Updated work program for 2006
On 20 February 2006, the Inspector-General consulted representatives from selected industry, business, accounting, legal practitioner and tax organisations about the prioritisation of his work program for the 2006 year. Participants were given an update on reviews currently underway and discussed key issues of concern that have been raised with the Inspector-General over the last six months.
As a result of this consultation, the Inspector-General has decided to fine tune his forward work program which was publicly announced on 11 August 2005 by:
- expanding the proposed scope of previously announced review topics into a broad focus on all facets of settlements and finalisation of tax matters by the Tax Office
- re-focussing the proposed review of strategies for late lodged returns into a broad focus on the income tax non-lodgement situation in total
- adding a potential review of Tax Office approaches to GST audits
More detail on the background to these proposed reviews is in the attachment.
Prior to announcing the terms of reference for any review, detailed work is carried out to refine their scope and focus. This will be undertaken when current reviews are nearing completion.
Other potential review topics were discussed during the consultation. The Inspector-General will elevate these topics into his work program as priorities and resources allow. The consultative process in determining the forward work program promotes the spirit in which the office of the Inspector-General continues to operate.
Inspector-General of Taxation
28 February 2006
FOCUS OF POTENTIAL REVIEWS
Tax Office approaches to settling and finalising issues with taxpayers
Recent public debate and representations to the Inspector-General have focussed on a range of aspects of the settlement and finalisation of tax matters, including:
- the Tax Office’s consistency, transparency and conduct regarding settlements with taxpayers, including those negotiations taking place during audits and before amended assessments are issued
- the quality of Tax Office audit and objection resolution procedures and the administrative framework that governs these areas, in the context of potentially unnecessary litigation
- the application of prosecution policies in the context of settling and finalising issues.
More details on what might be the focus of this review follow:
The Inspector-General acknowledges that good tax administration needs a flexible and effective process for settling and finalising tax issues. The settlements aspect of this review could cover areas of potential systemic problems (or public perceptions that problems may exist), including:
- Consistency (or justifiable differences) of Tax Office approaches to settlements across different taxpayer groups and compliance issues. The adequacy of the Tax Office’s Settlement Guidelines, and the existence of an appropriate risk management framework to guide consistent settlement decisions in these different contexts might also be examined.
- Communication with taxpayers of settlement issues. Examples of potentially damaging misunderstandings between taxpayer expectations based on their understanding of “settlement” and the Tax Office’s formal definitions and legal processes have been raised with the Inspector-General. Also, an initial examination of examples of Tax Office communication in this area suggests scope for significant improvements.
- The efficiency of current settlement processes. Examples have been raised of taxpayers having to pay to have their cases listed in the Administrative Appeals Tribunal (AAT), or being required to lodge an objection with the Tax Office in order to create a dispute as a pre-requisite for entering into settlement processes.
Audit and objection resolution procedures
The Tax Office concedes a significant number of disputed assessments after the objection process but before cases are heard in the AAT or Courts. The Tax Office states that this is due to taxpayers receiving better quality advice or providing better factual information when seriously contemplating litigation. The tax profession claims that litigated cases receive the attention of better quality decision makers and unnecessary cases are settled. A related issue is whether a similar proportion of cases which are not listed for litigation (that is, where the taxpayer acquiesces to the Tax Office view) might also have been incorrectly concluded.
This aspect of the review could examine the extent and reasons for the Tax Office conceding cases after the objection process, focussing on the quality of decision making and processes employed in determining taxpayers’ objections. It would determine whether disputes (and their associated costs) could have been prevented had the quality of audit and objection processes been better and whether the broad system and sequence of amended assessment, objection, and dispute resolution could be improved.
Non-lodgement of income tax returns
Information supplied by the Tax Office shows that many millions of non-lodged income tax returns have accumulated over recent years and that large amounts of revenue and refunds may be involved.
Tax agents have expressed the view that Tax Office lodgement strategies are overly dependent upon leveraging the role of tax agents to put pressure on taxpayers to comply. They have also suggested that the Tax Office indirectly contributes to the non-lodgement of income tax (and other returns) by encouraging agents to drop their difficult clients as a way of improving the performance of their practice. They have expressed concern that the Tax Office (or perhaps by extension the legal framework for lodgement, including non-lodgement penalties) provides insufficient direct pressure to support timely lodgement of returns.
Tax agents argue that the Tax Office is not acknowledging the difficulties agents face in low numbers of skilled staff, and the range and volume of tax compliance work.
This review would examine how well Tax Office lodgement strategies are dealing with non-lodgements and explore a potential undue reliance on tax agents. It would also examine the adequacy of support and flexibility that the Tax Office provides to tax agents in this context.