The website of the Australian Tax Ombudsman
The IGTO’s thought leadership article was published in the July 2021 edition of Australian Tax Law Bulletin (Vol 5, No 9).
The full edition, and prior editions, may be accessed via LexisNexis.
The IGTO has prepared a thought leadership article on when the law imposes an obligation on the Commissioner of Taxation to provide taxpayers with reasons for decisions. This thought leadership articles examines the circumstances in which a taxpayer has a statutory right to receive reasons from the Commissioner of Taxation. It is important for taxpayers to keep in mind that reasons are not always provided, nor are they required to be. The fact that they are typically provided makes any refusal to do so, when it occurs, seem exceptional and, in many cases, unfair. However, in the absence of any change in law or policy, it is ultimately a matter for the Commissioner/ATO to decide and which might be revisited only once a decision to litigate the decision has been made by the Taxpayer. The Taxpayer’s Charter does set an expectation that the Commissioner will be “open, transparent and accountable” in his dealings with taxpayers. Accordingly, despite the limitations on a taxpayer’s legal right to reasons, if a taxpayer is met with a refusal by the Commissioner to provide reasons, or receives insufficient reasons and this impedes their ability to understand a decision or weigh up next steps, the taxpayer should consider availing themselves of their right to complain, including via the ATO Complaints Unit and/or the IGTO complaints service. We have also prepared a briefing slidedeck which summarises key points from the article. The briefing slide deck can be downloaded by clicking the second PDF link above. This article was primarily authored by Senior Investigator Robyn Thomas, with input from Karen Payne, Duy Dam, Rosina Lai and Anita Hong.
The Inspector-General of Taxation celebrated 10 years of service to the Australian community in 2013. To mark this occasion, the IGT released a booklet which provided the community with a simple and easy to understand guide about the IGT office and its functions at the time.
The Inspector-General of Taxation (IGT) is an independent statutory officer appointed by the Federal Government. The IGT is supported by a staff of dedicated professionals with strong taxation knowledge and experience. Our mission is to:
Improve the administration of federal taxes for the benefit of all Australians.
Establishing the Inspector-General will… strengthen the advice given to government in respect of matters of tax administration.
The Inspector-General will provide a new source of independent advice to the government. The role will act as an advocate for all taxpayers, including Australian business and will provide an avenue for more effective conflict resolution than currently exists.
Second Reading Speech for the Inspector-General of Taxation Bill
The Hon Peter Costello
Treasurer
19 September 2002
Our mission, to improve tax administration, is realised through our independent advice in 3 ways:
The IGOT plays an important role in ensuring high standards of tax administration for Australian taxpayers.
The best way to ensure the IGOT’s work is not hampered in any way is to retain the IGOT’s status as a separate stand alone body.
The Hon Chris Bowen
Assistant Treasurer and Minister for Competition Policy and Consumer Affairs
9 April 2008
The IGT strategy for delivering independent advice for improvement is to:
I sincerely thank all stakeholders including taxpayers, tax practitioners and their representative bodies as well as the ATO, Treasury and other government agencies for assisting us in improving tax administration for the benefit of our country.
Ali Noroozi
Inspector-General of Taxation
Our motto:
CONSULT · REVIEW · ADVISE · IMPROVE
The IGT is an independent scrutineer focused on systemic tax administration issues.
The ATO provides the vital community service of administering the federal tax system, including the collection of revenue. It is a natural monopoly provider of this service. While sound reasons necessitate such an approach, taxpayers cannot change providers if the service does not meet expectation.
Taxpayers may not wish to raise issues out of concern that this key relationship may be adversely affected or they may feel that their concerns are not being adequately considered.
The IGT facilitates a way through this asymmetry.
First, the IGT is independent of the ATO and ensures that the confidentiality of all stakeholder submissions are maintained.
Second, the IGT’s strong access powers over the ATO provide transparency and openness on all matters.
Third, a constructive relationship with the ATO is carefully balanced to ensure the IGT’s independence is maintained in the reviews. A degree of tension should always exist between an administrator and scrutineer. Such tension, professionally managed, is entirely appropriate to maintain community confidence in both the IGT and ATO service delivery.
The IGT seeks to provide you with prompt practical assistance. There are certain important restrictions on the IGT that you should be aware of in this regard.
The IGT may only consider tax administration issues that are systemic or potentially systemic.
The IGT is not empowered to intervene in single taxpayer complaints or concerns.
The Commonwealth Ombudsman is empowered to consider single taxpayer complaints or concerns, so you should address these to the Ombudsman.
If you believe your matter is a systemic issue, please contact the IGT office to discuss it with a review officer.
In seeking to address systemic issues, the IGT must carefully manage the resources of his office.
The IGT sets a formal work program every 12 to 18 months, by consulting with stakeholders to identify systemic issues. The IGT then selects issues that are expected to provide the greatest overall improvement to the administration of the tax system.
The IGT also seeks to address certain issues informally with the assistance of the ATO.
Office of the Inspector-General of Taxation
Phone: 02 8239 2111
Email: [email protected]
Postal Address: GPO Box 551, SYDNEY NSW 2001
Location: Level 19, 50 Bridge Street, Sydney NSW 2000
Website: www.igt.gov.au
© Inspector-General of Taxation for the Commonwealth of Australia 2013
You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the IGT or the Commonwealth endorses you or any of your services or products).
In November 2015, the former IGT delivered a paper at the International Conference on Taxpayer Rights held in Washington DC.
Revenue authorities are, by necessity, in the very unique position of being monopoly service providers to the community. Moreover, taxpayers do not benefit directly from the taxes that these authorities collect from them. The benefit is indirect and takes the form of provision of infrastructure and services such as healthcare and education.
There is also a perception of an information imbalance in that revenue authorities have or are able to collect a great deal about taxpayers who often feel there is a lack of transparency in the way the collected information is processed and used in compliance activities.
It is clear that there is a fundamental asymmetry in the relationship between revenue authorities and the taxpayer community that if left unchecked, can lead to public dissatisfaction, erosion of confidence in the tax system, decreasing levels of voluntary compliance and ultimately loss of revenue.
Given the unique position of revenue authorities, the above asymmetry can only be addressed through effective governance and scrutineering functions. Effective scrutineering functions have to be appropriately structured and resourced otherwise they cannot fulfil public expectations of holding to account large and well-resourced revenue authorities.
The ultimate ‘owner’ of the tax system is the community and parliament may be viewed as its board of directors. Parliament, often through its committees, seeks to hold the revenue authority accountable for the administration of the tax system. This is very valuable, however, it has limitations in terms of the capacity to deeply analyse and question the revenue authority.
Reviews of tax administration require the examination of significant amounts of information, including case files, correspondence and internal communications as well as meeting with relevant officers of the revenue authority. The parliamentary review processes are not designed for that level of scrutiny and are often reliant upon information provided by the revenue authority which may not always present the whole story or be perceived to suffer from a degree of inherent bias.
Taxpayers are also frequently reluctant or unwilling to raise their concerns with aspects of tax administration directly with the revenue authority or parliamentary committees. There appears to be a fear of retribution against taxpayers who publicly criticise the conduct or approaches of the revenue authorities.
Therefore, to effectively scrutinise the administration of the tax system by revenue authorities, the work of parliamentary committees needs to be augmented by other activities. These activities may be conducted by a taxpayer advocate group within the revenue authority (such as the National Taxpayer Advocate in the USA), as part of a broader scrutineering function of other government agencies (for example, ombudsman or national audit office type agencies), by a dedicated and specialised tax scrutineer agency (such as the Inspector-General of Taxation (IGT) in Australia), or by any combination of such agencies. This presentation explores the evolution and current structure of the tax scrutineering function in Australia.
Pursuant to the Inspector-General of Taxation Act 2003 (IGT Act), the IGT was established as an independent statutory officeholder to review systemic tax administration matters and make recommendations for improvement. These recommendations must be publicly reported and may be made to Government in relation to policy matters or to the Australian Taxation Office (ATO) on administrative issues.
Until recently, the investigation of single taxpayer complaints was the responsibility of the Commonwealth Ombudsman who handles complaints about federal government agencies more generally.
In the 2014 Federal Budget, the Government announced its decision to transfer the tax complaint handling function from the Commonwealth Ombudsman to the IGT. The Budget announcement further expanded the IGT’s scrutineering function to include the Tax Practitioners Board (TPB), an independent statutory agency responsible for the registration and regulation of tax practitioners in accordance with the Tax Agent Services Act 2009.
The above Government decision took effect from 1 May 2015 and was aimed at enhancing “the systematic review role of the Inspector-General of Taxation and provide taxpayers with more specialised and focused complaint handling for tax matters.” The Government decision was well received by stakeholders and welcomed by the IGT. The IGT had publicly advocated the creation of a single port-of-call for concerns with tax administration matters for some time to improve outcomes for taxpayers and the system more generally.
It should be noted that the Australian National Audit Office remains responsible for financial statement and performance audits of the ATO.
Notwithstanding the significant expansion of the IGT’s role over the past year, the overall aim of the IGT remains to “improve the administration of taxation laws for the benefit of all taxpayers, tax practitioners and other entities.”
The effectiveness of the IGT as a scrutineer stems from the actual and perceived independence of the office. The office of IGT is an independent Government agency which is wholly separate from both the ATO and the TPB. This is bolstered by its extensive and comprehensive systemic review reports which are well-respected and have been influential in shaping the Australian tax administration landscape.
The structural separation of the IGT, its proven track record as well as its specialised focus and expertise has led to a high degree of trust and confidence from private sector stakeholders. There is, therefore, a greater willingness for them to candidly raise issues of concern and assist the IGT in improving tax administration.
The IGT recognises that the present structure of the Australian tax scrutineering function differs from that in some other countries, such as the United States (US), where the National Taxpayer Advocate is within the Internal Revenue Service and provides reports to Congress. The differences in this structure reflect the respective socio-political environment of the two countries. For example, members of the US Executive Branch are not part of the Legislature whereas in Australia, the Executive are members of the House of Representatives or the Senate in the Westminster tradition.
The role of the IGT has been likened to a ‘safety valve’ which provides transparency, accountability, confidence and integrity. In this respect, its role fosters trust and voluntary compliance by allowing issues to be ventilated and discussed by relevant decision makers so that concerns or issues may be appropriately addressed.
Effective scrutineering functions have to be appropriately resourced to hold to account large and well-resourced revenue authorities. It is instructive to note that concerns regarding the funding of relevant scrutineering functions as they relate to the ATO were previously considered by the Treasury in its Australia Future Tax System Review.
To ensure that both streams, i.e. single complaints and systemic issues, are effectively resourced, the IGT was allocated additional funding, as part of the 2014-15 Budget Measures, to recruit additional specialist staff and implement a new Information and Communication Technology platform.
Further discussion on the two main streams of the IGT’s function is set out below.
The transfer of the complaint handling function into the office of the IGT this year has enhanced the overall tax scrutineering capability and has facilitated a more co-ordinated approach, minimising duplication and overall costs. The benefits of the complaint handling and systemic review functions being consolidated within the IGT may be summarised as follows:
As stated earlier, the IGT complaint handling function commenced on 1 May of this year. In the first six months of operations ending on 31 October 2015, we have received approximately 1,200 complaints of which 1,076 have been processed and finalised with the remainder in progress. Of the finalised cases, the vast majority were closed within 14 days with the remainder taking longer because of complexity of the issues or lengthy case histories.
Complaints may be received by the IGT through a number of channels. These include a smartform on our website, a dedicated telephone line, by mail, facsimile or through referrals from other government agencies including the ATO or the TPB themselves. On occasions, individuals may also make complaints to parliamentarians whom we have encouraged to direct such complainants to the IGT office.
In dealing with complaints, the IGT, firstly, distils the key issues from the information provided by the complainant. The IGT then engages with the relevant ATO officers to further narrow the issues and engages with both parties to seek resolution. Whilst resolution is not possible in every case, we seek to ensure that every complainant is afforded procedural fairness in the handling of their matter.
Although, the IGT cannot direct the Commissioner of Taxation (Commissioner) to take any particular action in respect of a taxpayer, the engagement of the IGT with complainants and the ATO has been beneficial in identifying key issues and options for resolution. It is early days but the effectiveness of such a strategy is evident in the high numbers of case closures, the short timeframes within which these are achieved and substantial positive feedback already received.
We have been recruiting and training specialist staff to achieve an effective and efficient complaint handling service which enhances the taxpayers’ experience. Further fine-tuning of our internal system and processes as well as interactions with the ATO and TPB are being sought.
Once the complaint handling service is operating at optimal levels, we will be closer to realising our goal of gaining real-time insight into emerging issues and moving quickly to address problems before they escalate into major causes of taxpayer discontent. This could mean that in future, we may undertake more targeted reviews in an expedited manner to address particular areas where significant complaints have been received. We will also continue to consult with the community and conduct broader systemic reviews as required.
As set out above, since its inception, the IGT has been conducting reviews into systemic tax administration issues covering a broad range of topics that are relevant to all taxpayers from the very large businesses to micro businesses and individuals. The IGT has completed 42 reviews to date with another two recently commencing.
Generally, the IGT undertakes a review on his own motion based on stakeholder feedback and complaints received. Moreover, the Minister may request or direct the IGT to undertake a systemic review on particular areas or issues. Requests may also be made by the Commissioner, the TPB, by resolution of either or both Houses of Parliament or by resolution of a Committee of either or both Houses of Parliament.
In conducting systemic reviews, the IGT has been effectively engaging with the community by inviting submission and consulting with taxpayers, tax professionals and their representative bodies. Input from these stakeholders has been continually increasing as they become aware of the confidential nature of their dealing with the IGT as well as the fact that their issues are being heard and actioned through collaborative and robust engagement with the ATO.
The IGT review reports generally start by setting out the current status and stakeholder concerns. There are also comparisons made with the work and practices of revenue authorities in other jurisdictions as well as further independent research drawing on submissions made to the review. This naturally leads to recommendations for improvements which may be made to the ATO or the Government.
Neither the ATO nor the Government are compelled to accept IGT recommendations. However, the IGT review reports are made publicly available and include the ATO’s response to each recommendation. It is noteworthy that the vast majority of the IGT’s recommendations to the ATO have been accepted and implemented. Even where recommendations are not initially accepted, experience has shown that they may be subsequently taken on board and implemented. The Government has also implemented a number of the IGT’s key recommendations.
The IGT maintains an active working relationship with the ATO and the Treasury on tax administration and related policy issues. Protocols are in place to guide interactions between the three agencies.
Furthermore, the IGT has strong powers of access to ATO information and personnel. The IGT may compel parties to provide any document and give evidence necessary for a review. This ensures that matters can be rigorously pursued and resolved.
The IGT may release his own reports. Only reports with policy recommendation for Government are required to be provided to the Minister for consideration. The Minister must ensure such IGT review reports are publicly released within 25 Parliamentary sitting days.
Whilst, in the current year, a high degree of focus and resources have been directed to ensuring a seamless transition of complaint handling, the IGT has continued his work on systemic reviews. Two announced reviews have been completed, a review at the request of the House of Representatives Standing Committee on Tax and Revenue was also completed and, as noted above, two new reviews have been recently launched.
The IGT has undertaken reviews to examine a range of issues including the ATO’s compliance approach to large businesses, small to medium enterprises (SMEs) and individual taxpayers. We have also examined key areas of tax administration including, improvements to the self-assessment system, the ATO’s use of risk assessment tools and the ATO’s use of alternative dispute resolution (ADR). The latter review provided a framework for the ATO’s cultural shift towards greater taxpayer engagement to resolve disputes earlier and in a less costly manner.
Set out below are brief summaries of more recently completed IGT reviews. The full text of all published IGT reviews is available on the IGT website at www.igt.gov.au. The IGT also maintains a Twitter account (www.twitter.com/insp_gen_tax) through which the IGT announces new and upcoming work and reviews.
The tax disputes review arose from a request from the House of Representatives Standing Committee on Tax and Revenue (the Committee) to whom an Inquiry into Tax Disputes (the Inquiry) had been referred by the Acting Assistant Treasurer. The IGT was asked to focus on the large business and high wealth individual (HWI) themes of the Inquiry. One of the major issues to be considered by the Inquiry was whether a separate agency or a separate appeals area within the ATO should manage disputes or whether current arrangements should continue.
The tax disputes review drew on previous IGT reviews, submissions to the review and additional research and analysis including comparisons with the revenue authorities of the US, Canada, the United Kingdom, New Zealand and Ireland.
The review found that the underlying cause of many concerns raised in submissions appeared to be a lack of separation between the ATO’s original decision makers and those officers who reviewed such decisions at the request of taxpayers. This had given rise to a lack, or perceived lack, of independence, leading taxpayers to believe that their cases were not reconsidered afresh and that they had been denied a fair hearing until reaching the Administrative Appeals Tribunal (AAT) or the Federal Court of Australia. Such views were supported by ATO statistics — for example during 2013–14, 85 per cent of taxpayer disputes were resolved without hearing once they reached the AAT.
Following earlier IGT reviews, the ATO had embarked on a programme of work to improve its compliance and dispute resolution approaches, particularly in relation to large businesses and HWIs. However, there was still a need for further improvements that could be sustainable and result in a more efficient, effective and transparent process being available to all taxpayers, particularly individuals and small businesses. Such improvements would also provide taxpayers with more confidence that they would be treated fairly and equitably.
The IGT’s recommendation in this review was to create a separate and dedicated Appeals Group, led by a new Second Commissioner, to embed the improvements within the ATO structure and provide a framework that would be less dependent on the views and ideals of the ATO leadership of the day. The new Appeals Group would manage and resolve tax disputes for all taxpayers including the conduct of pre-assessment reviews, objections and litigation, as well as championing the use of ADR throughout the dispute cycle. The separation from both the ATO’s compliance and legal advisory functions would also facilitate a fresh and impartial review of the taxpayer’s case by empowering officers of the new area to resolve disputes through the most appropriate means, taking into consideration the individual circumstances of the taxpayer, their case and assessment of the ATO’s precedential view. Additionally, the new area would ensure that settlements were appropriately scrutinised and in the best interests of the community.
In making the recommendation, the IGT sought to achieve the highest level of independence whilst retaining the dispute management function within the ATO. In this regard, the need for the Appeals Group to be headed by a new Second Commissioner was paramount, as such roles are statutorily appointed and their tenure and remuneration is pre-determined by the Government and the Remuneration Tribunal respectively and not the head of the relevant agency. Such an arrangement accords with comparable overseas jurisdictions and the views of the International Monetary Fund.
It is pleasing to see that the ATO has taken some steps towards implementing the recommendation by transferring all objection and dispute work from its compliance function to its legal advisory function. The creation of the Appeals Group as recommended in this review will require legislative change.
The Debt Collection review was prompted by concerns raised by individuals, small businesses, tax and insolvency practitioners as well as their representative bodies. Broadly, these concerns related to the ATO’s ability to recover tax debts effectively whilst ensuring that its actions were proportionate to circumstances of the affected taxpayers. The continual growth in collectable tax debt over the last decade to more than $20 billion in 2013-14 and its potential impact on government services were also important considerations in undertaking this review.
During the review, the ATO acknowledged that its previous approach to debt collection could be improved as it involved a linear process for debt recovery which generally relied upon a series of escalated actions. Prior to the commencement of this review, the ATO had begun developing a programme of work to explore alternatives and improve its recovery action.
Given that the ATO’s new programme of work would take some time to be fully implemented and bear fruit, the IGT made a number of recommendations as interim measures. One of these measures proposed a focus on the main debt holdings which are owed by individuals and micro businesses. These two taxpayer segments account for approximately 60 per cent ($12.3 billion) of total collectable tax debt. Related recommendations were also made to identify underlying causes of cash flow and payment difficulties for these taxpayers and to develop preventative strategies. Another interim measure proposed that the ATO take more frequent and proportionate debt recovery action to minimise the necessity to take firmer action at a later time.
The ATO’s new overarching strategic focus is to design actions that reduce overall debt holdings by using taxpayer behavioural analysis to prevent debts arising and, where they do arise, taking the most effective recovery action at the most appropriate time. This was consistent with recommendations made in previous IGT reviews where the use of behavioural analysis was a common theme. The IGT continues to endorse such an approach.
The IGT also identified a need to ensure ATO officers have the appropriate level of expertise and experience to handle taxpayer cases and fulfil procedural requirements. The ATO has a framework for officer decision authorisations and also provides training and support for various aspects of debt recovery. The decisions of officers, who are considered ‘proficient’, are not scrutinised in the majority of low risk debt cases. Given the sustained and substantial level of individual taxpayer complaints, the IGT considered that there is a need for greater top-down supervision and recommendations were made accordingly.
Overall, the IGT made 19 recommendations to 16 of which the ATO has agreed, agreed in principle or agreed in part. The ATO has disagreed with 2 recommendations and considered that 1 recommendation was a matter for Government. One of the disagreed recommendations required the ATO to merge its Debt Business Line into the Compliance Group although the ATO has indicated it would consider such a merger as part of its broader cultural and structural change.
There is a high degree of taxpayer reliance on the services provided by tax practitioners in Australia. They assist approximately 70 per cent of individual and 90 per cent of business taxpayers to comply with their tax obligations. Tax practitioners are also an invaluable source of knowledge and practical experience which may be drawn upon to develop more effective and efficient tax laws and administrative practice. Accordingly, maintaining a positive relationship between the ATO and tax practitioners is critical to the functioning of the self assessment system.
The review into the ATO’s services and support for tax practitioners was undertaken in response to concerns raised by the latter and their representative bodies in relation to access and adequacy of ATO support and services and the resulting strained relationship between tax practitioners and the ATO.
A key underlying cause of the strain on the ATO-tax practitioner relationship has been the reliability and functionality of the ATO Portals — gateways through which tax practitioners can use a range of ATO services. The ATO Portals have been described as an indispensable tool of trade and ‘the most useful tools that the ATO has ever provided’. However, in recent years, their unreliability has been a major source of tax practitioner concern and frustration as they believe it has resulted in productivity loss, missed deadlines, irrecoverable costs as well as damage to their reputation and relationship with their clients.
The ATO has acknowledged the concerns with the ATO Portals and believes that it will address the majority of tax practitioner concerns in the long term by migrating to a ‘more functional software platform and flexible online system.’ However, such a migration causes further uneasiness for tax practitioners because of their previous experience with the ATO’s deployment of new technology. In this regard, the IGT took comfort from the ATO’s approach to maintaining the current ATO Portals and operating them in parallel with the new system.
At the closing stages of this review, the ATO advised that it estimated the migration to occur within the next two years. During this time, the ATO would not seek to implement key improvements sought by tax practitioners to the current ATO Portals but will limit enhancements to maintenance and stability assurance. Therefore, it is likely that some of the tax practitioner concerns and frustration may persist in the short term.
Another source of concern for tax practitioners has been the accuracy of ATO information and ATO communications which they believe has, in some instances, generated unnecessary follow up work and costs for them. The IGT recommended improved communication by user-testing standardised correspondence to ensure that the tone and content are effective in generating the intended behavioural response and minimising unnecessary contact.
Tax practitioners had also raised concerns with the delays and quality of support provided on the ATO’s website and telephone services. In this regard, the IGT recommended improved ATO telephone services by maintaining shorter wait times, having technically proficient staff to answer calls, simplifying the proof of identity processes and improving the ATO’s website by taking into account tax practitioners’ needs.
Overall the IGT made eight recommendations, with which the ATO has agreed fully or partially.
This review was prompted by concerns, from taxpayers, tax professionals and their representative bodies, with the unnecessary costs and protracted timeframes involved in the ATO transfer pricing compliance activities, lack of ATO communication on important issues, inadequate public advice and guidance and ineffective use of consultative forums. The key underlying theme was insufficient ATO capability to deal with transfer pricing matters.
Internationally, there were also government and community concerns regarding risks to revenue arising from transfer pricing, base erosion and profit shifting as evidenced in the OECD and G20 forums. This was also an important consideration in undertaking this review.
The review found that key causes of the concerns were inadequate succession planning and resource management. Experienced specialist officers had left the ATO’s transfer pricing area and their knowledge was not effectively disseminated across the organisation. Another significant cause was the complex interactions between the ATO’s internal functions and a lack of clarity with respect to the decision-making process.
A suite of recommendations were made to develop sufficient organisational capability to address transfer pricing risks, including giving priority to measures that target the highest risks to tax revenue. A number of recommendations were also made to optimise the use of current ATO resources while further capability was being developed. In this regard, the ATO agreed to match the scope and scale of transfer pricing compliance activities with the available specialist capability. In addition, it also agreed to limit the use of wide-ranging enquiries to identify emerging risks and give priority to project-based compliance activities that target the highest revenue risks.
In addition to responding to ATO enquiries, taxpayers’ transfer pricing tax obligations, such as documenting the evidence for arm’s length pricing outcomes, impose substantial costs. These costs have a regressive effect, particularly for SMEs. As a result, the ATO agreed to a number of recommendations which are aimed at reducing the compliance burden for SME taxpayers including the increased use of safe harbours for lower value and more common transactions.
The review also focused on the administration of the Advanced Pricing Arrangement (APA) programme which provides opportunities to reduce overall compliance costs by reaching a common understanding of views through a cooperative process. The IGT observed that the use of APAs for more complex arrangements was critical to maintaining taxpayer and broader perceptions of the utility of the programme and therefore identified a need for greater ATO transparency on the reasons for ‘audit-like’ approaches in APA processes and the circumstances which would justify a transition to an audit. It was also noted that such APAs are expected to provide valuable intelligence on emerging business practices and issues. In this respect, the ATO agreed to promote the use of the APA programme, provide the criteria for the withdrawal from APA negotiations and improve communications with taxpayers on issues of concern. However, the ATO has not agreed to certain suggested improvements with respect to APAs including better resourcing and a ‘stage and gate’ process.
Overall, there are 18 recommendations, 17 of which the ATO has agreed with in whole, part or principle.
Concerns with the ATO’s administration of penalties had been persistently raised with my office over a number of years. In some previous reviews, particularly the self-assessment review, the IGT made recommendations in this regard. However, due to the level of concern and its ongoing nature, the penalties review was undertaken to more broadly examine the issues being raised.
The report found that approximately 25 per cent of total penalties raised were later reduced due to unsustained penalty decisions. Accordingly, the IGT made recommendations for the ATO to improve its penalty decision-making capability (through such means as further development of officers), the clarity and practicality of guidance material as well as its processes for identifying, collecting and analysing penalty information. In relation to taxpayer perceptions that penalties may be used as leverage to influence primary tax disputes, the IGT made a number of other recommendations including only requiring taxpayers to pay penalties after primary tax disputes have been settled and that discussions on potential penalties be delayed until after position papers have been issued.
The IGT also encouraged the Government to consider reviewing the penalty regime to promote greater voluntary compliance, and in particular to address issues such as a lack of sufficient differentiation between a range of taxpayer behaviours and the inability of taxpayers to be compensated for time-value of money paid for unsustained penalties. As a result, the Government announced its intention to consider these issues once the Tax White Paper process has been finalised.
As mentioned earlier, the IGT recently launched two new reviews, namely the review of the ATO’s employer obligations compliance activities and the review into the Taxpayers’ Charter and taxpayer protections. The latter review is of particular relevance to this conference and will examine the adequacy of existing taxpayer rights including compensation to taxpayers where they have suffered loss or damage caused by ATO actions. The full text of the terms of reference for this review is reproduced in the Appendix.
December 2015
I am pleased to present this report, on the status of taxpayer rights in Australia, which was undertaken at the request of the International Bureau of Fiscal Documentation (IBFD).
The protection of taxpayer rights is fundamental to maintaining taxpayer trust and confidence, which is in turn essential for effective tax administration, particularly in the context of a self-assessment system.
The structure of this report is aligned with the summary of taxpayer protections published in Cahiers de droit fiscal international Vol 100b – The practical protection of taxpayers fundamental rights. Accordingly, this report describes taxpayer rights and protections across a broad range of interactions between taxpayers and the Australian revenue authority, the Australian Taxation Office (ATO).
I would like to offer my thanks to the ATO and to Helen Symon QC for their contributions to this report.
December 2015
[SIGNED]
Ali Noroozi
Inspector-General of Taxation
The Australian Taxation Office (ATO) issues unique tax file numbers (TFNs) to taxpayers upon application. Safeguards have been established in ATO procedures to verify the identity of the applicant before the TFN is issued including proof of identity requirements such as presenting passports and birth certificates.
In addition to safeguards, there are legislative sanctions where TFNs are requested or used for an unauthorised purpose. It is an offence under the tax laws for any person to require or record a TFN unless they are authorised to do so. Such authorised use includes third parties who are required to withhold taxes on behalf of taxpayers.
The Privacy Act 1988 (Privacy Act) also regulates the use of TFNs and provides oversight and compliance powers to the Office of the Australian Information Commissioner (OAIC) regarding how the ATO manages TFN information in its use of data matching compliance activities. The OAIC powers include investigating complaints into breaches of privacy and confidentiality.
Although the OAIC is separate from the ATO, it was announced that from 1 January 2015, the various functions of the OAIC, including those under the Privacy Act and the Freedom of Information Act 1982 (FOI Act) would be subsumed into existing government departments. However, at the time of the writing of this report, the OAIC continues to operate in respect of its privacy and freedom of information (FOI) functions, albeit in a scaled back manner.
Business entities may apply for an Australian Business Number (ABN) which appears on the Australian Business Register (ABR). The ATO is the custodian of the ABR. ABNs act as an identifier for businesses and are used for taxation and other business purposes. ABNs are publicly available to determine the eligibility of businesses for collecting and remitting the Goods and Services Tax (GST) to the ATO.
The ATO’s system of taxpayer identification does not expressly take into account religious sensitivities. However, Australian law provides for the freedom of religious expression and a complaints mechanism to investigate any Government action which may be inconsistent with such rights.
It is an offence for a third party to record or disclose protected information. Taxpayer confidentiality is discussed in greater detail in section 3.
Where tax is required to be withheld by a third party on behalf of a taxpayer,the third party is required to provide payment summaries to the taxpayer and to the ATO detailing income earned and tax withheld. This allows taxpayers to claim tax credits equal to the amount of tax withheld on their behalf when they lodge their tax returns.
Where the third party fails to pay the tax withheld to the ATO, provided that the taxpayer and the ATO have been given consistent information regarding the amount of the tax credit, the taxpayer will not be held liable for the withheld amounts. Where amounts are withheld and reported but not paid to the ATO, the ATO will collect the withholding amounts from the withholder through its debt collection activities. An administrative penalty will not arise, however, an interest charge will apply. Where the withholder is a company, the ATO is empowered to make the director of the company personally liable for some withholding debts.
Failure by the withholder to withhold tax on behalf of the taxpayer does not protect the taxpayer from the liability of paying that tax. In order to deter such behaviour, the withholder may be subject to penalties equal to the amount of tax which should have been withheld. Failure to withhold may also make the third party liable for a criminal offence.
The Privacy Act sets out the Australian Privacy Principles (APPs) that provide rights of access to, and correction of, personal information held by agencies such as the ATO. Taxpayer access to personal information under the APPs may be limited where a refusal to provide such information is authorised by the FOI Act or by another Act, such as the Tax Administration Act 1953 (TAA 1953).
The ATO is providing taxpayers with increased electronic access to their records as part of the whole-of-government digital transformation agenda. Such electronic access is provided through “myGov”, a single entry point enabling taxpayers to access online services and receive information from various government departments, including the ATO. Online access to tax records is provided primarily for income tax but there is also some limited scope for taxpayers to access information and services relating to their GST and superannuation affairs.
Access to ATO services is managed through an opt-in link from the myGov account. The services provided include the online lodgement of income tax returns through “myTax”. Access to ATO services from myGov requires a separate identification procedure. The security protocols surrounding electronic communications are managed through the myGov platform and must comply with the Federal Government’s requirements for electronic communications security.
As part of the increased direct electronic interactions with taxpayers, the ATO assists taxpayers in the electronic lodgement of their income tax returns by using pre-filled information. This information has been matched to taxpayers from third party sources such as employers and financial institutions. The pre-filled return is presented to the taxpayer for confirmation prior to lodgement. Deductions may be inputted directly online by taxpayers. They are also able to request assistance from the ATO to correct any errors in pre-filled information.
The ATO also uses third party information to undertake data matching audits of lodged tax returns. Where the ATO proposes to adjust taxpayers’ returns on the basis of such information, the ATO practice is to provide taxpayers with an opportunity to address any inaccuracy before the ATO finalises its decision. For certain data matching activities, the ATO has instituted manual intervention processes to verify any data before it is used.
The FOI Act provides a general right of access to records held by government agencies, such as the ATO. This also provides taxpayers with access to records about themselves provided they are able to show proof of record ownership. In the event that the information is inaccurate or contains errors, taxpayers may request corrections.
Some records are exempt from access, for example, where there is a risk to national security or public safety, information has been obtained in confidence or documents pertain to commercially sensitive information.
It should also be noted that in limited circumstances third parties may be able to access ATO information.
The ATO has released guidance which sets out the rights of taxpayers to access information under the FOI laws and how they may make such information requests. The ATO is required to maintain an FOI disclosure log which lists information that has been released in response to a FOI request, subject to some exceptions.
The ATO’s general design of its compliance approach is to match the intensity of assurance and verification activities with taxpayers’ transparency, complexity of their affairs and their compliance behaviours and attitudes. For example, those who provide all relevant information to the ATO and are considered to be willing to comply are less likely to be subjected to intensive compliance processes. To assist in determining the level of risk posed, the ATO uses a risk differentiation framework (RDF). The RDF is discussed further in section 4.
The ATO presently engages in a number of different compliance approaches which may be classified as ‘cooperative compliance’. Such approaches include, for example, Annual Compliance Arrangements (ACAs) where an ATO officer is appointed as an ongoing relationship contact with the taxpayer throughout the year to review and provide input on proposed transactions and indicate the potential tax treatment.
Other examples of cooperative compliance approaches include activities such as Advance Pricing Arrangements (APAs) to determine the treatment of specific transfer pricing transactions.
The Inspector-General of Taxation (IGT) (a scrutineer of the ATO, described in more detail in section 12) has encouraged the use of APAs as a flexible and cheaper process for taxpayers to obtain certainty. The ATO has recently undertaken an extensive review of the APA program and the process has been modified to increase the emphasis on the cooperative nature of the arrangement.
Large businesses, which have a major role in the Australian economy and have not entered into an ACA with the ATO, may be engaged in a pre-lodgment compliance review (PCR) for their income tax affairs. PCRs may take place anytime between the commencement of the tax period under review up to the time of lodgement. The intent is to assure the correct tax outcomes are reached by identifying and managing material tax risks through early, tailored and transparent engagement. The ATO uses the PCR discussions and outcomes to analyse the lodged return and address outstanding issues as necessary.
It is noted that the above mentioned compliance approaches tend to be available only to the largest taxpayers due to the complexity of their arrangements, risk consequences and associated cost. More broadly, the ATO seeks to foster “voluntary compliance” which aspires for a cooperative relationship with taxpayers with compliance action being taken in proportion with the previously mentioned level of risk.
The ATO’s move towards online lodgement and communication necessitates a corresponding move away from paper publications. However, the IGT has recommended that the ATO should continue to support taxpayers who are unable to lodge electronically and provide these taxpayers with certainty while minimising additional compliance costs.
The ATO has services available to taxpayers who genuinely experience difficulty or are unable to interact electronically. This includes providing specific online links, paper based forms or, on rare occasions, print-outs of relevant website materials on behalf of those who do not have electronic access.
The ATO also provides other services, for example the “Tax Help” program where volunteers from the community offer assistance in lodging returns free of charge to eligible low income taxpayers. The ATO also provides specific support to indigenous taxpayers, including a specific phone service.
The ATO continues to foster engagement with taxpayers on a more informal basis in line with previous recommendations by the IGT.
To build confidence with taxpayers, the ATO has committed to consultation and early engagement. For example, allowing privately owned and wealthy groups to engage with the ATO to obtain certainty about a transaction or arrangement and the previously discussed PCRs available to larger businesses.
As mentioned earlier, the ATO’s data matching compliance activities have given rise to certain concerns that the adjustment of tax assessments may be premature. The IGT has recommended that the clarity of communication with taxpayers may be improved by actively contacting taxpayers to verify details before an adjustment is processed.
As previously discussed, the ATO is moving increasingly towards electronic communication and lodgement of tax returns in line with the whole-of-government’s digital transformation. Income tax returns lodged through the ATO’s electronic platforms of myTax or its predecessor are usually processed within 12 business days, whereas paper based returns may take up to 56 days.
Furthermore, the use of electronic lodgement combined with pre-filled information allows taxpayers to quickly and easily identify potential errors in this information and correct them prior to lodgement.
The ATO also uses information obtained from third parties to undertake pre-assessment checks of lodged returns to determine the likely accuracy of electronically lodged returns and address any discrepancy prior to the return being finalised. These risk based checks can give rise to extended delays in some instances.
The taxation legislation does not provide for an explicit guarantee of confidentiality. However, severe sanctions can be imposed for breaches of confidentiality and secrecy. Under Division 355 of Schedule 1 of the TAA 1953, it is an offence for a current or former taxation officer to disclose protected information and that officer is liable for up to 2 years of imprisonment. The division also sets out explicit exceptions to these offences, such as allowing the disclosure of such information in the course of carrying out the officers’ duties.
Although the TAA 1953 does not include a specific offence for taxation officers concealing unauthorised disclosure of protected information, criminal liability is generally extended to persons who are complicit by way of aiding, abetting, counselling or procuring the commission of an offence.
It is also an offence for a person to access information or records in the possession of the Commissioner of Taxation unless they are providing administrative access to taxpayers of their own records, acting under the FOI Act, in accordance with court or tribunal rules or in the course of exercising powers or performing functions under or in relation to a taxation law.
The ATO recognises unauthorised access to taxpayer records is a significant risk. Access to ATO systems is monitored through its internal fraud prevention and control procedures. This includes generation of “exceptions reports”, where unauthorised access is suspected or identified, and seeking clarification from relevant business areas or officers regarding the nature and need for the access.
ATO officers are required to only access information on a “need-to-know” basis. All taxation officer access to confidential information requires a security clearance, including police and criminal history checks. Access to information which is of higher levels of sensitivity or protection requires higher levels of clearance from the Australian Government Security Vetting Agency.
All new taxation officers are also required to complete fraud and ethics awareness training which emphasises confidentiality and appropriate access to information. These training modules are required to be refreshed periodically.
Internally, the ATO’s Fraud Prevention and Control unit may investigate allegations of inappropriate access and breach of confidentiality. As previously discussed, disclosure of protected information by a taxation officer is an offence and carries severe penalties. These investigations can be referred for prosecution where appropriate. In the Commissioner of Taxation’s Annual Report 2014–15, the ATO reported that 257 new allegations of fraud, serious misconduct and other activity were investigated in that period. Of these, 27 cases were substantiated in investigation.
Prosecution of these offences does not provide taxpayers with a direct remedy for breaches of confidentiality. However, where a breach of privacy is suspected, taxpayers may approach the Privacy Commissioner to make a complaint. The Privacy Commissioner is empowered to consider and resolve privacy complaints which may include a determination for compensation to be payable where appropriate. The ATO may also proactively advise the Privacy Commissioner in appropriate circumstances but there is no mandatory reporting requirement of all breaches.
Under the tax law secrecy provisions, disclosure may be made to specific entities or for specific purposes if it falls under an exception. Such exemptions include circumstances where the relevant information would otherwise be publicly available or it is for government and law enforcement purposes.
In accordance with the provisions discussed above, the ATO does not generally publish or discuss confidential taxpayer information. This includes “naming and shaming” deterrence strategies. However, under tax transparency laws, the ATO is required to make public tax return information for corporate entities with income in excess of $100m other than certain Australian private corporate entities, including the information about income and tax payable. These disclosures are made by operation of legislation and do not require judicial authorisation.
Similarly, the ATO does not disclose taxpayer information for political purposes under general secrecy requirements. Where public commentary is critical of the ATO which it considers to be untrue and undermines public confidence in taxation administration, the ATO has responded publicly during Parliamentary hearings to correct the record. Evidence given at Parliamentary hearings is privileged.
In addition to providing a taxpayer with access to their own records, as noted before, the FOI Act may also provide access to third parties to records held by the ATO. However, these avenues are limited to where the information does not fall under a public interest conditional exemption. In determining whether private, personal or business information is released to a third party, the party to whom the information relates must be afforded the opportunity to make submissions about whether or not it is in the public interest to release the information to the third party.
Under current arrangements, the OAIC may conduct merit reviews of decisions made under the FOI Act. Once proposed changes, mentioned earlier, have been fully implemented, these reviews will be conducted by the Commonwealth Ombudsman. The investigation of allegations of non-compliance has moved to the Commonwealth Ombudsman, as an initial step. Taxpayers also have the right to external review of such decisions with the Administrative Appeals Tribunal (AAT).
The ATO may provide tax advice to taxpayers, upon their request, in the form of private rulings. Private rulings are binding on the ATO with respect to the requesting taxpayer only, even when the advice is incorrect. The ATO publishes private rulings on its Register of Private Binding Rulings (PBR Register), however, the ATO anonymises such advice prior to publication. The ATO also provides and publishes public rulings which are generally binding on the ATO. They do not disclose any identifying details about specific taxpayers, as these rulings apply to a class of taxpayers or certain tax arrangements.
External to the ATO, the courts are forums of public record in Australia and, accordingly, tax judgments are generally issued without removing the taxpayers’ details. However, in some circumstances taxpayers may request that hearings be conducted in the judge’s chambers or to have the court closed during the hearing so that members of the media/public are unable to observe the proceedings.
In the AAT, taxpayers may ask their case to be reported anonymously. In these cases, decisions are issued without identifying the taxpayer.
At common law,
legal professional privilege (LPP) protects confidential discussions between legal practitioners and their clients. In relation to tax advice, general LPP principles may apply to communications between taxpayers and their legal advisors to the extent that the dominant purpose of those communications is to obtain legal advice or for the purposes of actual or anticipated litigation.
LPP does not extend to communications with all tax advisors. However, as an administrative concession, the ATO accepts that certain documents between taxpayers and their professional accounting advisors should, aside from exceptional circumstances, be treated as confidential. Generally, claims for confidentiality under this “accountants’ concession” will be observed by the ATO.
For corporate taxpayers, a further administrative concession may be available for advice provided to the corporate board which considers tax compliance risks and their impact. This concession is intended to encourage full and frank discussions of tax risks by the boards.
The ATO will generally observe LPP or administrative concessions claimed by taxpayers when exercising its formal information gathering powers in accessing documents or when entering a taxpayer’s premises. The ATO has also published guidance to this effect. The ATO’s information gathering powers are discussed further in section 4. The IGT has observed that there is potential for ATO auditors of large taxpayers to receive greater technical and specialist guidance around the application of privilege and administrative concessions, in particular in the use of formal information gathering powers.
The ATO takes a risk-based approach in identifying and focusing its compliance activities. Compliance risks can be generally categorised into obligations of registration, lodgement, payment and reporting. Under the ATO’s Compliance Model, taxpayers’ attitude towards compliance and the factors which influence their behaviour guides the ATO’s approach to them. To make the best use of its resources, the ATO applies more intense compliance activity to higher risk arrangements and to higher risk taxpayers. The main risk assessment tool that the ATO uses for this purpose is the RDF which assesses the likelihood and consequence of the risk posed by either the entity or transaction.
In a 2013 report, the IGT reported that, at the time, the RDF did not provide for substantial differentiation between behavioural and inherent risk factors. For example, a taxpayer may face higher levels of compliance activity due to the nature of the industry in which they operate rather than specific behaviours of that taxpayer. However, it was recognised that the RDF was a relatively new tool which would be subject to continual improvement and refinement. Refinement of the RDF has continued with the ATO’s recent focus on a more detailed consideration of consequence and providing a differentiated client experience depending on the likelihood ratings of the taxpayers involved.
Before an audit is initiated, the scope of the audit is generally determined through the case selection and risk identification processes. Thereafter, the scope of the audit may only be extended with the approval of the team leader and any change should be communicated to the taxpayer.
Facts and evidence is gathered in all cases and templates are used to assist decision making. For more complex cases, a facts and evidence worksheet is used to assist auditors formulate and develop technical positions and to document their decision making process. The IGT has supported the increased use of this worksheet to facilitate a stronger understanding of issues, assist in narrowing the scope of information requests and thereby reduce the compliance burden on the taxpayer.
Generally, a taxpayer who has been reviewed or audited for a given period may be subject to subsequent audits for different issues within the same reporting period. The ATO may decide to revisit the same issue for the same period in rare circumstances such as where new material or evidence warrants the audit to be conducted again.
The ATO generally observes the right of taxpayers to be heard during compliance activities as a matter of good and fair decision-making. This may occur in a number of ways, such as:
Following recommendations from the IGT, the ATO has further committed to making greater use of informal information sharing early in compliance activities to enable taxpayers and their representatives to understand the nature of the ATO’s concerns and to address any issues with the information relied on by the ATO.
Whilst it is not a specific right for taxpayers to remain silent during audit activities, to avoid incriminating themselves, taxpayers may choose not to engage with the ATO. However, in such circumstances, the ATO may progress the audit and make adjustments to the taxpayer’s returns based on third party or other information. An example of this is the ATO’s use of industry benchmarks as such a basis in relation to small business taxpayers operating in the cash economy who may be underreporting their income.
Importantly, the ATO has broad formal information gathering powers. These powers may be exercised to gather information from taxpayers or third parties for the administration or operation of a tax law. Failure to comply with a notice under these powers carries the possibility of criminal prosecution.
However, the use of these powers is not unlimited. As previously discussed, the ATO observes the confidentiality afforded by LPP and administrative concessions.
From 1 July 2015, the ATO’s information gathering powers have been consolidated into Division 353 of Schedule 1 of the TAA 1953. General guidance on the ATO’s approach to information gathering is set out in the ATO publication entitled Our approach to information gathering.
The ATO has published internal audit manuals for its officers. However, there is no universal manual to guide audit processes, with tailored guidance existing across different business lines to cater for the various taxpayer segments.
The ATO has also published a booklet which addresses what taxpayers can expect when they are subjected to an audit. For example, the booklet informs taxpayers that they have the opportunity to give the ATO their views on any relevant issues, such as proposed adjustments, and that the ATO should clearly communicate its understanding of the facts as soon as practicable.
Audits are generally commenced with the issue of an audit letter which sets out areas of inquiry, contact details of the audit officer or team and the relevant team leaders. An audit plan may also be attached to provide more detailed information regarding the proposed audit. In certain circumstances, the ATO may initiate an audit covertly without notifying the taxpayer, which is discussed further in section 5.
Taxpayers are not able to initiate audits to obtain certainty. However, in 2015, the ATO piloted a program for some taxpayers with simple affairs to be issued a “certainty letter”. For these taxpayers, the ATO was satisfied that future audit or review will not be required, provided there is no indication of fraud or evasion. These taxpayers will still need to maintain their tax records in accordance with existing document retention requirements.
Where the ATO requests or receives information from third parties, taxpayers are generally not made aware of such requests unless the ATO uses it in its compliance activities. The nature and source of certain information may not be provided due to legitimate requests by the provider for confidentiality such as in case of a whistle-blower, whose identity should be protected, or where disclosure of the provider’s identity may otherwise jeopardise his or her safety.
Where the ATO seeks to make use of third party information in compliance activities, generally, principles of natural justice require the ATO to inform the taxpayer of the nature of the information, provide access to that information and allow them an opportunity to verify its accuracy. Examples include the ATO’s use of third party data to pre-fill tax returns or other data matching compliance activities. Although notification of data matching may not be provided to each affected taxpayer, the ATO publishes protocols for each of its data matching programs pursuant to the Guidelines on Data Matching in Australian Government Administration.
As mentioned earlier, at the outset of an audit, the taxpayer is provided with a commencement letter which sets out an audit plan with the expected timeframe for completion. The ATO has stated that, in the case of large business taxpayers, audits will generally be concluded within two years. Generally, audit timeframes vary depending on the complexity of the case and the approach taken. These can range from 40 days for a streamlined review of a transaction to 540 days for a large complex audit.
The use of cycle times is used by ATO management to monitor the timeliness of reviews and audits across various taxpayer market segments. The IGT has observed that aspirational cycle times may impact on the decision-making and behaviours involved in conducting an audit. In order to ensure that unnecessary compliance burdens on taxpayers are minimised, the IGT has commented that for audits of small and medium enterprises, the effectiveness of cycle times should be routinely monitored and, when appropriate, extensions of the cycle time of the audit may be allowed with appropriate communication to the taxpayer.
Taxpayers may engage the assistance of tax agents, solicitors, barristers or other experts in managing the audit and dealing with the ATO. Australia has one of the highest rates of tax agent usage amongst Organisation for Economic Co-operation and Development (OECD) countries with approximately 70 per cent of individual taxpayers and 90 per cent of small businesses using their services when engaging with the ATO. The cost of utilising tax agent services for the lodgement of income tax returns and related professional service is a deductible expense.
Upon completion of the audit, the ATO will generally issue a finalisation letter to the taxpayer which sets out the ATO’s position, the reasons for its decision(s) and details of any proposed adjustments. The finalisation letter should be issued to the taxpayer regardless of whether or not adjustments are proposed or made.
In some audits, the ATO issues a draft decision or position paper to provide taxpayers with the opportunity to comment prior to the position being finalised.
Consistent with the Compliance Model described earlier, the ATO pays particular attention to tax avoidance schemes and conducts compliance activities accordingly. The ATO also investigates the promotion of tax exploitation schemes under a civil penalty regime as well as investigating tax crime.
Where the ATO suspects there may be a risk of dissipation of assets which would frustrate audit outcomes, the ATO may undertake audits covertly, without notice or communication with the taxpayer. Such audits typically rely upon third party information and the taxpayer is only notified after the audit decision has been made. It is open for the taxpayer to challenge the audit decision in objection or through appeal processes.
The ATO also conducts compliance activities covertly in conjunction with other government agencies to target serious non-compliance, phoenix activity and organised crime.
As previously discussed, taxpayers may choose not to engage in audit or other compliance activities, however, they risk adjustments being made on the basis of other information and the imposition of potentially higher penalties. Where formal information gathering powers are used, non-compliance may result in criminal prosecution.
The ATO has strong statutory information gathering powers for the purpose of audits. The exercise of these powers is an administrative decision and does not require judicial authorisation. This includes the ATO’s use of these powers to access a taxpayer’s premises and make copies of documents or obtain information from banks or other third parties. Criminal sanctions may apply where there is non-compliance with the information gathering powers.
The ATO’s information gathering powers allow it to access and copy relevant electronic information. Seizing computers is not permitted unless by consent or where a warrant is executed in relation to possible criminal activity.
The ATO may also access taxpayer premises in conjunction with other government agencies as part of a government task force. For example, “Project Wickenby” was established in 2006 as a cross-agency task force to target international tax evasion and involved a number of agencies including the Australian Transaction Reports and Analysis Centre, the Australian Federal Police as well as the ATO. Such task forces may have expanded powers, through specific legislation. For example, in relation to Project Wickenby, a specific exception was enacted to allow the disclosure of protected information for law enforcement and related purposes.
The ATO may be able to access intercepted communications where a warrant has been obtained. This access is limited to stored or historical communications. In a recent report of the Joint Committee on Law Enforcement, it has been recommended the ATO also be given access to real-time intercepted communications; however, legislative change would be needed to give effect to this recommendation.
The current formal information gathering powers do not impose timeframe restrictions on when the Commissioner may exercise those powers and the extent of the information which may be sought.
The ATO provides for informal and formal avenues of internal review of its decisions. Where the ATO has adjusted a taxpayer’s return as a result of a data matching audit, the taxpayer may dispute the adjustment by contacting the data matching audit area and seeking internal review of the decision. If the reviewing officer is satisfied with the information provided, the adjustment may be reversed in part or in full without requiring a formal review.
Taxpayers with turnover exceeding $250 million may request informal reviews of audit decisions through processes such as “Independent Review”.
The ATO also offers an in-house facilitation service.
This involves a trained facilitator who has had no involvement in the matter previously facilitating a discussion between the ATO and the taxpayer. This may result in resolution of all or part of the dispute. Taxpayers may request these forms of internal review by emailing the relevant areas within the ATO.
Taxpayers may also seek mediation with the ATO with the assistance of an external Alternative Dispute Resolution practitioner. Mediation can be voluntarily initiated at any time.
A taxpayer may formally dispute a decision, such as an amendment resulting from audit or certain penalties, by lodging an objection as legislated in Part IVC of the TAA 1953. Electronic lodgement of objections is limited to businesses and tax practitioners on behalf their taxpayer clients.
Until recently, most objections were considered within the same Compliance business line that undertook the audit, but in a separate business team from the audit team. This gave rise to stakeholder concerns of a lack of independence of such decisions. In July 2013, the ATO separated its objection function for large business taxpayers to a law area completely separate from the accountability of the audit areas. Since 1 July 2015, this separation applies to all objections.
The IGT’s Alternative Dispute Resolution[ and Tax Disputes reviews have contributed to the shaping of the above current practices of the ATO; these include the ATO’s adoption of IGT recommendations to establish the in-house facilitator and independent review functions as well as increase the level of independence between the original decision makers and those managing the objections process.
Where the taxpayer is dissatisfied with the objection decision, or a part thereof, they may seek a merits review of the decision in the AAT or appeal to the Federal Court of Australia.
Appeals from the AAT to the Federal Court are also possible in limited circumstances. In proceedings in the AAT and the Federal Court, the taxpayer has the onus of establishing that the ATO’s assessment was excessive, requiring evidence to substantiate the alternative.
In hearings before the AAT and the Federal Court, the taxpayer has a right to be represented and to have sufficient opportunity to present their case in accordance with principles of natural justice.
In the case of an income tax assessment which has been adjusted by the ATO, the objection must be lodged by the later of:
The period of review applicable to a majority of individuals and small business is 2 years from the date of assessment. There are exceptions to this, such as a 4 year period of review where income from trusts is involved. If a taxpayer wishes to object outside of these timeframes, they may ask the ATO for an extension of time to consider their objection in writing. This can be lodged simultaneously with the objection.
The ATO has provided a service commitment to finalise 70 per cent of objections within 56 calendar days of all required information being lodged.
After lodging an objection, if the Commissioner has not made a decision within 60 days, a taxpayer may give the Commissioner a notice in writing requesting the Commissioner to make a decision. If one is not made within 60 days, the Commissioner is taken to have made a decision to disallow the objection.
To appeal an objection decision in the AAT or the Federal Court, the taxpayer must lodge their application or appeal within 60 days after notice of the decision is served.
The AAT aims to finalise 75 per cent of applications in its Taxation Appeals Division within 12 months of the application being lodged.
The Federal Court aims to improve the determination of tax disputes in a timely manner. Generally, the Court aspires to complete 85% of cases within 18 months of filing. The Federal Court has also released a practice note specific to its tax list to promote a consistent and efficient approach to tax disputes. Measures introduced to expedite tax proceedings include the use of a pro forma questionnaire to better identify areas of disputation as well as imposing timeframes for filing and serving documents.
The Commissioner of Taxation is empowered to pursue debt recovery action whilst an appeal is on foot. However, the ATO has indicated that debt recovery action is generally not pursued in respect of disputed debts unless the ATO forms an opinion that there would be a risk to revenue if recovery action was not commenced. In such instances, the ATO may exercise its discretion to defer recovery if the taxpayer:
Debt recovery action by the ATO is more generally discussed below in section 8.
The AAT is a no-costs jurisdiction and taxpayers are not required to pay the costs even when they are unsuccessful. A lower application fee also applies for certain tax disputes, including disputes involving a tax liability of less than $5,000 or some decisions relating to release of debt on grounds of hardship. Furthermore, some taxpayers can apply for a waiver of the filing fee.
Similarly, the Federal Court has mechanisms which may exempt parties from paying filing fees in certain circumstances. However, unlike the AAT, the unsuccessful party in the Federal Court may be ordered to pay the costs of the other party. The amount of costs which can be awarded must accord with the Court’s rules.
In both forums, the taxpayer would be required to pay the fees associated with any professional advice or representation during proceedings.
The ATO may also provide funding in limited cases for example where it would be in the public interest to obtain judicial clarification in an uncertain area of tax law. In these cases, the taxpayer may apply to the ATO for test case litigation funding or, alternatively, the ATO may offer it directly. Such funding would ordinarily cover the costs of professional representation and may also include agreements by the ATO not to seek any adverse costs orders should the taxpayer be unsuccessful.
Generally, as matters of public record, tax judgments are published in support of principles of open justice. However, the Court is empowered to make orders for the suppression or non-publication of judgments or certain information.
Administrative penalties are imposed on taxpayers to deter non-compliant behaviour in meeting their various tax obligations such as the requirement to register, lodge, report or make prompt payment. The ATO may exercise its discretion to weigh relevant facts and remit penalties where appropriate, in whole or in part. Depending on the type of penalty, the base amount imposed may depend on factors prescribed in legislation such as how late the required document has been lodged or the ATO’s assessment of the taxpayers’ conduct.
Where penalties are applied to shortfall amounts as a result of a false or misleading statement by the taxpayer, the base penalty may be 25, 50 or 75 per cent of the shortfall amount, depending on the level of care or intention attributed to the taxpayer. The base penalty amount may be reduced where the taxpayer has applied the law in accordance with advice or guidance provided by the ATO.
There may be circumstances which increase or decrease the amount of base penalty. An additional 20 per cent to the penalty may apply where:
A taxpayer is not liable to a false or misleading statement penalty where, although they made an error, they took reasonable care. In practice, this decision may be made when the ATO considers remission of a penalty. Taxpayers who make a genuine attempt to report correctly will generally not be penalised.
It is generally expected that the taxpayer would not be penalised twice for the same transgression in respect of the same tax lodgement period. However, similar transgressions which are found to be repeated across different periods may result in an increase of the base penalty by 20 per cent.
The base penalty amount may be decreased where the taxpayer makes a voluntary disclosure, which is discussed below.
In a recent review, the IGT has considered whether the current penalty regime adequately fosters voluntary compliance. In particular, he has recommended consideration be given to further stratification of the penalties regime to ensure that there is sufficient differentiation between types of taxpayer behaviour and consistent treatment of taxpayers in similar circumstances.
The ATO is currently working on a project to explore how it can create a penalty and incentives framework that influences future compliance behaviour. Consideration is being given to possible penalty and interest ideas that will strengthen the quality and fairness of the ATO’s administrative penalty decision making.
Where criminal prosecution for a taxation offence under the TAA 1953 is instituted, any administrative penalty associated to the same course of conduct is no longer payable. Furthermore, the Court is prevented from making a civil penalty if the entity has been convicted of offences constituted by the same conduct.
In cases of fraud, the ATO can either seek to recover the unpaid tax through the assessment process or seek reparation orders in court proceedings.
Typically, voluntary disclosures made by taxpayers in seeking an amended assessment may result in significant reductions to the level of penalties and interest which may be otherwise imposed. Where the taxpayer voluntarily discloses a tax shortfall with sufficient information for the ATO to determine the shortfall amount, the base penalty amount may be reduced by 80 per cent. The penalty may be reduced to nil if the shortfall amount is small.
In certain instances, such as “Project DO IT”, the ATO has adopted a more lenient approach to penalties as an incentive for the voluntary disclosures.
As previously discussed, the base penalty for a false or misleading statement may be increased where the taxpayer becomes aware of a shortfall or a false or misleading statement and does not inform the Commissioner or another entity. Furthermore, where the ATO uses its formal information gathering powers, non-compliance by the taxpayer carries the possibility of significant sanctions.
The IGT has observed that the ATO could better engender taxpayer behavioural change by utilising alternative approaches to penalties.
For example, the ATO may be able to better influence taxpayer behaviour where the deterrent effect of penalties is coupled by educational efforts, carefully tailored persuasive communication or rewards. The ATO has confirmed that it is developing and applying new procedures and approaches to affect behavioural change in taxpayers.
The ATO has shown a willingness to accept payment of debts by instalments through entering into such arrangements with taxpayers where immediate full payment is not possible. However, interest will generally continue to accrue on the amount of debt outstanding notwithstanding the existence of such an arrangement. The IGT has observed that use of payment arrangements may be improved with the increased commercial awareness of staff and refinement of tools to assist in determining the viability and capacity of a taxpayer to fulfil an acceptable payment arrangement.
The Commissioner may agree to defer debt recovery action in some circumstances. Generally, demands for payment will not be deferred unless the taxpayer can demonstrate circumstances which are beyond their control and that they have attempted to mitigate those circumstances. Consideration will also be given to the taxpayer’s capacity to make full payment of debt at a later time and that other ongoing tax liabilities will be duly paid.
While the General Interest Charge (GIC) is imposed by the tax laws, and is regarded as part of a debt owed, the ATO may also consider taxpayer applications to reduce or remit the amount of GIC. The ATO has recognised that, following research into behavioural attitudes of debtors and analytics projects, remission of interest may assist in avoiding a “tipping point” where the imposition of interest makes the debt unmanageable and sanctions cease have an impact in recovering the debt.
The IGT has encouraged this approach to improve taxpayer engagement as part of a strategy to encourage prompt payment of debts. The ATO is, however, mindful that any remission needs to be consistent with the policy intent of the GIC regime and that taxpayers who pay on time do not perceive that those taxpayers who do not pay on time are receiving an unfair financial advantage through the remission of GIC.
The current tax legislation empowers the Commissioner to release individual taxpayers from some debts owing on grounds of “serious financial hardship”.
Whilst serious financial hardship is not defined in legislation, the ATO’s guidance on the issue suggests that such hardship may be demonstrated where taxpayers can show that the provision of food, accommodation, clothing, medical treatment, education and other basic necessities would be affected by the payment of the debt. It should also be noted that establishing serious financial hardship does not necessarily result in relief from the debt. For example, where a taxpayer owes liabilities to other creditors as well, the ATO may not release the debt as doing so would not remove the hardship on the taxpayer.
The IGT has commented that consultation with other government agencies may be beneficial to more accurately identify cases of serious financial hardship and develop appropriate tools for this purpose.
As a final avenue of recourse, taxpayers may also apply directly to the Department of Finance for a waiver of any debts owing to the Commonwealth.
The ATO has the power to seize funds in taxpayer bank accounts or intercept monies owing by third parties to taxpayers through the use of garnishee notices.
A decision to issue such a notice does not require judicial authorisation. In its guidance on the use of garnishee notices, the ATO has indicated that it would not generally issue garnishee notices for the totality of funds held in bank accounts or in circumstances where it is aware that the taxpayer’s sole source of income is from government pensions.
The ATO has also published guidance regarding its use of warrants of execution to seize taxpayer assets in enforcing court judgments for unpaid tax debts. After the ATO has obtained judgment in respect of a tax debt, it may request the court to issue a warrant of seizure to authorise a sheriff or bailiff of the court to seize and, if necessary, auction the property of the debtor taxpayer. The proceeds of the seizure may be used to satisfy the judgement debt owed by the taxpayer to the ATO. However, the ATO’s guidance also indicates that it may be preferable to commence insolvency proceedings in certain cases where other creditors are involved.
The ATO may also seek a freezing order, also known as a “Mareva injunction”, from a court to prevent a taxpayer from accessing and dealing with their money or assets. A freezing order may be sought where there is an unacceptable risk that the taxpayer will dissipate their assets so that the anticipated judgement debts will remain unpaid.
Taxpayers are permitted a certain period of time upon receiving relevant bankruptcy and insolvency notices to engage with the ATO to address the debt, before proceedings for bankruptcy or winding up of companies commences. This is in addition to the powers to defer debt recovery, entering into payment arrangements, provide release or accept a compromised amount.
The ATO does not generally have a policy of avoiding bankruptcy action where it considers that such action may be necessary. However, the IGT has observed that, in its Debt Strategy 2014-18, the ATO has undertaken to reduce outstanding taxes by focusing on the prevention of unresolved debt from arising. This focus departs from previous debt management strategies where steps to collect debt were generally taken after the debt became overdue. This is consistent with the previously mentioned behavioural and attitudinal research undertaken by the ATO to identify areas where earlier engagement can be improved.
The ATO recognises the need to help taxpayers in the event of natural disasters. In these circumstances, affected taxpayers may be provided with more time to meet their lodgement and payment obligations, have penalties or interest waived or have refunds expedited. To better identify taxpayers in need of assistance following a major natural disaster, the ATO circulates alerts and establishes indicators on the accounts of those who may be affected for frontline staff to assist accordingly.
Australia interacts with various foreign revenue agencies to improve tax transparency and combat tax avoidance at the international level. It is party to tax agreements with over 100 jurisdictions, which includes sharing data, intelligence and approaches to compliance. Set out below are descriptions of these interactions. The IGT is presently considering aspects of these interactions, namely information exchange, as part of the review into taxpayer protections.
Australia, through the Department of the Treasury (the Treasury), negotiates double taxation agreements or double tax conventions with foreign jurisdictions for the right to taxation in cross-border economic activity to protect taxpayers from double-taxation of earnings.
These agreements also include provisions for the exchange of taxpayer information between jurisdictions and periodic bulk information exchange, known as automatic exchange of information. Information exchange provisions typically impose similar requirements of confidentiality and secrecy as if the information was obtained domestically. The automatic exchange of information may be made electronically or physically and may be protected by an encryption algorithm.
Double taxation agreements or conventions also provide taxpayers with avenues of dispute resolution by mutual agreement procedures (MAPs), which is discussed further below.
Australia is also party to taxation information exchange agreements (TIEAs) with non-OECD participating partner countries to exchange information for the administration and enforcement of their respective domestic tax laws, both criminal and civil. Information may only be provided when requested by the other jurisdiction. TIEA partners must have legal and administrative frameworks in place to support their commitment to exchange information. The information exchanged must be about a specific taxpayer currently under investigation.
The Multilateral Convention on Mutual Administrative Assistance in Tax Matters (the Convention) is the most recent addition to Australia’s international tax information sharing arrangements. Australia is one of 91 signatories to the Convention. The Convention covers a wide range of assistance between parties, including exchange of information and assistance in recovery and service of documents. The large number of signatories to the Convention has significantly expanded Australia’s ability to exchange information and collect, or assist in the collection of, tax globally.
The Joint International Tax Shelter Information and Collaboration (JITSIC) network focusses specifically on cross border tax avoidance and working together across various collaborative projects and compliance initiatives. JITSIC is open to all OECD Forum on Tax Administration members on a voluntary basis. At the start of 2014, the network had a membership of nine countries. Now, over 30 member jurisdictions have made a commitment to the network to improve exchange of information, cross border collaboration and multilateral actions. The ATO reports that information exchanged between JITSIC revenue authorities is increasing, indicating a greater role for JITSIC in cross-border compliance activity.
As set out above, the ATO’s formal information gathering powers allow it to obtain information from third parties without judicial authorisation. However, these powers may be subject to challenge in the Federal Court. In addition, cross-border information received through the channels discussed above may be accessed without the need for judicial approval.
The use of alleged stolen or illegal information in the conduct of compliance activities and whether assessments rendered using such information is tainted by maladministration has been considered by the Federal Court in two related cases. In those cases, the Court found that the Commissioner was able to rely on the information provided and that the assessments issued were not tainted by maladministration.
All of Australia’s double taxation agreements include a provision which enables taxpayers to seek assistance to initiate a MAP for the resolution of double taxation disputes. The ATO invites taxpayers wishing to take such action to approach it directly.
The MAP process is generally initiated by the presentation of the case by the taxpayer to the competent authority of the taxpayer’s country of residence, who then considers whether the request is accepted and scheduled for action. The second stage concerns the dealings between the two countries, with the country of the original request acting as a ‘defender’ of the claim.
Pursuant to the 2013 G20/OECD Base Erosion and Profit Shifting (BEPS) Action Plan, the OECD recently released the final report on “Action 14 — Making Dispute Resolution Mechanisms More Effective” which discusses a minimum standard and best practice to be adopted in MAPs. The ATO is reviewing and updating internal and external guidance to clearly articulate Australia’s position and reflect global best practice.
Australia generally does not enact tax legislation with retrospective impact, but has done so historically in limited circumstances. For example, in 2010 and 2012 legislation was introduced which affected rights to future income assets held within a number of companies which were part of a consolidated group for tax purposes. The application of these rules had retrospective effect, with different rules applying depending on when an entity joined the consolidated group.
Retrospective legislation may be subject to scrutiny in the Senate and limits may apply to the retrospectivity of some taxation bills. Importantly, Government announcements of intended law change can take many years to be enacted, which can give rise to challenges.
Where intended legislation with retroactive impact has been enacted, the ATO must administer the law as it stands until the new law comes into effect. In its administration of such laws, the ATO’s guidance acknowledges that where taxpayers have relied on private rulings issued under the previous law, it would not seek to disturb those rulings. In this way, the Commissioner would be bound to assess taxpayers’ liabilities in accordance with those rulings.
Discussion of the retrospective or delayed interpretations of tax law by the ATO and protections available to taxpayers in these circumstances is discussed below in section 11.
The Australian Government adopts a consultative approach to improving the development of tax legislation, with the potentially rare exception of those laws directed at addressing the integrity of tax system. It relies on the expertise and experience of private sector practitioners and representative bodies to inform policy development. In addition, the Government has also established the Board of Taxation which comprises private sector tax experts as well as senior executives from the public service to advise on a range of tax policy matters.
A tri-partite approach is taken in law design consisting of the ATO, the Treasury and private sector experts. The IGT has previously supported such an approach and has made recommendations in this regard. The ATO has defined its role in tax law design as to provide advice to the Treasury on the administrative and interpretive aspects of the proposed laws.
Furthermore, the Tax Issues Entry System (TIES) is an initiative managed jointly by the ATO and the Treasury which provides the public the opportunity to participate in the care and maintenance of tax laws. This includes technical or drafting defects in the tax law as well as anomalies which may result in unintended outcomes.
The ATO maintains a database (ATOlaw) that is made available to the public through its website. The database includes tax-related legal materials as well as rulings and other guidance. Private binding rulings are also made available through the ATO website in a redacted form to protect the anonymity of the original taxpayer requesting it.
In addition, publicly available legal materials including case law and legislation are accessible through free online services such as www.austlii.edu.au and www.comlaw.gov.au. The latter is a government service which provides up-to-date versions of enacted legislation and regulations as well as bills, explanatory memoranda and other associated documentation.
Where taxpayers rely on private rulings, they are protected against changes in the law or the ATO’s administration of those laws, as set out above. However, where there is no such ruling and the taxpayer has relied on other forms of guidance or where it is believed that the ATO has acquiesced to the practice, there may be a lower degree of protection. It is possible that taxpayers who adopt a practice in accordance with such guidance may find themselves subject to changes in tax liability, where the ATO subsequently changes its approach. However, in some circumstances there may be protection from penalties and interest where the taxpayer can establish reasonable care was taken. In other circumstances, where the ATO considers that the taxpayer has taken reasonable care and the position adopted constitutes a reasonably arguable position, protections may be available.
In 2010, the IGT examined the impact on taxpayers where the ATO changes or delays its views on significant issues (so-called ‘U-turns’).
Following that review, the ATO issued a practice statement which set out its approach in such circumstances and a process whereby it would determine whether any changed views would be applied prospectively only, in particular by considering whether previous publications and conduct could reasonably provide an alternate interpretation of the law. The IGT undertook a further review in 2014 to reconsider the matter and made further recommendations for the ATO to ensure the practice statement and other guidance materials are consistently followed.
In 1997, the ATO published Taxpayers’ Charter which sets out the level of service that taxpayers can expect from the ATO as well as their obligations. This followed a recommendation of the Joint Committee of Parliamentary Accounts as a means to address concerns of an imbalance of power between taxpayers and the ATO, namely for the ATO to “clearly, concisely, accurately and consistently advise taxpayers of their duties and rights”. The Charter was revised and republished in 2003 and again in 2007.
Whilst the Charter refers to “rights” and “obligations”, it is more accurately described as a set of mutual expectations between the ATO and the taxpayer. The Charter itself is made up of a number of different documents to address different interactions between taxpayers and the ATO, such as that during audits. It predominantly recognises that taxpayers can expect ATO to:
In addition, taxpayers have a range of other statutory and common law rights which may include matters such as privacy, FOI, LPP and natural justice.
At the time of writing this report, the IGT is currently reviewing the Taxpayers’ Charter and the framework of taxpayers’ protections, including taxpayer access to compensation and the protection of taxpayer information in light of developments in cross-border information exchange.
In its administration of taxation and superannuation systems, the ATO is subject to external scrutiny by:
The IGT has been established pursuant to the Inspector-General of Taxation Act 2003 as an independent specialist scrutineer for the tax administration system. It is staffed with experienced taxation specialists and investigates all matters with the aim of achieving procedural fairness and improving the tax system. It is a separate statutory agency, distinct from the ATO, and interacts directly with the responsible Minister. Such structural separation provides for an increased level of independence and public confidence.
Broadly the IGT has two main roles, namely the conduct of systemic reviews into tax administration matters and the handling of complaints about the ATO and the TPB.
Since its inception, the IGT has been conducting reviews into systemic tax administration issues with recommendations for improvements being made to Government in relation to policy matters or to the ATO on administrative issues. Reports of these reviews are made public and they cover a broad range of topics that are relevant to all taxpayers from the very large businesses to micro businesses and individuals. The IGT has completed 42 reviews to date with two currently in progress.
Generally, the IGT undertakes a review on his own motion based on stakeholder feedback and complaints received. Moreover, the Minister may request or direct the IGT to undertake a systemic review on particular areas or issues. Requests may also be made by the Commissioner, the TPB, by resolution of either or both Houses of Parliament or by resolution of a Committee of either or both Houses of Parliament.
In conducting reviews, the IGT invites submissions from the public and interested parties, including taxpayers and industry representative bodies. The IGT is empowered to access the ATO’s internal systems, request information and to interview current and former officers to identify and investigate areas for improvement. Discussions with the ATO and interested stakeholders are also held in the process of formulating recommendations for improvement.
The IGT commenced handling complaints about the ATO and TPB since 1 May 2015. The investigation of single taxpayer complaints was previously the responsibility of the Commonwealth Ombudsman who handles complaints about federal government agencies more generally. The Government decision to transfer this function to the IGT was aimed at enhancing “the systematic review role of the Inspector-General of Taxation and provide taxpayers with more specialised and focused complaint handling for tax matters.”
The IGT is now a single port of call of taxpayer and tax practitioner complaints or concerns.
In dealing with complaints, the IGT, firstly, distils the key issues from the information provided by the complainant. The IGT then engages with the relevant ATO officers to further narrow the issues and engages with both parties to seek resolution. The IGT cannot direct the Commissioner to take any particular action in respect of a taxpayer nor is resolution possible in every case. However, the IGT seeks to ensure that every complainant is afforded procedural fairness in the handling of their matter.
Through the complaint handling service, the IGT expects to gain real-time insight into emerging issues and move quickly to address problems before they escalate into major causes of taxpayer discontent. This may mean that in future, the IGT undertakes more targeted reviews in an expedited manner to address particular areas where significant complaints have been received.
In relation to the scrutiny of the ATO by other government agencies, the Auditor-General, supported by the Australian National Audit Office (ANAO), conducts performance and financial reporting assessment of the ATO, as well as other public sector entities, to identify broad areas to improve public administration. Since 2006, the ANAO has completed 45 reviews with four currently in progress – two directly on the ATO and two cross-agency audits that include the ATO.
The Commonwealth Ombudsman still retains some limited scrutineering function with respect to the ATO. This includes addressing specific areas such as FOI complaints.
As with other public agencies, the ATO is also subject to Parliamentary scrutiny in the form of annual reporting, periodic hearings and other requests for information and assistance. This includes hearings and inquiries from the House of Representatives Standing Committee on Tax and Revenue.
In accordance with principles set out in the Australian Public Service Code of Conduct and Values, all ATO employees are responsible for being alert to potential breaches of taxpayer protections or the Taxpayers’ Charter and to report these where appropriate.
Where taxpayers have made a complaint to the ATO and they disagree with the outcome of that complaint, the complaint may be escalated to a separate ATO Complaint and Escalation Review Unit for an independent review. Although this unit operates in specific locations, it is available to taxpayers nationally.
The scrutineering functions, such as the IGT, whilst operating predominantly from a single location, provide a range of channels which enable taxpayers throughout Australia to access their services.
In addition, the AAT and the Federal Court are Federal forums which also have registries that operate in all Australian states and territories.
predominantly from a single location, provide a range of channels which enable taxpayers throughout Australia to access their services. In addition, the AAT and the Federal Court are Federal forums which also have registries that operate in all Australian states and territories.
On 23 November 2017, the former IGT delivered the closing address to the Future of the Tax Profession Symposium hosted by La Trobe University and Edith Cowan University.
Thank you for the invitation to deliver the closing address of this Symposium. It is a timely gathering and the discussions today have highlighted the importance of the work of all professionals in tax working together to prepare for the changes ahead. As you would be aware, my office is currently undertaking a review into the Future of the Tax Profession. It is being conducted in response to a request from the Commissioner of Taxation as well as concerns raised with my office by tax professionals.
Our review has attracted significant interest with submissions received from a diverse range of stakeholders. What has emerged from the submissions are some very clear themes on areas of change that are likely to affect the manner in which work is undertaken, how taxpayers are choosing to engage with each other and with government and, correspondingly, the services that are demanded of the Australian Taxation Office (ATO) and tax professionals. Broadly, these themes may be summarised under four main headings: technological, social, policy and regulatory. In addition to the submissions, my team is undertaking extensive research and engaging with our international counterparts to identify learnings and best practices that may be usefully adopted in Australia. All of this will aid in formulating our views and informing our discussions with you, the key stakeholders across all of the tax profession, as the review progresses further.
I would like to now share some of those insights with you.
The submissions appeared to show that many stakeholders have accepted and welcomed technological advances, including cloud technologies, automation, artificial intelligence, new payment systems and blockchain, citing improved efficiencies and data access that they bring. However, they have also expressed concerns that more open access to data heightens cybersecurity risks, potential for data breaches and identity theft. They questioned how the ATO, or the government, were guarding against these risks and whether their current strategies were sufficient.
It is clear from submissions that larger tax practices have embraced technology and automation to reduce costs and improve efficiencies. For example, they are already using Robotic Processing Automation (RPA) or artificial intelligence to undertake Goods and Services Tax (GST) and Business Activity Statement (BAS) preparation as well as simple audits and lodgments. They believe that automation has allowed them to deliver services beyond the traditional tax practitioner services at reduced cost and risk.
Larger firms are increasingly finding that they require a more diverse talent pool to deliver new and innovative value added services. There is likely to be a dramatic change in their recruitment strategy from sole reliance on the traditional areas of law, accounting and tax to include disciplines such as science, technology, engineering and mathematics. There may also be a corresponding shift in education and training needs.
Such changes are also being considered by the corporate sector and revenue authorities in other jurisdictions. For example, the CEO of NAB recently announced efficiency measures over the next three years that will involve a reduction in its workforce of 6000 employees coupled with increasing use of automation, a streamlining of technological services and an expansion of its technological capability through recruitment of 2000 employees with these skills. Similarly, our research indicates that the Inland Revenue Department (IRD) of New Zealand, as part of its transformation, expects to reduce its current workforce by 25 to 30 per cent. Moreover, the IRD is also transitioning the capabilities of its workforce to better meet the needs of a future tax administration. Approximately 800 positions (representing 15 per cent of the current IRD workforce) will be substantially different to current roles.
In contrast to the experience of large firms, smaller firms appeared to still be coming to terms with the challenges and opportunities presented by technological advancement. Some felt that their clients would not readily embrace technological self-service channels at the expense of face-to-face interactions whilst others have explored options such as offshoring or merging with other practices to offer a broader range of services. There are clear efficiencies for tax practitioners making use of these opportunities, but there are also risks for both the practitioner and their clients. It is a telling sign that the Tax Practitioners Board (TPB) has, more recently, released a draft practice note for consultation on outsourcing, offshoring and the Code of Conduct. I will talk more on this later when discussing regulation.
Submissions from stakeholders representing smaller practices suggested that the ATO did not appear to be supporting them and was, in fact, using technology to displace them. In this regard, examples they have cited include myTax and the expansion of other ATO self-service products at the expense of maintaining and improving those that supported tax practitioners such as Electronic Lodgement Service (ELS), Practitioner Lodgement Service (PLS) and Tax Agent Portal.
Stakeholders have indicated that if the ATO were to continue developing its own systems and software products for taxpayers, then it needed to establish performance benchmarks, redundancies and failsafes that aligned with those of commercial providers and be held to account where there is a system failure and losses are incurred. They also believed that a tailored compensation scheme is needed to be made available for these types of issues. This is particularly important as stakeholders continue to raise concerns about the stability and risk of outages of ATO platforms and systems which are key parts of the tax system with tax practitioners being reliant on them as well as many taxpayers. It should be noted that the major ATO outages at the end of 2016 and early 2017 were raised in almost all submissions and prominently featured in many.
Some stakeholders have questioned whether the ATO should develop its own software products or outsource such tasks to third party developers. There are arguments to be made for both. As a key community service agency, it is incumbent on the ATO to deliver low cost or free services for citizens. It is also arguable that similar outcomes could be achieved through outsourcing and subsequent subsidising of low cost service options for taxpayers with simple affairs. Those who advocated for outsourcing of software development believed that the ATO should set standards, core system requirements and make more Application Programming Interfaces (APIs) available. In addition, they also believe that the ATO should actively test and certify third party software to provide taxpayers with assurance on their useability and robustness.
In considering the impact of technological advancements more generally, many stakeholders have asserted that while the ATO’s messaging has been for them to consider their business models and processes, there was limited public information on how the ATO had actively considered the impact that these advancements will have on its own operations, the size and mix of its workforce and their education needs.
In our research to date, it has been clear that technological advancements present a host of varying opportunities for tax administrators and how those advancements are utilised would be a matter for each administrator, taking into account the socio-economic and legal environments within which they operate. Some of these strategies that have been brought to our attention include:
Many stakeholders are of the view that the combined effects of an aging tax profession and a generational shift in taxpayers are creating a misalignment between services offered and those that are expected. It is not uncommon for taxpayers to now demand 24/7 instantaneous access to services and personnel across a range of platforms.
Moreover, as taxpayers’ preferences shift away from face-to-face and traditional models of tax advice, some stakeholders queried whether taxpayers were making informed decisions. Even though increasing online platforms are available for this purpose, concerns were raised regarding their validity and robustness in addressing the risk that taxpayers could be lured into a false sense of security where they do not have independent advice and the benefit of a ‘reality check’ with skilled tax professionals. The combined effects of displacement of tax practitioners and the simplified nature of products such as myTax can lead to under- or over-compliance by taxpayers.
Stakeholders have also raised concern that the changing nature of tax work will ultimately diminish the size of the profession. Increased automation and offshoring would reduce the demand for tax practitioners and may present challenges in terms of attracting, retaining and developing the next generation of tax professionals. Some are also concerned as to how the current knowledge and experience of the tax profession will be transferred to future generations and how young professionals will be able to build up sufficient capability and skills.
In more established firms, the changing nature of tax work is already beginning to expose a risk of diminished deep tax expertise. The ATO, who may face similar challenges, may find itself in a difficult position of becoming the primary or the sole source of taxpayer advice. Such a situation, where complex or contentious tax matters go untested, may prove detrimental to the tax system in the long term.
The rapid technological and social changes have presented new work patterns and opportunities. The increasing number of participants in the ‘gig’ or ‘sharing economy’ will require both a policy framework and an administrative strategy to enable all employers to keep pace with these developments. For the ATO in particular, these developments have created some recent challenges as illustrated by the Uber litigation, online cross-border transactions, cryptocurrency and the status of workers on platforms such as Deliveroo.
Stakeholders have also noted that increasing automation depends on greater levels of robust data being made available. In this regard, access to data is a key policy issue that needs to be addressed. Stakeholders have observed that the reporting burden was increasingly being shifted from the individual to third parties and provides an opportunity for tax administrators to make it as easy as possible for individual taxpayers to comply with their tax affairs.
We have learnt some years earlier from our Data Matching Review that data available to the ATO is most robust and useful where it is legislatively mandated. These data sets require certain information and identifiers to be made available to the ATO within specific timeframes. Such data has a high confidence level and requires little validation. However, legislating the increased provision of data will result in higher costs for those required to comply and concerns have been raised that these costs were not sufficiently considered during policy and administrative design processes. A question that must be asked is whether the cost incurred by data reporters is likely to outweigh the benefits to the tax system as a whole through reduced compliance costs and increased revenue collection. Furthermore, consideration should be given to the way in which the administration of increased data provision can support those required to report the data.
At a general level, stakeholders raised concern that the full benefits of automation were unlikely to be realised in Australia for two reasons. Firstly, they believed that the complexity of the current tax system does not lend itself to the same degree of automation implemented in other jurisdictions. For example, they noted that deductions for work-related expenses remained a significant feature of the system and an impediment to automation. The requirement for paper receipts was cited as another example and one that appears to be addressed by other jurisdictions through the implementation of e-invoicing for business-to-business and business-to-government transactions.
Secondly, stakeholders believe that there needs to be a more consistent whole-of-government approach to technology and innovation. They have suggested that a single, overarching and enduring agency tasked with developing a whole-of-government strategy for adoption of new technology and innovation was essential for the benefits to be fully realised.
Australia is unique amongst its international counterparts in the realm of tax practitioner reliance. Over 70 per cent of individuals and more than 90 per cent of business taxpayers rely on a tax practitioner.
The OECD, some years ago, undertook a study into the role of tax intermediaries and the often quoted summary from that report is:
The importance of the role tax advisers play in a tax system can be tested by answering a simple question: would compliance with tax laws improve if tax advisers did not exist? The Study Team found no country where the answer to that question is yes. Across the whole range of taxpayers, taxes and circumstances, the vast majority of tax advisers help their clients to avoid errors and deter them from engaging in unlawful or overly-aggressive activities.
We do not believe that that position has changed and the research from the ATO seems to bear this out, particularly where small businesses are concerned. However, there are significant changes as foreshadowed earlier.
One area of change within the profession itself is the likely increase in the number and types of professionals working in tax. This leads to the greater need to define what constitutes the ‘tax profession’. Varying views were expressed on this issue with some stakeholders advocating a broad definition which would include tax (financial) advisers (TFAs), data analysts, economists, software developers, tax educators as well as the traditional tax and BAS agents, accountants and lawyers including ATO personnel. Some even suggested that sections of the judiciary and other external decision makers, who deal with tax matters, should be included. Other stakeholders have advocated for a narrower, more traditional definition.
Concerns associated with expanding the definition of the tax profession were highlighted by reference to the experience of TFAs whose inclusion in the TPB jurisdiction was questioned by certain stakeholders – including certain TFAs themselves. Other stakeholders commented that TFAs should not have been permitted to give tax advice at all, citing their different education, experience, skills or lack thereof. The combined regulation of these two professions has led stakeholders to question the adequacy of existing education requirements and the need to align them in a consistent manner such that the regulatory obligations are met. These considerations would require close consultation and collaboration with practitioners themselves, the professional bodies and tertiary institutions.
On the issue of education, we were interested to learn that the Inland Revenue Authority of Singapore (IRAS) in collaboration with the Big 4 accounting firms, the Institute of Singapore Charter Accountants and the Singapore Law Society established a Tax Academy to provide training on tax technical issues for tax practitioners. To further support tax practitioners in this regard, the IRAS set up a fund to subsidise the cost of attending this training. We raise this, not to suggest that the current training arrangements in Australia are in any way inadequate, but to highlight that where there are significant changes in training requirements and needs, a corresponding degree of support from the revenue authority is not out of the question.
However, the expanding tax profession requires consideration beyond the need for improved and realigned education standards. It goes to the fundamental reasons for the enactment of the Tax Agent Services Act 2009 and its objective of ensuring that ‘tax agent services are provided to the public in accordance with appropriate standards of professional and ethical conduct.’ If, as we foresee, there will be increasing entrants in the tax profession, new and different ways in which taxpayers may receive ‘tax advice’ and manage their affairs, is it incumbent on the administrator to ensure they know what they are getting or is it simply a case of caveat emptor? It is likely to be a combination of the two. It is not possible for the ATO, the TPB and the Government to regulate every professional that is likely to interact with the tax system – nor is it desirable to do so. However, some degree of expanded oversight is likely necessary whether through a board such as the TPB, the ATO as gatekeepers of the tax system, another agency to be established or the respective professional and industry bodies. One submission suggested that some degree of consolidation and streamlining of regulatory requirements within a single ‘super-regulator’ could be considered.
Having heard today’s speakers and the discussions from the room, I have no doubt that much of what I have said should come as no surprise to any of you. What I would like to leave you with are some of our preliminary thoughts:
As we progress this review into the next year, my team will continue to explore and interrogate the issues above by considering the opportunities and challenges presented to the tax profession, the work of the ATO and its forward planning strategies, the TPB and its current and future approaches to regulation as well as developments overseas. We aim to deliver a report that is balanced and informative, taking into account the views of all professionals working in the tax system, in order to plan for the challenges ahead and implement strategies to reap the benefits of opportunities that are presented. To this end, I would welcome any input that you may have to this review on areas that we should canvass as well as suggestions for improvement that may be implemented to improve the administration of the tax system for all Australians in the future.
On 5 April 2018, the former IGT delivered a plenary presentation to the 13th International Conference on Tax Administration hosted by the University of New South Wales.
There is also no security of income, no insurance for the worker in case of accident, no superannuation, no personal, annual or paid leave of any description. An entrepreneur with specialised, in-demand skills may agree to sell their expertise for a handsome fee. An entrepreneur with less specialised skills can secure a short-term job, a ‘gig’, by selling their labour for less than their competitors. And there is no limit to how low fees can go; no minimum amount a person can be paid to do a job, as long as they agree, because—as far as the platform and customer are concerned—the entrepreneur is not an employee. The worse or more desperate a person’s financial circumstances, the less they might agree to work for.
On 4 October 2018, the former IGT delivered his valedictory speech at an event in Melbourne hosted by Arnold Bloch Leibler.
Thank you for those kind words and for generously hosting this event, Mark. It means a great deal to me. Mark has provided me with sage advice at times and has been an advocate of the office even though he has never required our assistance during my tenure.
It is wonderful to be surrounded by all of you tonight — dear colleagues many of whom have also become close friends. To thank you individually would make this speech even longer than it already is — hopefully, I can do it over drinks afterwards.
There are a few that cannot be here and I would like to acknowledge them, including former Federal Court Justice, the Hon Tony Pagone, and former Second Commissioner, Bruce Quigley. I take this opportunity to also pay tribute to my staff some of whom are here this evening. My EA, Naomi, deserves special mention because she represents the best of the public service — always being of service to others.
I would also like to acknowledge current and former public servants, including those from the Australian Taxation Office (ATO), who are here tonight. Much has been said about the tension between my office and the ATO but the truth is we work together cooperatively and agree far more often than we disagree. This is evidenced by the many positive initiatives that have been implemented as well as the attendance of former and current ATO officers this evening.
Of course, I am not saying that there is no tension between the ATO and the IGT. A degree of tension between the scrutineer and the subject of the scrutiny, if professionally managed, is entirely appropriate and is indicative of their independence. As a parliamentarian once said, my job is not to have cosy cups of tea with the Commissioner. Whilst independence is paramount, co-operation is necessary to deliver reform and improvements to the community. It is also important to transparently report our findings but in a way that does not unnecessarily undermine confidence in the system. These are some of the factors that have weighed heavily on me as I have sought to strike the right balance in discharging my duties over the past 10 years.
In an ever-changing world, where the community is losing faith in well-established and previously well-respected institutions, the role of those who scrutinise them, as well as appropriate governance arrangements, has never been more important to regain and maintain trust in our democracy. The Banking Royal Commission and the ABC saga are illustrations of this verity. Let us bear that in mind, as I briefly reflect on my time in office and share some measures that I believe should be considered for the betterment of our tax system.
When I took the reins in 2008, the IGT was becoming established amongst tax professionals as an independent advocate for improvements to the tax system, but in the wake of the 2007 election uncertainty hung over its future. The agency was very young and the concept of a specialist, independent scrutineer was not well-appreciated. Since that time, the IGT has become a mainstay in the tax landscape, both domestically and internationally, and has played a major role in delivering improvements and reshaping the administration of the Australian tax system. The office has grown over four times in size and the role has become that of an ombudsman with respect to tax administration. The most significant legacies that I leave behind are the establishment of an efficient and effective complaints handling function within the IGT, the move to creating a separate appeals area within the ATO and a large volume of high quality reports into many aspects of tax administration.
Comprehensive IGT reviews over the last 10 years have been a major force in prompting significant improvements. During my tenure, we have completed almost 35 reviews canvassing a broad range of issues, including ATO ‘U-turns’, debt collection, tax disputes, rulings, audits, transfer pricing, services and support for tax practitioners, alternative dispute resolution, penalties and taxpayer rights.
Our reviews have also become a source of evidence-based assurance regarding ATO actions. It has sometimes been likened to a ‘safety valve’ as it promotes fairness, assuages concerns and builds confidence in the administration of the tax system — critical factors for the efficient and effective operation of a self-assessment regime. A recent example includes the request from the Senate Economics References Committee for the IGT to investigate the ATO’s fraud control management following public concerns relating to allegations of tax fraud, Operation Elbrus, which may have been linked to abuse of position by a public official.
Although our reviews have been delivering systemic improvements and fulfilling an assurance role effectively, we were unable to address specific taxpayer issues on a real time basis until 1 May 2015 when the Government transferred the tax complaints handling function to the IGT. I had publicly advocated for such a measure since 2011. The IGT’s remit was also broadened to include the administrative actions of the Tax Practitioners Board (TPB).
To date, we have handled almost 8,000 complaints from a range of tax professionals and taxpayers including vulnerable individuals and small businesses. In the 2017–18 financial year, the number of complaints rose by 7 per cent and 12 per cent compared with the prior two financial years. Notwithstanding such increase, we have acknowledged the vast majority of complaints within two business days and finalised them within 15 business days. We have consistently achieved a satisfaction rating of 80 per cent.
The co-location of the complaints handling and review functions in one agency has delivered critical synergies. In the last financial year, insights from complaints data led to two reviews and an own initiative investigation being conducted. Analyses of complaints data have also resulted in the ATO and the TPB agreeing to implement certain improvements without the need to conduct reviews.
There is growing recognition of the importance of the IGT’s role in improving tax administration. For example, in 2016, the House of Representatives Standing Committee on Tax and Revenue asserted that the quality of IGT work had improved ATO operations, generated strong support amongst stakeholders and provided ‘a good return on investment for Australia’ which ‘flows directly to the ATO, and indirectly to Government, the Parliament, and Australian businesses and individuals’.
The structure and powers of the IGT compare well with those in other jurisdictions. However, its resources need to be significantly increased, its independence further enhanced and its profile raised particularly amongst those who need its assistance most.
We are increasingly asked to do more with less and complaints continue to grow each year. We have sought to maintain high service standards by developing innovative solutions and ensuring that our staff are operating at optimal levels. However, we are now at a point where, without further resources, not only do we risk degradation in our service standards but also a diminishing capacity to conduct other important functions such as undertaking systemic reviews.
The IGT is dependent on attracting and maintaining a highly specialist team. Our staff have to be capable and experienced in the administration of tax and superannuation systems as well as possess well-developed people skills given that, on a daily basis, they deal with the rich tapestry that is the Australian public.
It is no secret that the IGT was originally created due to a failure of the systems that were previously in place. Do not underestimate the challenges of seeking to establish an office of this nature from scratch. Building up brand identity, awareness and service support takes time and effort. It has taken 15 years for us to establish and overcome these challenges progressively as part of an evolution. To paraphrase one evolution expert, if you had to evolve all over again and hope for the same outcome, you may not be so lucky.
It is now important to significantly grow the IGT but in a measured way such that its current culture, brand and level of service are not compromised.
Turning to the independence of the IGT, I have consistently asserted that it is paramount to the identity and work of a scrutineer. If a scrutineer lacks or is perceived to lack independence, it becomes ineffective. It loses the trust of the community and those who require its help the most will not use its services. It will not be able to protect the subject of the scrutiny either when unsubstantiated allegations are made against it. In brief, the scrutineer can no longer act as a safety valve and the system may suffer undue pressure with irreparable damage.
I believe the independence of the IGT may be bolstered by making his or her appointment for a non-renewable term of 10 years, as is the case with the Auditor-General, and moving the agency out of the Treasury portfolio and having it report directly to Parliament like the Australian National Audit Office. An inherent conflict exists in having both the IGT and the ATO within the same portfolio.
I also believe that the IGT should be renamed the Taxation Ombudsman to make it more identifiable amongst those who most need assistance in their disputes with the ATO. Whilst the IGT is well-known in the tax profession, awareness of its services needs to be better promoted amongst small businesses and individuals including the most vulnerable. As the Chief Justice of New South Wales, the Hon Tom Bathurst, has recently remarked:
The worth of any society can be found in the extent to which the rights of its citizens are protected regardless of whether they are rich, poor, powerful or vulnerable, and especially when they are subject to disability or disadvantage, and unable to enforce it themselves.
It is pleasing that the vast majority of the IGT’s recommendations have been adopted. Foremost amongst these is the transfer of the tax complaints handling function to the IGT.
Of the few outstanding recommendations, the creation of a separate and dedicated appeals group within the ATO led by a new Second Commissioner is critical. It would be consistent with practices in comparable jurisdictions and views of the International Monetary Fund. I believe that it will inevitably be implemented — the Opposition has already adopted it in its entirety. Hopefully, this will occur with bi-partisan support given that it was also a recommendation of the House of Representatives Standing Committee on Tax and Revenue.
It is acknowledged that the ATO has sought to partially implement this IGT recommendation but it falls short of what is required. The appeals function has been moved from the compliance group to the legal advisory group. One of the issues with this structure is that it gives rise to a conflict. Precedential views are developed and finalised within the legal advisory group and taxpayers, who wish to object to ATO decisions, may have to also challenge an ATO precedential view. The appeals function must be truly separate, and be perceived to be so, from both the compliance and legal advisory functions to facilitate a fresh and impartial review of the taxpayer’s case.
I note that some stakeholders have suggested the need for a separate agency to manage tax disputes particularly for small businesses. There are challenges associated with this option, including increased costs, potential delays and overlap with existing external review bodies, such as the Administrative Appeals Tribunal. I believe this option should only be considered if significant concerns persist after the proposed appeals group has been established and its performance assessed. I would also caution against creating any particular process for only one group of taxpayers. There should be equal access to justice for all.
Another IGT recommendation to bolster the governance arrangements of the ATO, that remains outstanding, is the establishment of a management board. The implementation of this recommendation would align Australia with a number of comparable jurisdictions, such as the United States, Canada and the United Kingdom.
In my view, the Board should be headed by an independent Chair and its membership should include the Commissioner and Second Commissioners as well as private sector experts in such areas as Information Technology, Communications, Human Resources and Finance. In addition to introducing external talent to the ATO, such a board would address concerns regarding too much power being concentrated in one individual, i.e. the Commissioner.
The role of the Board would include the development of the ATO’s overall strategy and performance but would not include the day-to-day operations or access to taxpayer information. Having regard to good governance and independence, the IGT should not be on the Board but he or she should meet with the Board periodically to provide insights drawn from interactions with taxpayers and tax professionals as well as his or her own observations on matters requiring the Board’s attention.
The Board would report to the Government, via the Minister, and would be able to provide a frank assessment of the ATO’s performance in addition to that provided by the Commissioner.
Before I wrap up this evening, I have some final words which I hope will be received in the spirit that they are given.
First, I believe that the ATO should focus on its independent interpretation, application and enforcement of tax and superannuation laws without being distracted by policy or political debate.
Secondly, many have asked me for my views on the ATO’s performance in recent years. I believe that there have been benefits from the shake up that the ATO has received and, could only have received, from a leader brought in from the outside. However, now that the dust has settled, the organisation needs to be steered steadily towards new frontiers.
Thirdly, I have often been asked about the state of the relationship between my office and the ATO. In asking this question, it is assumed that the scrutineer needs to have a good relationship with the subject of the scrutiny, rather than both parties being responsible for fostering a good relationship. I posit that the question need not be asked but, if it must, then it should be directed at the subject of the scrutiny.
Fourthly, while there have been benefits to having private sector expertise injected into the ATO, it is necessary to give due recognition to those who have dedicated their careers to the ATO and regard given to the public service values such as the need to respect taxpayer privacy. ATO officers, who are recruited from the private sector, should be inducted in these values to ensure they are appropriately maintained and applied.
Lastly, this is our tax system and we are all guardians of it. I am proud to leave the IGT in a very strong position. Perhaps, my greatest achievement is the firm establishment of the IGT as a trusted, independent and specialist scrutineer who is integral to the tax system. These accomplishments would not have been possible without the support and confidence of the tax profession and I urge all of you to support my, yet to be named, successor as you have supported me. We must all work to ensure that fairness and transparency prevail in all things and to raise concerns where they do not. We are living in a time when untruths are easily and widely disseminated and where silence is taken to be acquiescence. Sitting on the sidelines is not helpful. Anything that is worthy of maintaining requires constant vigilance from everyone within the tax system.
To finish on a lighter note and to answer the question that has already been asked many times about my future, let me tell you that I am available for weddings, funerals and bar mitzvahs. I am opening myself to all possibilities and considering all options that are being put to me. Whilst I have a plan, I am also allowing the universe to work its magic. To quote a Persian saying, one should say one’s prayers but also tie one’s camel.
Aly Garrett, FCA interviews the Inspector-General of Taxation and Taxation Ombudsman (IGTO), Karen Payne, on behalf of CA ANZ’s Acuity magazine.
The podcast – “Investigative roles of the Inspector-General of Taxation” explores the role the IGTO plays in investigating tax complaints, how you can be audited without knowing you are being audited (the assistance the IGTO can provide to affected taxpayers), and the important role accountants can play as whistleblowers. Aly Garrett, FCA interviews the Inspector-General of Taxation and Taxation Ombudsman (IGTO), Karen Payne, on behalf of CA ANZ’s Acuity magazine.
The podcast – “Investigative roles of the Inspector-General of Taxation” explores the role the IGTO plays in investigating tax complaints, how you can be audited without knowing you are being audited (the assistance the IGTO can provide to affected taxpayers), and the important role accountants can play as whistleblowers.
A transcript of the podcast is available on Acuity’s website.
The IGTO attended a global webinar hosted by the IOI that discussed the way Ombuds institutions around the globe have adapted and responded to the enormous social and economic problems generated by the COVID-19 pandemic. It was also an opportunity for the IGTO to share our experiences with our international counterparts. The Inspector-General of Taxation and Taxation Ombudsman (IGTO), Ms Karen Payne would like to thank the State Comptroller and Ombudsman of Israel and International Ombudsman Institute (IOI) for hosting and sponsoring the 25 November 2020 global webinar for Ombudsmen – COVID-19 and the Ombudsman – Rising to the Challenge of a Pandemic. The Webinar included presentations, lectures and interventions from Ombudsman regions and countries from around the world – to share insights, accounts and lessons about how various Ombudsman and their offices have Risen to the Challenges of the Pandemic. Details of the program and participants are set out below.
The role of Ombudsman institutions is to protect the people against violation of rights, abuse of powers, unfair decisions and maladministration. The core values of the IOI are independence, objectivity and fairness. Importantly, casework provides an evidence base to demonstrate the need for improvement and to drive change. Although many similar COVID-19 pandemic experiences were reported, the various responses to the pandemic, provided some great insights on how Ombudsmen –
The IGTO prepared a short intervention for the Webinar, which was selected for the program and which can be found below.