Review of Tax Office’s management of complex issues — Case study on living-away-from-home allowances
A report to the Minister for Revenue and Assistant Treasurer
24 January 2007
© Commonwealth of Australia 2007
ISBN 0 642 74386 X
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Reviewer
Tasos Mihail
24 January 2007
The Hon Peter Dutton MP
Minister for Revenue and Assistant Treasurer
Parliament House
Canberra ACT 2600
Dear Minister
I am pleased to present to you my report on findings and recommendations in respect of the review of the Tax Office’s ability to identify and deal with issues concerning living-away-from-home allowances (LAFHAs). This review was announced as one of the three case studies which I would examine pursuant to my review into the Tax Office’s ability to identify and deal with major, complex issues within reasonable timeframes. This report has been prepared under section 10 of the Inspector-General of Taxation Act 2003.
I have provided the Commissioner of Taxation with the opportunity to respond to the report's findings and recommendations. The Tax Office’s response, including the relevant covering letter, is in Appendix 2 to the report.
The Tax Office has acknowledged that the technical and compliance issues arising in this case study took far too long to resolve. The Tax Office has also agreed with the two recommendations in respect of LAFHAs.
This report also signals possible recommendations for more systemic changes arising from this review. As I foreshadowed some time ago, it is my intention that these broader recommendations will, together with others arising from the Research and Development Syndication and Service Entity case studies, be issued as part of my final and overall report on the Tax Office’s ability to deal with complex issues within reasonable timeframes. This report will be finalised once the two other case studies which form part of this overall review are completed. The Tax Office has agreed to further dialogue on this and other recommendations. This dialogue will be undertaken as part of the process leading up to the finalisation of the fourth report.
I offer my thanks to the Tax Office staff who were of assistance in this particular review, and for the support of the government bodies, professional bodies, business groups and individuals that contributed to this review. The willingness of many to provide their time in preparing submissions and discussing issues with me and my staff is greatly appreciated.
Yours sincerely
David Vos AM
Inspector-General of Taxation
Chapter 1 — Introduction
1.1 This is the report on the review conducted by the Inspector-General of Taxation (the ‘Inspector-General’) into the Tax Office’s ability to identify and deal with major, complex issues within reasonable timeframes in respect to arrangements involving the payment of living-away-from-home allowances to foreign nationals, including working-holiday visitors or ‘backpackers’. This report is pursuant to section 10 of the Inspector-General of Taxation Act 2003 (the ‘IGT Act’).
1.2 On 31 October 2005 the Inspector-General announced terms of reference for this review. The terms of reference followed concerns expressed by tax professionals and certain sectors of the community that the Tax Office takes too long to come to grips with and satisfactorily resolve major, complex issues. They argued that the Tax Office appeared to allow significant periods of time to elapse before an issue is seen to have accumulated enough potential revenue leakage to initiate compliance action. This, they argue, causes significant uncertainty and unnecessary costs.
1.3 The terms of reference were as follows:
- the timeframes to identify and deal with the issue;
- the nature and cause of those timeframes, and if they were reasonable in the circumstances;
- the extent and cause of uncertainty to affected taxpayers, including any initial Tax Office guidance or representations;
- the Tax Office’s approaches to the issue, the reasons for them, and if they were reasonable in the circumstances, including:
- its compliance, legal and resolution approaches, and
- its communications with members of the community; and
- the adverse impacts and costs that the Tax Office’s approaches and timeframes may have had on businesses and other areas of the community.
1.4 The objective of the review was to identify and recommend systemic improvements that would help the Tax Office to manage complex issues better into the future.
1.5 The review was conducted pursuant to subsection 8(1) of the IGT Act, being a review conducted on the initiative of the Inspector-General.
Acknowledgements
1.6 Sincere thanks are extended to the Institute of Chartered Accountants in Australia and the Taxation Institute of Australia who prepared written submissions for this review. The Inspector-General would also like to thank other tax practitioners and lawyers who participated in this review.
1.7 The Inspector-General of Taxation acknowledges the timely cooperation of the Commissioner of Taxation and his staff in this review.
Structure of the report
1.8 Chapter 2 sets out a background summary and provides contextual information relevant to the Tax Office’s role in the administration of the tax system. It also sets out the review conclusions and the Inspector-General’s key recommendations for this review.
1.9 Chapter 3 provides a more detailed discussion of the review findings and conclusions.
1.10 Chapter 4 sets out an agreed detailed chronology of the key events and facts in the Tax Office’s handling of this issue.
1.11 Appendix 1 examines in more detail the legislative and administrative background to this case study.
Next: Chapter 2 - Overview
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