Outcome 1 Improved administration of tax laws for the benefit of all taxpayers

The role of the Inspector-General of Taxation is to improve the administration of the tax laws for the benefit of all taxpayers. This is to be achieved by reviewing both the systems established by the Tax Office to administer the tax laws and the systems established by tax laws in relation to administrative matters. The Inspector-General's two outputs derive from the statutory functions. These outputs involve the identification of systemic issues for inclusion in the work program and the provision of independent advice to government on the administration of the tax laws. The scope of the work program is determined by the Inspector-General. However, the Inspector-General of Taxation Act 2003 also provides that the Minister may direct that a matter be included on the work program, and that the Inspector-General considers requests to conduct reviews from:

  • the Minister (separate from the direction provision);
  • the Commissioner of Taxation;
  • a resolution of either House, or both Houses, of the Parliament; or
  • a resolution of a committee of either House, or both Houses, of the Parliament.

Broad-based community involvement in the identification of issues and the opportunity for all stakeholders to provide submissions ensure that reviews undertaken are relevant and timely for all stakeholders. In view of this, the Inspector-General requires the flexibility to vary review priorities so as to allow emerging and important systemic issues to be addressed in a manner that is timely and relevant to government. The Commissioner of Taxation has statutory independence in his administration of the tax laws. The Inspector-General does not hold any powers to direct the Commissioner of Taxation in the administration of the tax laws. The way in which the Inspector-General's advice to government contributes to the achievement of the outcome of improved administration of tax laws may be difficult to assess. In some instances, the provision of advice to government may lead to legislative change to address an identified systemic issue. However, on other occasions the Commissioner of Taxation may independently address a systemic issue identified by the Inspector-General either during a review, following the release of a review report by the Minister or the publication of an issues paper or work program by the Inspector-General.

Output 1.1.1 Identification of issues for review and prioritisation of work program

The Inspector-General is required to establish his own work program. He must take into account any directions from the government to undertake a particular review. The Inspector-General must also consult with the Commonwealth Auditor-General and the Commonwealth Ombudsman to avoid overlap of work. The Inspector-General has chosen to consult widely with business, accounting, legal and tax organisations in setting his work program. As well, he has published a framework for review selection — refer Issues Paper Number 2 Policy Framework for Review Selection. This framework is currently being considered for review and updating in the light of four years' experience and to incorporate aspects of legal (Australian Government Solicitor) advice on the scope of the Inspector-General's role that was sought in 2005-06.

Performance information

The performance information of Output 1.1.1 is as follows:

  • broad-based community involvement in the identification of systemic issues in the administration of tax laws; and
  • reviews undertaken are relevant and timely for the government and other stakeholders.

Key activities in 2006-07

The Inspector-General of Taxation undertook the following key activities for Outcome 1.1.1:

  • maintained strong links with both public sector stakeholders and private sector stakeholders;
  • developed a work program based on regular consultation and ongoing contact with key business, accounting, legal and tax organisations; and
  • completed three case study reviews and reported to the Government on those reviews.

Key outcomes in 2006-07

Consultation has been completed to assist both in the development of a work program and the conduct of the reviews initiated by the Inspector-General. A schedule of private sector organisations with which regular contact has been made is at Table 4. A significant number of other organisations have also been consulted. During the year, reference groups of interested taxpayers and their representatives have also been established to provide input to specific reviews. Speakers have been provided for key business, tax, accounting and legal conferences, and other opportunities have been taken to meet with taxpayers and their advisers. This has enabled the Inspector-General to share information on the direction of his work program and to obtain input on the issues to be considered in reviews initiated during the 2006-07 year. A list of key speaking engagements is at Table 3.

Table 3: Key speaking engagements

Date Organisation Type of function Location
3 August 2006 Institute of Chartered Accountants Church finance discussion group Sydney
13 September 2006 Baker & McKenzie Twilight Seminar Sydney
25 September 2006 Law & Finance 2nd Annual Corporate Tax Forum Sydney
26 September 2006 Baker & McKenzie Breakfast Seminar Sydney
16 October 2006 Corporate Tax Association GST Big Day and a Half Out 2006 Sydney
10 November 2006 Taxpayers Australia Inc National Conference North Sydney
1 December 2006 Law Council of Australia Lunch Sydney
6 February 2007 Law and Finance Australian Taxation Summit Sydney
28 February 2007 Australian Chamber of Commerce Speech Canberra
2 March 2007 PwC Perth Breakfast Presentation Perth
15 March 2007 PwC Perth Lunch Presentation Perth
16 March 2007 National Institute of Accountants NIA Western Australia State Conference Perth
21 March 2007 PwC Sydney Client Dinner Sydney
23 March 2007 PwC Adelaide Lunch Presentation Adelaide
27 March 2007 IIR 7th Annual Tax Planning Strategies Conference Melbourne
28 March 2007 KPMG Lunch Presentation Melbourne
28 March 2007 PwC Melbourne Client Dinner Melbourne
30 March 2007 Baker & Mackenzie Breakfast Seminar Sydney
12 April 2007 ATAX GST Conference Noosa
16 April 2007 Law School of Sydney Masters of Law-Tax Administration Course Sydney
2 May 2007 KPMG Lunch Presentation Melbourne
11 May 2007 KPMG Lunch Presentation Sydney
17 May 2007 National Institute of Accountants NIA TAS State Congress Strahan
14 June 2007 Law Society of NSW Lunch Presentation Sydney

 

Table 4: Private sector stakeholders

Australian Industry Group
Australian Business Limited
Australian Chamber of Commerce and Industry
Business Council of Australia
Corporate Tax Association
Council of Small Business Organisations of Australia Limited
CPA Australia
Institute (The) of Chartered Accountants in Australia
Law Council of Australia
Law Society of NSW
Law Society of Western Australia
Law Institute of Victoria
National Institute of Accountants
National Tax & Accountants' Association Ltd
Taxation Institute of Australia
Taxpayers Australia

 

Updated work program

In March 2007, the Inspector-General consulted representatives from selected industry, business, accounting, legal practitioner and tax organisations about the prioritisation of his future work program. Participants were given an update on reviews currently underway and nearing completion. Participants also discussed key issues of concern that have been raised with the Inspector-General over the past year. The Commonwealth Auditor-General, the Acting Commonwealth Ombudsman and the Tax Office have also been consulted. On the basis of strong feedback from taxpayers and their representatives, the Inspector-General has updated the issues that he aims to review during 2007-08. His work program for 2007-08 was announced in May and is now as follows (subject to any matters of overriding priority that may arise):

  • 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 www.igt.gov.au.

Reviews completed in 2006-07

During 2006-07, the Inspector-General has completed three case study reviews relevant to stakeholders:

  • 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);

Completed reviews have been relevant in that they focussed on identifying systemic improvements arising from major contemporary, albeit longstanding issues under Tax Office management. All have contemporary relevance to stakeholders including the taxpayers directly involved. They have also been timely in that they have been reported to Government in a timely manner following their completion and following the statutory period for the Taxation Office to provide comment. At the end of 2006-07 the Inspector-General has five reviews underway into issues identified through consultation as relevant to stakeholders. These are reported under Output 1.1.2 below.

Output 1.1.2 Provision of independent advice to the Government on the administration of the tax laws

The Inspector-General undertakes reviews into particular systemic issues in the administration of tax laws in accordance with his work program. The approach and processes associated with the conduct of the review are determined by the Inspector-General, and there are no time constraints. The report, outlining findings resulting from the review, is submitted to the Government after providing the Commissioner of Taxation with the opportunity to make a submission. However, once the Inspector-General has given his report to the Government, the Government must publish the Inspector-General's report, either by tabling in both Houses of the Parliament or otherwise within 25 sitting days of receipt.

Performance information

The performance information of Output 1.1.2 is as follows:

  • reports, undertaken in accordance with required processes, are of a high standard, timely and useful to government; and
  • findings and recommendations achieve improved administration.

Key outcomes in 2006-07

During 2006-07, the Inspector-General has completed three case study reviews and has five reviews underway into issues identified through consultation as relevant to stakeholders:

  • 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 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).

The Commissioner of Taxation has accepted fully or in part most (78 of 89) of the recommendations of reviews published since the inception of the Inspector-General. The outcomes of these reviews, combined with feedback from community stakeholders, provide clear evidence that the role of the Inspector-General is working well and is very effective in improving tax administration for the benefit of all taxpayers. A summary of the more significant improvements to administration stemming from the Inspector-General's activities this year and since inception is included in the Overview to this Annual Report.