Outcome 1: Improved tax law administration - taxpayer benefit

The role of the IGT is to improve the administration of the tax laws for the benefit of all taxpayers.

Key strategies to achieve Outcome 1 are:

  • undertake community consultation, research and other processes to identify and prioritise areas of tax administration that can be systemically improved;
  • call for submissions to review and stimulate input by, for example, issuing terms of reference and similar materials;
  • maintain a positive public profile for the IGT through participation in conferences and seminars;
  • build on approaches that increase the ATO's involvement and contribution to review processes and outcomes;
  • selectively engage external expertise and undertake overseas comparisons to enhance capabilities and objectivity for appropriate reviews; and
  • review identified areas and provide independent advice and recommendations to Government on improvements to the administration of the tax laws.

The IGT's two outputs derive from the statutory requirements. These outputs involve the:

  1. identification of systemic issues for inclusion in the work program, and
  2. provision of independent advice to Government on the administration of the tax laws.

The scope of the work program is determined by the IGT. However, the IGT Act also provides that the Minister may direct that a matter be included on the work program, and that the IGT 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.

The Commissioner of Taxation has statutory independence in his administration of the tax laws. The IGT does not hold any powers to direct the Commissioner of Taxation in the administration of the tax laws.

The way in which the IGT's advice to Government contributes to the achievement of the outcome of improved administration of tax laws takes several forms.

First, the provision of advice to Government may be policy in nature and lead to legislative change to address an identified systemic issue.

Second, and more commonly, the Commissioner of Taxation may independently address a systemic issue identified by the IGT in the review issues paper and terms of references or during a review itself, or otherwise following the release of a review report by the Minister.

Third, improved administration of tax laws can also be achieved without formal advice to Government but by direct day-to-day interaction between the IGT and the ATO.

Output 1.1.1:
Issues identification, work program and review action

Issues identification

The IGT is in constant dialogue with the broader tax community. Issues are regularly raised by stakeholders through this dialogue. The IGT then works through these issues and assesses what action is required. Some issues are more appropriately addressed by other government agencies and these are referred on. Issues that are then considered appropriate are placed on the potential work program list - this process is discussed in more detail in the next section.

Work program

The IGT engages with the broad-based tax community to identify and prioritise those issues or topics on the potential work program list that provide significant opportunity to improve the tax system's administration for all taxpayers. This prioritisation process means that the work program as finalised is a smaller sub-set of the potential work program.

Topics on the potential work program list, not included on the final work program, are maintained on the IGT reserve work program list. Topics on the reserve work program list may be elevated onto the active work program, where opportunity and resource availability combine to allow review.

The IGT established a new work program for 2009-10 and beyond through a broad-based community consultation process previously. The work program is reviewed periodically. Work on a new program will commence towards the end of this calendar year. The new work program must be flexible in actioning specific reviews to take account of competing priorities that may arise due to various factors.

Ministerial direction is a factor. The IGT may be directed by the Minister to undertake a review. The Minister has directed the IGT to undertake several reviews, including the Review into delayed or changed ATO views on significant issues (the so called 'U-turns' review) and more recently the Review into the ATO's Change Program.

Government agency review is also a factor. This arises where other agencies announce or consider reviews that may have a degree of overlap with proposed IGT terms of reference. In maximising resource efficiency it may be better to defer reviews to take advantage of other agency outputs or insights. The replacement of the self-managed superannuation fund (SMSF) review with the class rulings review was taken for this reason given the announcement of the terms of the review in the Cooper Review into superannuation systems.

Resourcing is another factor. A review is also very difficult to pin-point as to timing and scope due often to the bespoke nature of each undertaking and the priorities afforded by various parties and the small nature of the IGT office. The IGT actively seeks to mitigate the tension between the need for flexibility and undue delay through regular project management review.

The next step is to action the specific review and thereafter report to the Minister with findings and recommendations thereon. (For details on current IGT reviews and reports please refer to the section 'Review action').

The IGT also consults directly with the Commonwealth Auditor-General and the Commonwealth (and Taxation) Ombudsman in finalising the work program.

2009/2010 work program

The IGT work program for 2009/2010 and beyond (subject to any matters of overriding priority that may arise) was announced as follows on 10 March 2009:

  • Review into the ATO's administration of the Superannuation Guarantee Charge (SGC). Submissions questioned the adequacy of the ATO's efforts to improve employer compliance with their SGC obligations, the consequences for employees and the ATO's timeliness in collecting unpaid SGC.
  • Review into the ATO's practices for finalising large company audits. Stakeholders applauded the ATO's commitment to finalising large company audits within two years. However, a number of concerns were raised particularly in relation to initial delays resulting in truncated processes being adopted towards the end of the two years in order to achieve the targeted timeframe.
  • Review into the ATO's compliance focus on small to medium enterprises (SME). Taxpayers and their advisers cited unmanageable and at times unnecessary costs and workloads caused by the ATO's approach to its current compliance focus on all SMEs in the $100 million to $250 million turnover range.
  • Review into the efficiency of the ATO's compliance and regulatory approaches to Self Managed Super Funds (SMSFs). Discussions with industry representatives indicated that the ATO has made good progress in relation to SMSFs and that relationships are generally good. However, a number of submissions and tax professionals cited the heavy compliance workloads and processes, and opportunities for improved efficiency.
  • Follow-up review into the ATO's implementation of agreed IGT recommendations. This second follow-up review will focus mainly on the ATO's progress with implementing changes agreed in the IGT's six reviews released between April 2007 and October 2008.
  • Review into the implications of any delayed or changed ATO advice on significant issues. At the direction of the Minister and in response to submissions from concerned taxpayers, the IGT's work program included this so-called 'U-turns' review. Taxpayers and tax professionals had cited examples of where they considered that the ATO's views had undergone 'U-turns' on significant interpretative matters or on past practices, especially where they had retrospective application. ATO opinions that came after lengthy periods of having no ATO view, at times inconsistent with policy intent but with retrospective application were also raised as concerns.
  • Review of the private rulings system. Taxpayers and tax practitioners stated in submissions to the IGT that there continues to be problems with the ATO's administration of private rulings including the extent to which the contents of private ruling advices are binding. Taxpayers also expressed concern about the ATO's proposal to withdraw the public register of private rulings. Having conducted its own consultation process including discussions with the IGT, the ATO decided to retain the register, and suggested that the IGT undertake a broad review of the private rulings system. This review was therefore included in the work program both on the IGT's own initiative and in response to a specific request from the Commissioner of Taxation.

Work program 2009/10 amended

The IGT's work program for 2009/10 outlined above was amended.

First, the following review topic was replaced:

  • Review into the efficiency of the ATO's compliance and regulatory approaches to Self Managed Super Funds (SMSFs).

The Government announced a wide ranging review into the governance, efficiency, structure and operation of Australia's superannuation system, known as the 'Cooper Review' in May 2009. Given this wider Government review, the IGT decided not to proceed with a review into SMSFs at this time.

The IGT replaced this SMSF review with a new review topic, being:

  • Review into the ATO's administration of class rulings.

Concerns about class rulings were raised in a number of submissions from the tax community in the context of the IGT's then current review of the ATO's administration of private rulings. The IGT was not able to consider these concerns during that review, as class rulings are not issued as private rulings, but as public rulings. Once that review was completed, the IGT activated the class rulings review due to a range of concerns raised.

Second, following information received from taxpayers, tax practitioners and their representatives that there were delays and errors in relation to processing of income tax return and associated refunds, the Minister directed the IGT to conduct a comprehensive review of the ATO's Change Program, being:

  • Review into the ATO's Change Program.

A staged approach to this review is being undertaken, focusing initially on the impact on taxpayers and tax practitioners as a result of the ATO's deployment in January 2010 of the part of the system that processes income tax returns and refund payments - 'the income tax release'.

Work program - reserve list

The consultation process identified a number of strong topics for review. These were shortlisted for consideration but ultimately not included on the work program. These topics are maintained on the work program reserve list. In several cases the topics were not included due to the same specific factors outlined above regarding work program flexibility. For example, issues relating to ATO governance was addressed by submissions to the Henry Review.

The work program reserve list includes:

  • issues of concern with the ATO's outsourcing of aspects of collecting tax debts;
  • the ATO's administration of income tax refunds;
  • the appropriateness of the ATO's dual role of regulator and tax administrator for charities;
  • ATO governance and appropriate level of independent oversight;
  • the role and capacity of the ATO's Tax Counsel Network (TCN);
  • the ATO's use of its formal information gathering powers;
  • opportunities for efficiencies and cost savings through more flexible use of the Commissioner's substituted accounting period (SAP) discretion;
  • the extent to which the ATO's Change Program will deliver improvements to taxpayer services including taxpayer accounts, assessment notices and objections handling;
  • the potential for proactive use of the Commissioner's general powers of administration to make it easier for taxpayers to meet their obligations; and
  • the reasons why a substantial proportion of penalties raised by the ATO is conceded at objection, settlement or litigation.

The IGT will consider these potential review topics again when work commences on its new work program toward the end of this calendar year. Work program details including updates can be located on the IGT website at: Work Program.

Review action

The IGT publishes terms of reference for a review along with submission guidelines or consultation plans and invites submissions from interested parties. These materials are available on the IGT website www.igt.gov.au.

Reviews in progress

The IGT has four reviews in progress at 30 June. As the reviews are in progress the IGT is not in a position to report details on findings or recommendations at this time. The reviews are listed below.

  • Review into the ATO's large business audit and risk review policies, procedures and practices - commenced 17 November 2009.
  • Review into the ATO's administration of class rulings - commenced 25 March 2010.
  • Review into the ATO's small and medium enterprise (SME) audit and risk review policies, procedures and practices - commenced 7 April 2010.
  • Review into the ATO's Change Program - commenced 5 May 2010.

For more details please refer to the reviews in progress section on the IGT website at Work Program.

Reviews finalised

The IGT finalised five reviews during the reporting period. The five reviews are as follows:

  • Review into delayed or changed Australian Taxation Office views on significant issues - publicly released 17 March 2010.
  • Review into aspects of the Tax Office's settlement of active compliance activities - publicly released 1 December 2009.
  • Review into the non-lodgement of individual income tax returns - publicly released 16 October 2009.
  • Review into the underlying causes and the management of objections to Tax Office decisions - publicly released 11 August 2009.
  • Review into the Tax Office's administration of public binding advice - publicly released 7 August 2009.

On review completion the IGT provides a review report to the Minister for consideration and thereafter public release. Review report recommendations are also subject to follow up review to ensure implementation are effected in the manner agreed with the ATO.

The IGT review reports are performance outputs that are discussed in section 1.1.2.

Performance information

Table 2: Key speaking engagements

Date Organisation Type of function Location
14 August 2009 Taxation Institute of Australia State Convention Bunker Bay, WA
20 August 2009 Law Society of NSW Business Law Committee Meeting Sydney
28 August 2009 University of Sydney, Law School Tax Administration Masters Course Sydney
23 September 2009 Deloitte Tax Breakfast Perspective Sydney
8 October 2009 International CFO Forum Conference Sydney
16 October 2009 HLB Mann Judd Tax Practitioner Conference Torquay, VIC
19 October 2009 NSW Business Chamber Tax and Competitiveness Committee Meeting Sydney
2 February 2010 Tonkin Corporation 7th Annual Corporate Tax Summit Sydney
8 April 2010 University of New South Wales /Atax 9th International Tax Administration Conference Sydney
15 April 2010 University of New South Wales /Atax 22nd Annual GST & Indirect Tax Workshop Noosa, QLD
9 June 2010 Taxation Institute of Australia Seminar Melbourne
16 June 2010 Corporate Tax Association 2010 Convention Sydney

Output 1.1.2: independent advice to Government - tax laws administration

The IGT provides independent advice to Government. The nature of this advice is primarily provided via review reports that are given to the Minister. It may also take the form of direct briefing to the Minister - Division 2 of the IGT Act.

The review reports detail IGT findings and outline recommendations for the improvement of the tax system's administration. Review reports are given to the Minister after providing the Commissioner of Taxation with the opportunity to make a submission - section 25 of the IGT Act.

Once the Minister receives the IGT report, it must be published, either by tabling in both Houses of the Parliament or otherwise, within 25 sitting days of receipt - section 11 of the IGT Act.

Performance information

Reports

The IGT had completed and issued to the Minister eight reports at 30 June 2010. The Minister has publicly released five of these reports, but has not yet publicly released three reports. These reports are listed in two separate sections below, being the publicly released and not yet publicly released review reports.

Review reports - publicly released

The five IGT reports publicly released by the Minister are as follows:

  • Review into delayed or changed Australian Taxation Office views on significant issues - publicly released 17 March 2010.
  • Review into aspects of the Tax Office's settlement of active compliance activities - publicly released 1 December 2009.
  • Review into the non-lodgement of individual income tax returns - publicly released 16 October 2009.
  • Review into the underlying causes and the management of objections to Tax Office decisions - publicly released 11 August 2009.
  • Review into the Tax Office's administration of public binding advice - publicly released 7 August 2009.

IGT review reports - not yet publicly released by the Minister

The three IGT reports issued to the Minister but not yet publicly released at 30 June are as follows:

  • Review into the Tax Office's administration of the Superannuation Guarantee Charge - submitted to the Minister on 18 March 2010.
  • Review into the Tax Office's administration of private rulings - submitted to the Minister on 3 May 2010.
  • Follow up review into the Tax Office's implementation of recommendations included in reports prepared by the Inspector‑General of Taxation between June 2006 and October 2008 - submitted to the Minister on 30 June 2010.

All completed IGT review reports and work program review details including status update are available on the IGT website at www.igt.gov.au.

Outcomes

Historically, the Commissioner of Taxation has accepted fully or in part most (122 of 138) of the review recommendations published since the inception of the IGT until 30 June 2009. This trend continues for reviews published in 2009-10, with the Commissioner of Taxation accepting fully or in part 47 of the 54 recommendations made - refer Table 3.

In several reviews completed in 2009-10, the IGT considered that systemic improvements could not be made by the ATO alone under present tax laws. The IGT therefore made several recommendations to the Government to consider changes to the tax laws that underpinned the administrative systems.

The outcomes of these reviews, combined with feedback from community stakeholders and the ATO, provide clear evidence that the role of the IGT is achieving its objectives and is improving aspects of tax administration for the benefit of all taxpayers.

Table 3: IGT report recommendations summary 2009-10

IGT Review Number of recommendations accepted fully or in part by ATO Number of recommendations to Government Number of recommendations disagreed by ATO
Review into delayed or changed Australian Taxation Office views on significant issues 4 1  
Review into aspects of the Tax Office's settlement of active compliance activities 24    
Review into the underlying causes and the management of objections to Tax Office decisions 10 1 1
Review into the non-lodgement of individual income tax returns 3 3  
Review into the Tax Office's administration of public binding advice 6   1
Total 47 5 2