publication date column.

Other Business

No other business was discussed.

Meeting discussion

Chief Tax Counsel Robert Olding of Law and Practice presented this report.

Members accepted the report provided.

^{[Appendix1][_Toc151890501][_Toc151890502][_Toc342482364]} 14. Other Business

^{[_Toc342482365]} 14.1 TIES arising from this meeting

An update on the TIES register was discussed at Agenda item 13.3 .

This segment provides the opportunity for members to raise any TIES matters which have arisen during the course of this meeting.

Meeting discussion

No issues were raised by members under this item.

^{[_Toc342482366]} 14.2 Key Messages

Members to identify and discuss key messages from this meeting.

Meeting discussion

Members identified several topics of interest covered throughout the day that highlighted significant Key Messages to be shared with Professional Association members.

Topics included:

· ATO Dispute Management Plan

· ATO update on the Trustee Resolution project

· ATO Administration of new Director Penalty Regime

· Application of Risk Differentiation Framework in the Small to Medium Enterprise market in 2012/13

Post meeting update

Key messages

On 26 September 2012, members were provided with the following key messages to share with their Professional Association members:

NTLG tips and links for association members

NTLG tips and links for association members

Key tips and links to note [H1] and share with your members. · For information on the key rights and obligations of small-to-medium enterprises and wealthy individuals to assist them adopt and maintain high standards of governance and propriety in their tax affairs, refer to the ATO online publication: Tax Compliance for Small to Medium Enterprises and Wealthy Individuals . · On 7 September 2012 the Commissioner announced that the ATO will be publishing all findings made by its external scrutineers and the outcomes and improvements from implementing suggested recommendations. For more information, refer: ° Media Release: 2012/41: ATO acts responsively to external scrutiny ° General Accountability Information: includes Outcomes and Audit Reviews for the Australian National Audit Office (ANAO) audits and Inspector-General of Taxation reviews · The second edition of Your case matters (YCM) has broken new ground by publishing key data and analysis about Australia’s tax and superannuation litigation and provides insight into statistical trends in tax and superannuation litigation over recent years. For more information, refer: ° Your case matters 2012: Tax and superannuation litigation trends. (Edition 2)

Updates from the ATO and Treasury

Updates from the ATO and Treasury	Key messages
Item 1	Joint Committee of Public Accounts and Audit (JCPAA) · On Friday 14 September 2012 the ATO appeared before the JCPAA. · The hearing went well and the ATO continues have a strong relationship with this Committee. · The focus was on Small Business, however a broad range of topics were discussed; including: ° Tax Gap ° Foreign investment in Australia and international taxation issues ° Taxation reform ° ATO Portal issues The committee noted that there has been very few tax time complaints this year and performance continues to be strong.
Item 2	Treasury and the ATO Relationship · Treasury and the ATO continue to work closely on the development of new tax policy, law and administration. · The two agencies have recently agreed on a new quality assurance process for law design which includes early involvement of the ATO in policy discussions prior to government decisions and greater collaboration during the drafting of legislation; · All of this work culminated in a revised version of the Treasury and Australian Taxation Office Tax and Superannuation Protocol, which was published on the ATO website on Monday 17 September (and provided to JCPAA on 14 September); refer to the ATO website . · The purpose of the Protocol provides the framework for the working arrangements between the Treasury and the ATO to enable the best possible functioning of the tax and superannuation systems that the Treasury and the ATO share the stewardship of. · The protocol outlines the following arrangements that form part of the overall Treasury-ATO relationship: ° The integrated tax design processes ° Quality assurance of new law ° Revenue costing ° The law and its administration
Item 3	Revenue Group Restructure in Treasury From 24 September, Treasury’s Revenue Group will be reorganised. · A Law Design Practice (LDP) will be established by formally bringing together Treasury’s tax law design expertise. The LDP will be responsible for law design input into policy development, and for progressing and project managing tax and superannuation law. The LDP will also coordinate priority setting of draft legislation. · A Corporate and International Tax Division will consolidate tax policy work currently spread between two divisions. · A Small Business Tax Division will enhance Treasury’s ability to understand and respond to the diverse set of issues facing this sector. · Tax System Division’s mandate to advance a system-wide approach to tax economics and tax administration policy will be strengthened with responsibility for international treaties work. · Other Revenue Group Divisions will continue to function largely as now. The Revenue Group’s new structure is also intended to support significantly enhanced operating arrangements.

Agenda Topics

Agenda Topic	Key message
ATO staff resources Agenda item 5	The ATO expects to continue to meet its published service levels for taxpayers and tax agents. Strategies for managing the ATO’s work and budget have not changed from initial planning. They remain: · maintaining a strong message of thrift and tight budget management throughout the ATO and continuing to encourage productivity improvement; · continuing to harvest savings from past investments in new IT systems as they mature; · reviewing and reducing supplier expenditure; · reducing staff numbers through natural attrition by testing the priority to fill roles left vacant by departing staff; · containing the number of non-ongoing and casual staff and the duration of their contracts utilising them to focus on seasonal workload peaks; and · reviewing APS classifications required for work types to ensure the right level for the right work.
ATO Dispute Management Plan Agenda item 6	NTLG members support key principles of the Dispute Management Plan, including how the ATO will work with taxpayers, tax and legal professional to: · avoid disputes where possible; · resolve disputes in the simplest and most cost-effective manner, taking into account the merits and the risks; · resolve disputes as early as possible; · clarify disputes by listening to each other’s views and considering all resolution options; and · manage disputes in a courteous and fair manner The Dispute Management Plan will be published on the ATO website by the end of November 2012.
ATO actions following Inspector-General of Taxation (IGT) review of Early and Alternative Dispute Resolution (ADR) processes and practices Agenda item 7	The ATO accepted 20 of the 22 recommendations in the report either fully, in principle or in part. They relate to: · audit conduct and communication; · taxpayer engagement at all stages (audit, objection and litigation) of a dispute; · information gathering; · technical capability and support; and · the ATO’s Test Case Litigation Program Most of the 20 recommendations agreed to will be implemented by 30 June 2013. · Negotiation is our primary means of resolving disputes. · Only a small proportion of our disputes are objected against and an even smaller percentage litigated. · Practice Statement 2007/23 “Alternative Dispute Resolution in ATO disputes and litigation” is being rewritten and is expected to be finalised by 30 June 2013. · The ATO will also undertake a pilot to assess the effectiveness of using trained in-house ATO officers to act as facilitators with a sample of less complex indirect tax objection cases.
ATO update on the Trustee Resolution project Agenda item 8	Although there is still some confusion in the community about when and why trustees are now required to make resolutions by 30 June, those trustees selected for review satisfied the requirement. Some more education work will need to be undertaken until such time as this and related matters are dealt with under the Government’s review of the taxation of trusts. Consultative processes allow for the opportunity to reach some legislative resolution, with a number of difficult issues that have been arising in the area of trusts.
ATO Administration of new Director Penalty Regime Agenda item 9	This new legislation provides the opportunity for community consultation and to develop processes in going forward. The ATO will establish a new ‘Working Party’ to discuss the legislative changes relating to director penalties and the Non-Compliance Tax that will report through to the ATPF. Director Penalty Notices in relation to periods that have remained unreported for more than 3 months are now being issued in relation to high risk and/or high value cases. Information has already been provided to the community in relation to the legislative changes relating to director penalties and the introduction of the Non-Compliance Tax, and further information sessions in each State and Territory capital city are being presented over the next 6 weeks. The use of Director Penalty Notices in relation to periods that have remained unreported for more than 3 months (in relation to all other cases) will be reviewed in the next quarter.
Application of Risk Differentiation Framework in the Small to Medium Enterprise market in 2012/13 Agenda item 10	NTLG members acknowledged the Risk Differentiation Framework (RDF) in the Small to Medium Enterprise market. The RDF assists the ATO to: · form a view of the taxpayer’s relative tax risk, and · determine the intensity, frequency and nature of our engagement with the taxpayer. Our compliance activities will differ based on: · our view of the taxpayer’s likelihood of non-compliance · the potential consequence of any non-compliance in terms of tax, reputation and precedence. There are four categories determined by likelihood and consequence; these include: · Key Taxpayers · Low-Risk Taxpayers · Medium-Risk Taxpayers · High-Risk Taxpayers Intensity of the ATO’s interaction with taxpayers increases with their compliance risk. Application with effectiveness of the framework will be undertaken through the existing ATPF Small and Medium Enterprise Sub-group.
ATO process of determining whether to produce a Decision Impact Statement Agenda item 12	Decision Impact Statements are intended to provide support and certainty to the community, by providing a succinct statement on how the Commissioner will respond to court or tribunal decisions that are significant. In order to improve the efficiency and effectiveness of the Decision Impact Statements (DIS) process the ATO proposes to work towards publishing a register of all decisions in the AAT and Federal Court in relation to appeals under Part IVC of the Taxation Administration Act 1953, as well as declaratory proceedings. For each decision listed in the register, the ATO will indicate, with reasons, whether: · An interim DIS is to be published; · A DIS has been, or will be, published; or · A DIS will not be published. It is also proposed that a standing agenda item for the NTLG Dispute Resolution Sub-committee would be whether there are any concerns in relation to those decisions noted in the register in respect of which the ATO does not intend to prepare a DIS. The NTLG acknowledged that DIS together with publication of the register will be from a practical point of view, very helpful for the profession.

^{[_Toc342482367]} 14.3 Next meeting and close

The next meeting is scheduled for 12 December 2012, in Canberra commencing at 9:30am.

Meeting discussion

In closing the Chair thanked members for their contributions and participation in the meeting. The agenda topics, presentations and discussions on the day were considered open and constructive.

The meeting closed at 3:30pm.