- case study review into the ATO's handling of living away from home allowances (Report to Minister, 24 January 2007);
- case study review into the ATO's handling of service entity arrangements (Report to Minister, 24 January 2007);
- case study review into the ATO's handling of research and development syndicates (Report to Minister 3 May 2007);
- a review of the potential revenue bias in private binding rulings (commenced August 2005);
- a review of the extent to which the ATO has implemented recommendations from completed reports by my office (commenced June 2006);
- a review into the Tax Office's administration of GST audits (commenced October 2006).
- a review into the underlying causes and the management of objections to Tax Office decisions (commenced January 2007);
- a fourth, summary report on the review of the Tax Office's handling of complex matters arising from the three case study reviews completed during the year (commenced June 2007).
Significant non-review activity
In addition to the reviews undertaken and progressed by my office, during 2006-07 I have been engaged in a range of consultative, taxation and general administrative matters of significance including:
- appearances and giving evidence before the Joint Committee of Public Accounts and Audit (JCPAA) on the 28 July 2006 and 9 November 2006 as part of the committee's review into a range of taxation administration issues;
- appearances and evidence before Senate estimates hearings in November 2006 and May 2007;
- in January 2007 the Hon Peter Dutton MP, Minister for Revenue and Assistant Treasurer, issued a Statement of Expectations to the Inspector-General as part of the implementation of the Government's response to the Review of the Corporate Governments of Statutory Authorities and Office Holders authored by Mr John Uhrig AC (the Uhrig report); the Inspector-General issued his Statement of Intent on 8 March 2007 in response;
- Entering into a protocol between the Inspector-General and the Treasury in March 2007;
- entering into a new protocol between the Inspector-General and the Commissioner of Taxation in May 2007;
- the Inspector-General and his staff have made themselves available to speak and participate in a wide range of functions, including conferences, lunches and dinners throughout Australia. Such opportunities have provided my office with the chance to hear from taxpayers and their representatives at first hand on tax administration issues of concern to them. These have substantially provided input to reviews underway and have also provided scope to consider issues likely to be put on my future work program; and
- an update, released in May 2007, to the Inspector-General's proposed work program.
Proposed work program
Management of issues likely to be considered for my work program involves a sophisticated activity. A database of issues raised with my Office is maintained, regularly monitored and where necessary updated. Matters dealt with on the database include correspondence, emails and other communications with my office, and matters appearing in the national and local press. Issues raised orally with my office are also monitored. These issues could have been raised with me or one of my officers at conferences, meetings or by phone. Prioritisation of all issues is dealt with by relying on the criteria as set out in the IGT Issues Paper Number 2, released in December 2003. Every six months (at least), the Inspector-General and his staff workshop the issues percolating to the top of his potential work program. This includes identifying potential reviews from other full reviews either completed or underway. A short list is prepared of potential review topics. As well, periodical, and at least annually, discussions take place between the Inspector-General and the Commonwealth Auditor-General and the Commonwealth (and Taxation) Ombudsman and their senior staff. The Inspector-General meets with private sector stakeholders at least on a six monthly basis to maintain ongoing dialogue concerning the Inspector-General's work program and to test the likely short list against other competing priorities. Also, under the protocol between the Inspector-General and the Commissioner of Taxation, consultation occurs between the Inspector-General and the Tax Office prior to announcing the annual update to the proposed work program. In recent years the Inspector-General's staff have undertaken considerable scoping of potential work program issues with the Tax Office and in some cases with overseas revenue agencies well prior to announcing the formal terms of reference for particular reviews. Under the Inspector-General of Taxation Act 2003 I have very broad powers in setting my work program. However, from the inception of the role I have always had a very transparent process in setting my forward work program. Proposed reviews announced by the Inspector-General in May 2007 include the following issues:
- Tax Office approaches to settling and finalising issues with taxpayers.
- The extent to which the Tax Office has implemented its commitment to make as much of its guidance material as possible legally binding within its risk management considerations.
- The extent to which the Tax Office has fulfilled its obligation in a self-assessment system to provide adequate and contemporary guidance to taxpayers on matters it has publicly identified as a compliance risk.
- The potential use of guidance such as the service entity booklet to increase certainty in other areas of compliance focus.
- The Tax Office's level of investment in staff that set legal precedents.
- The Tax Office's management of the Higher Education Loan Program (HELP).
- Non-lodgement of income tax returns.
The precise timing of these reviews will be determined in part by when reviews already underway are completed. More detail on these proposed reviews is available on my website.
Press coverage and community feedback
Unlike some other scrutineers of the Tax Office, the success of my role depends in no small part on input from the community which in turn requires community awareness of my existence and role. The media can play a useful part in this process through its on-going interest in taxation matters generally and through its reporting of my activities. The activities of the Inspector-General and his office are regularly reported in the national press and in specialist professional and trade publications. Some of this coverage has made much of apparent conflict between the Inspector-General and the Commissioner of Taxation. In a role where I am charged by a statute to, inter alia, scrutineer the activities of the Tax Office it is not surprising that there will appear at times to be some conflict. Beneath this occasional surface tension however, I believe that Commissioner and I enjoy a satisfactory, professional and cordial relationship. Indeed, the new protocol that we signed together in May 2007 notes that we share a common goal of improving the administration of the tax system for the benefit of the Australian community and that we are committed to establishing an open, honest and professional relationship that is built on mutual respect for each other's role. That does not mean that we will see eye to eye on all issues. Taxpayers and their advisors would not expect that to be the case. Taxpayers and their representatives expect me to take issues of substance that they raise with me to the Tax Office and, in my reviews and reports, to explore them for their potential to reveal possible improvements to tax administration. The Tax Office will not always agree with the substance of the observations put by taxpayers, or with the conclusions reached by my office and ultimately by me in my reports to the Government. Nevertheless, testing the substance of matters raised by the community in the context of my reviews is an important process and one that it is inherent in the functions of the Inspector-General as established by Parliament. The press will report as they see fit. Ultimately, it is the community itself, including taxpayers and their representatives, who will draw their own conclusions on the findings of my reviews and on the sometimes different views of the Commissioner. I am pleased to report that the considerable amount of feedback from stakeholder and community sources, and the press coverage relevant to my role during the year, has been overwhelmingly supportive. Media coverage and speaking engagements also generated a good deal of specific input to my current reviews during 2006-07, particularly my review into GST audits.
Improvements to tax administration
Looking back over the last four years, there is a significant number of improvements to tax administration to which my reviews and other activities have achieved or contributed. At a general level, there are clear signs of the Tax Office being held accountable for its actions. The Commissioner now attends hearings of the JCPAA as a standing commitment (which he readily accepted); and submissions and reports from scrutineers, including my Office, provide input to JCPAA and other Parliamentary Committee lines of inquiry, and to media and community commentary. More specifically, the Commissioner has agreed wholly or in part to the vast majority of recommendations made in my reports to Government as shown in the following table.
Table 1: IGT recommendations accepted by the Commissioner of Taxation
Some of the more significant and specific improvements to tax administration agreed to, as a result of these formal reviews, include:
- fairer penalties and interest remission policies both in the broad and in respect of fairer outcomes for people caught up in compliance activity on certain Employee Benefit Arrangements (EBAs);
- the establishment of a Tax Office panel of senior officers to determine the appropriateness of widely based settlement offers;
- increased Tax Office capability to differentiate approaches between serial defaulters and debtors who seek to comply but need a short-term assistance to do so;
- new Tax Office processes to monitor audit timeframes and ensure that they are not excessive;
- improved communication during audits including commencement and finalisation notifications and progress reports;
- new processes to ensure that interest is not charged on adjustments during periods of Tax Office caused delays;
- significantly reduced amounts of GST refunds held for compliance checking and greater transparency in reporting;
- tax Office acceptance of guidelines on what constitutes good administration when it decides to challenge a court decision;
- promptly published Decision Impact Statements to inform stakeholders of Tax Office intentions following significant court decisions;
- an independent review process for test case applications rejected by the Tax Office;
- improved reporting of test case program operations and outcomes;
- new management arrangements to bring together overall responsibility and authority for managing litigation;
- senior case management arrangements to intervene where matters appear to be taking too long to resolve or are going off the rails;
- clarifying the FBT law on Living Away from Home Allowances and how it applies;
- reconsideration of cases where unfair outcomes may have resulted in certain Research and Development Syndicate cases; and
- a commitment to provide further clarification and practical guidance on the meaning of 'general administrative practice'.
A positive aspect of my Office's interaction with the Tax Office is their apparent readiness to change approaches both during reviews and in anticipation of my reports. Stakeholders also report that more flexible approaches tend to be adopted by the Tax Office when a review by my Office is either foreshadowed or underway. For example, Tax Office senior management have attended most of the interviews conducted by my staff inside the Tax Office in respect of the current review of GST audits. We have also shared information and issues with them progressively to facilitate joint development of recommendations for change. In this review, the Tax Office has clearly taken on board the issues as they surfaced and worked towards improvements as the review progresses. In previous Annual Reports I have noted the Tax Office's willingness to improve communications with taxpayers on particular compliance matters through informal dialogue where a formal review is not necessarily warranted. While the Tax Office tends not to attribute these improvements directly to my actions, the links are nonetheless there.
Public sector stakeholders
The Commonwealth Auditor-General and the Commonwealth (and Taxation) Ombudsman also scrutinise the Tax Office from their perspectives. My office is in regular contact with these agencies. The roles of each agency are different and we have sought to communicate with each other regularly to ensure that there is no unnecessary duplication of the reviews we conduct.
Community and private sector stakeholders
I am pleased to report that community and private sector stakeholders continue to maintain a strong interest in my role and contribute to my work program. I meet with all key private sector stakeholders at least twice a year to consult with them in formulating my ongoing work program. In 2006-07, I have found that establishing specific stakeholder reference groups for some particular reviews has provided valuable insights into taxpayers' direct experiences of Tax Office approaches. While my role is to identify systemic improvements in tax administration, I welcome the opportunity to obtain information from individual taxpayers, tax agents, and community leaders, including parliamentarians. I have also found that the ongoing development of relationships with tax administrators and my equivalents in other countries has enabled an invaluable sharing of experience and comparison of ideas and approaches to both generic issues in tax administration, and as input to particular reviews.
Pursuant to subsection 41(2) of the Inspector-General of Taxation Act 2003 there were no directions to undertake reviews given by the Treasurer or the Minister for Revenue and Assistant Treasurer to the Inspector-General under subsection 8(2) of the Inspector-General of Taxation Act 2003 during the year. In setting my work program, I have taken into account the requirements of subsection 9(2) of the Inspector-General of Taxation Act 2003 and have consulted with the Commonwealth Ombudsman and the Commonwealth Auditor-General.
The Office of the Inspector-General has enjoyed ongoing consistent staff retention during 2006-07. I am pleased to report that one of my senior advisers, Mr Tasos Mihail, was awarded one of 20 Young Leaders' Program scholarships available across 26 countries, with generally one candidate from Australia selected to attend. Tasos will be heading to Japan in October 2007 to undertake a twelve month course conducted by the Japanese National Graduate Institute for Policy Studies. On successful completion of the program Tasos will be conferred with a Master of Public Administration. I am grateful for very competent and loyal staff who are keen to work with me in seeking to improve tax administration for the benefit of all taxpayers in an environment where we have very limited resources at our disposal. My staff and I will continue to bring together an empathy with taxpayers and an understanding of Tax Office operational issues to ensure that significant and workable improvements in tax administration are co-operatively achieved. David Vos AM Inspector-General of Taxation
Role, function, outcome and output structure
The Inspector-General of Taxation Act 2003 established an independent statutory agency to review:
- systems established by the Australian Taxation Office to administer the tax laws; and
- systems established by tax laws in relation to administrative matters.
The Inspector-General seeks to improve the administration of the tax laws for the benefit of all taxpayers. This is to be achieved by identifying systemic issues in the administration of the tax laws and providing independent advice to the government on the administration of the tax laws. To ensure that reviews undertaken reflect areas of key concern to the Australian community, the Inspector-General develops a work program following broad-based consultation with other stakeholders including taxpayers and their representatives, the Commonwealth Ombudsman, the Commonwealth Auditor-General and the Commissioner of Taxation.
Figure 1: Outcome and output structure
Figure 2: Inspector-General of Taxation management structure
Inspector-General of Taxation services
The Inspector-General is an independent adviser to the Government on systemic issues in the administration of the tax laws. All reports by the Inspector-General to the Government are required to be either tabled in both Houses of Parliament or to be made otherwise public by the Government.
The Inspector-General and his Office need a range of skills to deliver to the Government the services required. These include:
- a broad understanding of the tax laws;
- a broad understanding of the business environment;
- investigative and analysis skills to identify and understand systemic issues in tax administration;
- a capacity to conceptualise and analyse systemic issues within the broad tax context;
- relationship skills to develop and maintain excellent relationships with both public sector and private sector stakeholders; and
- writing skills — the ability to present facts, argument and suggested solutions in a cogent form on systemic tax administration issues.
For the Inspector-General to be effective in his role, he and his Office must foster productive working relationships across government, public sector stakeholders (particularly the Commissioner of Taxation and his Office) and private sector stakeholders. Although independent of both the Government and the Commissioner of Taxation, the Inspector-General must have an understanding of overall government policies and the role and activity of the Commissioner of Taxation. The main public sector stakeholders are the Commonwealth Auditor-General, the Commonwealth and Taxation Ombudsman, the Commissioner of Taxation, the Treasury and the Board of Taxation. Private sector stakeholders include those set out in Table 4.
Table 2: Resources for Inspector-General of Taxation outcomes