Review into the Tax Office’s Administration of Penalties and Interest Arising from Active Compliance Activities
Report to the Minister for Revenue and Assistant Treasurer
Inspector-General of Taxation
18 May 2005
© Commonwealth of Australia 2005
ISBN 0 642 74293 6
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17 May 2005
The Hon Mal Brough MP
Minister for Revenue and Assistant Treasurer
Parliament House
CANBERRA ACT 2600
Dear Minster
I am pleased to present to you my report of the Review into the Tax Office’s Administration of Penalties and Interest Arising from Active Compliance Activities. The report has been prepared under section 10 of the Inspector-General of Taxation Act 2003 (‘the Act’).
In accordance with the requirements of section 25 of the Act, I have provided the Commissioner of Taxation with the opportunity to respond to the report’s findings and recommendations. His reply and associated comments on individual recommendations have been incorporated into the report. It will be noted that the Commissioner has agreed with all of my recommendations.
I offer my thanks for the co-operative approach of the Tax Office staff and the support and contribution of many professional bodies, business groups, individuals and government bodies. 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 R Vos AM
Inspector-General of Taxation
Chapter 1: Overview
Initiating the review
1.1 This is the report on the review conducted by the Inspector-General of Taxation (Inspector-General) pursuant to section 10 of the Inspector-General of Taxation Act 2003 (IGT Act) on the consistency of application of penalties and interest to businesses during active compliance activities by the Australian Taxation Office (Tax Office).
1.2 The review was included in the Inspector-General’s 2004-05 work programme on 19 August 2004. On 23 November 2004 the Inspector-General announced terms of reference for the review into aspects of the Tax Office’s business active compliance activities with a particular focus on length of time of audits and whether the application of penalties and interest is consistent.1 The terms of reference for this review are reproduced at Appendix 1 to this report. Details of how the review was conducted are given at Appendix 2.
1.3 The review was conducted pursuant to subsection 8(1) of the IGT Act, being a review conducted on the initiative of the Inspector-General. The decision to undertake the review was prompted by concerns raised with the Inspector-General by industry and tax practitioners.
1.4 During the course of the Inspector-General’s review, the Tax Office provided this office with an internal draft report outlining suggested changes to its systems involved with the administration of penalties. The findings and recommendations of the internal review have yet to be approved and implemented by the Tax Office.
1.5 The assistance and cooperation provided by the Commissioner of Taxation and his officers to the Inspector-General and his team during the course of the review are gratefully acknowledged.
Structure of the report
1.6 Chapter 2 of this report provides a summary of the key findings and recommendations for this review.
1.7 Chapter 3 of this report describes the nature and extent of penalties and interest applied in the active compliance environment. It also briefly discusses previous reviews that have examined the Tax Office’s administration of the penalty and/or interest regimes.
1.8 Chapter 4 examines the Tax Office’s administration of the penalty and interest regimes. It discusses the Tax Office’s management of the penalty and interest regimes, its corporate information systems, its communication strategies with taxpayers and their advisers, its quality assurance processes and work practices. It includes and discusses concerns raised in submissions from taxpayers, tax practitioners and tax practitioner associations. It also lists a number of suggested improvements for the Tax Office’s consideration as part of its internal review into the penalty regime.
1 The Inspector-General’s review into the length of time of audits and other compliance activities is currently in progress.
Next: Chapter 2: Summary of Key Findings and Recommendations