Inspector General of Taxation, Australian Government

Chapter 2: Conduct of review

2.1 This is a report on the IGT's review into aspects of the Australian Taxation Office's settlement of active compliance activities. The report is produced pursuant to section 10 of the Inspector-General of Taxation Act 2003.

2.2 The IGT announced terms of reference for this review on 12 October 2007 following a number of concerns raised by industry, tax practitioners, the public and Parliament. Appendix 1 specifies the concerns brought to the IGT's attention and reproduces a copy of the terms of reference for this review.

2.3 The IGT received 37 submissions from taxpayers and their representatives. The IGT review team also met with interested taxpayers, their representatives, legal practitioners and selected tax professional and lawyers' bodies to understand their experiences and obtain perspectives on the settlement process and its context within the active compliance activity and dispute resolution processes.

2.4 The IGT review team looked at information, systems and processes that related to the Tax Office's settlement of 15,637 active compliance cases over a five-year period (the 2003-04 to 2007-08 income years).

2.5 During the review, the Tax Office also conducted its own review and analysis of the accuracy of its settlement register and supporting processes. Specific outcomes of this Tax Office review are also incorporated in this document as part of the agreed action arising as a result of this review.

2.6 The IGT review team examined settlement cases to obtain an understanding of why active compliance cases ultimately ended in settlement.

2.7 The IGT review team visited the Tax Office's Box Hill, Casselden Place, Moonee Ponds, Northbridge, Waymouth, National and Sydney offices to interview Tax Office staff and access documents that related to 2,773 cases (some cases involved multi-case industry disputes), involving a reduction in aggregate of $3.6 billion from the Tax Office's initial active compliance position to reach agreed liabilities of $1.56 billion in settlement. These cases spanned a range of different types of taxpayer and Tax Office areas, and included:

  • individual and small business taxpayers;
  • mid-sized businesses;
  • large corporate groups;
  • Tax Office business areas (including the large business and international, high-wealth individual, small and medium-sized business, aggressive tax planning, goods and services tax and personal tax areas); and
  • various aspects of income tax and GST.

2.8 The settlement cases examined involved a range of amounts in dispute from over $1 billion of disputed tax, penalties and interest, through to $2000. The IGT examined a range of different types of cases including:

  • some of the largest settlements in the past five years;
  • common industry group issues (for example, Division 7A and margin schemes); and
  • multiple-case active compliance projects (for example, charter boats and retirement villages).

2.9 The IGT review team discussed its analysis of settlement cases and the emerging systemic areas for improvement with a range of Tax Office staff drawn from various areas, including:

  • the initial active compliance activities function;
  • the technical advisers and business line managers; and
  • Tax Office Executive Committee members, (including the Second Commissioner for Law and the Second Commissioner for Compliance).

2.10 The IGT review team summarised the issues that emerged and worked progressively with Tax Office senior management to distil the scope for improvement and to agree on specific actions. The review team also discussed these issues with interested external stakeholders.

2.11 In accordance with section 25 of the IGT Act, the Commissioner of Taxation was provided with an opportunity to give submissions on any implied or actual criticisms contained in this report. The Commissioner's formal response is reproduced in Appendix 3.

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