Review into the Taxpayers' Charter and taxpayer protections
The report of the Taxpayers' Charter and taxpayer protections review was publicly released on 13 December 2016.11 It examined a range of issues, including the current framework for taxpayer rights in Australia and the ATO's Taxpayers' Charter (Charter).12 It also considered the ATO's adherence to the model litigant obligations (MLO) which binds all Commonwealth agencies, the discretionary Scheme for Compensation for Detriment Caused by Defective Administration (CDDA Scheme) and the protection of taxpayer rights in the context of cross-border exchange of information.
A broad range of stakeholders were consulted and research undertaken on international developments in taxpayer rights and protections to ascertain how Australia compares with its counterparts. We also engaged the University of New South Wales to identify and report on the current status of taxpayer rights in Australia.13
We acknowledged the calls from stakeholders for the enactment of additional legislative rights or for the Charter, or a similar document, to be enshrined in legislation. However, our research of regimes of comparable jurisdictions indicated that none of these jurisdictions had a comprehensive legislated charter or taxpayer bill of rights and Australia compared favourably in terms of legislative protections. Moreover, it was noted that whilst legislated rights would provide the highest degree of protection, it is unlikely to be of significant assistance to taxpayers who are unable to enforce such rights due to the costs associated with doing so.
Having regard to the above, the IGT has formed the view that, before any further enforceable remedies are considered, there are administrative measures which the ATO could implement to realise significant improvements. Such improvements include ensuring that the Charter is at the forefront of the ATO's interactions with the community and its performance against the Charter's principles is appropriately measured and publicly reported. Such public reporting is the key to promoting the ATO's adherence to the Charter as transparency and accountability better inform the community of an agency's performance.
In response to concerns raised about the CDDA Scheme, a recommendation was made to improve the awareness of its availability and to ensure that taxpayers can access internal review of decisions where there are sufficient grounds warranting reconsideration. With regard to the MLO, a recommendation was aimed at enhancing the effective investigation of allegations of MLO breaches, particularly where there may be perceptions of bias and lack of independence. In making these recommendations, we were mindful that the responsibilities for the relevant policy framework rest with the Department of Finance and the Attorney-General's Department who were consulted.
In relation to the emerging concerns about the ATO's exchange of taxpayer information with foreign revenue authorities, while it was observed that the ATO's procedures aligned with international practices, there was minimal public information on which taxpayers and tax practitioners could rely. Accordingly, a recommendation was made for increased public guidance on the ATO's approach in this regard, particularly with respect to data security, notification to taxpayers where their information is being exchanged with other revenue authorities and opportunities for such taxpayers to consider the information being exchanged.
In total, four recommendations were made with which the ATO has either agreed in full, in part or in principle. However the ATO's level of agreement and their accompanying commentary leave a level of uncertainty as to how and to what extent the recommendations would be implemented. Accordingly, to the extent that stakeholder concerns persist, a follow up review may need to be undertaken to assess the effectiveness of resulting ATO actions and, if necessary, recommendations may need to be made for Government to consider mandatory reporting of the ATO's compliance with the Charter and associated additional enforceable remedies.
Review into the ATO's employer obligations compliance activities
The Employer obligations review examined the ATO's activities to promote employers' compliance with their SG, PAYG Withholding and Fringe Benefits Tax (FBT) obligations.14 The report of this review was publicly released by the Government on 24 May 2017.
A key focus of this review was the uncertainty associated with the employee/contractor distinction which can lead to misclassification of workers with adverse impacts for all parties. Recommendations were made to improve worker classification outcomes and avoid adverse retrospective consequences, by allowing workers and businesses to seek upfront certainty from the ATO through a Voluntary Certification System to ensure correct classification at the earliest opportunity. Additional recommendations were made to further improve the ATO's online Employee/Contractor Decision tool to better inform businesses and workers of their respective obligations and entitlements.
Further opportunities for reducing employers' compliance costs and improving voluntary compliance were sought. In particular, recommendations were made for the ATO to consider improvements to the Small Business Superannuation Clearing House as well as encouraging adoption of Single Touch Payroll (STP) by providing a low or no cost STP software for qualifying small employers and alternative methods of electronic access for employers facing technological challenges.
The IGT also identified the ATO's heavy reliance on reporting by employees to identify non-compliance with SG obligations. Recommendations in this regard included more proactive compliance activities and increased interaction with trustees of superannuation funds.
A total of nine recommendations were directed to the ATO, of which seven were agreed in full or in part. Two recommendations were also made for Government's consideration. The first was to review the FBT administrative regime to reduce compliance costs in targeted areas in the short term whilst considering longer term fundamental reform. The other recommendation was to expand the Taxable Payments Reporting System (TPRS) to contractors across all industries and automating the associated required reporting.
It is pleasing that the Government has accepted to consider the first recommendation as part of its ongoing improvement work program15 and has partly implemented the second recommendation by announcing that it would extend the TPRS to contractors in the courier and cleaning industries.16
Furthermore, in its report aimed at tackling non-compliance with SG obligations, the Economics Committee has extensively referred to the IGT's work on the SG and echoed a number of recommendations17 made in this IGT review as well as a previous IGT review.18
It should also be noted that the Government's SG Cross Agency Working Group, has released a report which echoes some of the IGT observations and recommendations.19 It is also pleasing that, in response, the Government has announced20 additional funding for the ATO to improve employer compliance with their SG obligations.
Work Program Consultation
As in prior years, the development of the current work program was synchronised with the completion of the previous work program. It has been developed following extensive consultation with taxpayers, tax professionals and their representative bodies as well as government agencies such as the Australian National Audit Office (ANAO), the Commonwealth Ombudsman (Ombudsman), the ATO, the TPB and the Treasury. The Minister for Revenue and Financial Services (the Minister) and some parliamentary committees were also invited to provide input.
Importantly, the current work program also draws on themes arising from the complaints made to our office, as foreshadowed in last year's annual report. The combination of public consultation and complaints handling data has led to a work program which reflects the issues of greatest community concern or significance in achieving a fairer, more efficient and transparent tax administration system.
The current work program was publicly announced on 27 January 201721 and a commitment was given that the following three reviews would commence in 2017:
- Aspects of the PAYG instalments system;
- GST refund verification; and
- Future of the tax profession.
Four additional reviews were also identified and it was indicated that they may commence in the 2017 calendar year depending on time and resourcing considerations as well as competing priorities which may emerge such as the need to respond to risks identified through the complaints handling service, ministerial directions or parliamentary requests to undertake investigations. These potential reviews are:
- Strategies and opportunities for the ATO to work with others to encourage willing participation in the tax and superannuation systems;
- The ATO's approach to providing advice and guidance;
- The ATO's use of fraud or evasion opinions to examine and amend assessments outside of the standard periods of review; and
- The ATO's compliance activities concerning research and development tax incentive claims.
The likelihood that the above reviews will be conducted as part of the current work program is reduced due to undertaking another major review, namely the ATO's fraud control management review, at the request of the Economics Committee as well as the increasing demand for our complaints handling service.
Commencement of new reviews
Review into aspects of the PAYG instalments system
This review was commenced on 29 March 2017,22 largely as a result of themes arising from complaint cases, and seeks to identify improvements to the PAYG instalments system for taxpayers, the ATO and the system as a whole.
It will examine individual taxpayers' experiences with the PAYG instalments system with particular focus on the concerns raised in complaint cases and submissions to the review. These concerns broadly relate to the administrative criteria for entering taxpayers into the PAYG instalments system, the information technology (IT) systems to process correspondence, lodgements and payments as well as the clarity of ATO communication and guidance on payment and reporting obligations.
Review into GST refund verification
This review was commenced on 5 April 2017,23 once again, in response to issues emerging from our complaint cases.
Since 2012, the ATO's discretion to withhold GST refunds for verification has been governed by section 8AAZLGA of the Taxation Administration Act 1953. The provision allows the ATO to retain a refund until it is no longer reasonable to require verification. Complaints data and submissions to the work program have suggested that the ATO's administration of this provision may, in some instances, result in inappropriate and unfair delays in GST refunds being issued.
Stakeholders raised concerns such as a lack of clarity on the scope and nature of verification activities, inadequate engagement and inaccurate risk identification processes as well as the adverse financial and emotional impact on taxpayers.
This review will consider the GST refund verification process, having regard to the above concerns, in order to identify improvement opportunities which minimise adverse impact on taxpayers whilst ensuring that the ATO has sufficient time to adequately address risks to government revenue.
Review into the Future of the tax profession
This review is being conducted in response to a request by the Commissioner as well as concerns raised by stakeholders, particularly tax practitioners and their representatives. It was commenced on 6 June 2017.24
In recent decades, technology has begun to change the way in which the ATO provides services and interacts with taxpayers and tax practitioners. Similarly, the business models of tax practitioners are also evolving. In coming years, it is likely that the pace of change will escalate with other professionals, such as software and hardware developers, data analysts and providers of banking and payment services, playing a greater role in the tax system.
Social changes, such as taxpayer expectations for 'real-time' response, are another result of technological advancements. There are also policy and regulatory changes which are shaping the tax profession. For example, in addition to the Government's digital transformation agenda, financial advisers, who are involved in the provision of tax advice, have recently become subject to the jurisdiction of the TPB.
The impending technological, social, policy and regulatory changes will have vast and lasting impacts on the tax profession, the ATO, the TPB and the wider community. The IGT will seek to foster a better understanding of the issues and challenges ahead and assist all parties to plan for change and achieve optimal outcomes.
Review into the ATO's fraud control management
This review is being conducted at the request of the Economics Committee and in response to community concerns following recent events including those relating to Operation Elbrus and allegations of tax fraud that may be linked to abuse of position by a public official. The review commenced on 28 June 2017.
The magnitude and importance of the ATO's role, both economically and socially is unparalleled in the Australian context and hence, it is not surprising that the community expects very high standards of integrity from its staff and the organisation as a whole. The ATO itself has acknowledged that its 'integrity is fundamental to maintaining community trust and confidence in the tax and superannuation systems'.25
This review will examine the ATO's fraud prevention and detection practices, procedures and structures and how they are practically applied to ensure that it maintains the standards befitting of such a key institution. Opportunities for improvement in these areas will also be sought.
Complaints handling service
The second anniversary of our complaints handling service is another milestone achievement. Consistent with the growing awareness and recognition of our tax specialist service, there has been an increase both in number and complexity of the complaint cases that we have received this year. We have continued to meet this increasing demand.
For the 2016–17 financial year, we had received 2251 complaints which is an approximate 5 per cent increase compared to the number received in the previous financial year. Of these complaints approximately 90 per cent have been finalised within this same period and work will continue in the following year on the remainder.
The most common issues raised in these complaint cases concerned the ATO's:
- debt collection action, including payment arrangements, liquidation and bankruptcy actions, demand letters, offsetting of expected refunds against debts and garnishing amounts from taxpayers' bank accounts;
- processing delays and difficulties such as those associated with issuing refunds and in rectifying ATO errors in income tax assessments;
- audit and internal review activities, including auditor conduct, delays in processing amendments and information not being considered before decisions are finalised;
- SG investigations including action taken against relevant employers as well as transparency and communication with affected employees; and
- handling of complaints including how outcomes were communicated.
Table 1 below shows the proportion of complaints that relate to the above issues as a percentage of total complaints.
Table 1: The five most common issues raised in complaints during 2016–17
Commencement of 'own initiative' investigations
In addition to using complaint data to develop the IGT work program as mentioned above, we have also begun to leverage the insights from such data to improve the tax system on a more real time basis by conducting targeted or specific investigations promptly. Technically, these kinds of investigations are referred to as ‘own initiative’ investigations in the relevant legislation.26 The first such investigation was initiated this year. It aims to examine the ATO’s handling of allegations of tax evasion received from the community – colloquially referred to as ‘dob ins’.
This investigation was prompted as a result of complainants, who had reported allegations of tax evasion to the ATO, seeking assurance from the IGT that the ATO had registered their allegations and taken appropriate action. The ATO’s processes for considering and responding to such allegations will be scrutinised in this investigation to identify improvements where necessary and provide assurance to complainants and the public, particularly in the light of further funding being provided to the ATO for dealing with whistle-blower tax evasion referrals.27
Own initiative investigations allow the IGT to take a prompt ‘deep dive’ on particular issues as the need for timely action outweighs the benefits of broader stakeholder consultation which requires extended timeframes. These investigations have a specific focus that facilitates more streamlined information access, recommendation making and reporting to seek more immediate improvements.
Agreed Business Improvements
The evolving maturity of our complaints handling service has fostered increasing opportunity to achieve improvements to tax administration without requiring the conduct of a broad review. ABIs arise where, as a result of dealing with a complaint or series of complaints, the IGT reaches agreement with the ATO and/or the TPB on improvements which go beyond the complaint case itself and have a wider impact. We track such improvements until implementation takes place.
This year, the ATO has agreed to implement 17 ABIs, two of which have already been implemented. One ABI has also been agreed and implemented with the TPB, bringing the total number of ABIs to 18.
Feedback on the complaints handling service
The feedback on our complaints handling service has been very positive and the results of the satisfaction survey, conducted for this year, show a 78 per cent satisfaction rate with our services and staff. This includes feedback from complainants who did not achieve their desired outcomes.
The results of this survey are provided in the Performance Report section of this report, together with examples of the improvements and insights resulting from complaint cases.
Assistance to parliamentary committees
Insights which are drawn from our complaints handling service and review work are of assistance to other bodies who examine broader issues that interact with the tax and superannuation systems. During 2016–17, we drew upon such experience to assist other government agencies as well as parliamentary committees including the following.
Senate Economics References Committee
On 1 December 2016, the Senate referred an inquiry to the Economics Committee to examine the impact of non-payment of the SG,28 with particular reference to its economic impact, the accuracy and adequacy of information and data collected by regulatory bodies as well as the appropriateness of regulatory responses to instances of non-payment of the SG.
A detailed written submission29 was made to this inquiry, drawing on our independent expertise and, in particular, our reviews into the Administration of the Superannuation Guarantee Charge30 and Employer obligations31 as well as insights obtained through our complaints handling service. We also provided evidence during the Economics Committee’s public hearing on 3 March 201732 to highlight the challenges in the administration of the SG. A sustained focus of our office has been to emphasise the importance of early detection and action to recover unpaid SG.
House of Representatives Standing Committee on Tax and Revenue
The Tax and Revenue Committee announced its inquiry into ‘Taxpayer engagement with the tax system’ on 25 November 201635 to examine how taxpayers, particularly individuals and small businesses, engage with Australia’s tax system and identify opportunities to improve this experience. In response, the IGT made a detailed submission36 to assist the Tax and Revenue Committee and also gave evidence at a public hearing.37
The IGT also assisted the Tax and Revenue Committee with its review into the 2016 Annual Report of the ATO.38 The report of this review, which was released in March 2017, extensively references the work of the IGT.
We continue to consult with the community, the tax profession and other stakeholders, including other government agencies, parliamentarians and federal parliamentary bodies in developing our work program, conducting reviews and through our complaints handling service.
In this financial year, we have particularly focused on reaching out to the wider community as the satisfaction survey, mentioned above, has indicated we need to better inform the public of the presence of the IGT and the services that we provide. One of our initiatives in this regard has been to develop a newsletter, IGoT News!, the first edition of which was launched on 6 July 2017.39 It is a new and more informal channel for us to communicate and better inform the public about our office and up-to-date developments.
We have also sought to increase our engagement with suburban and regionally-based tax practitioners by presenting and engaging with them at their events including discussion group meetings.
We continue with our other stakeholder activities including encouraging parliamentarians to refer any complaints they receive about the ATO or the TPB to us. Through parliamentary committees, they have also been invited to provide input into our work program or otherwise raise concerns with us. In one instance, as stated earlier, this has resulted in the IGT undertaking the review into the ATO’s fraud control management.
We also engage and consult with the ANAO and Ombudsman to foster closer collaboration in areas of mutual interest and minimise any potential duplication of effort. For example, during the 2016–17 year, we assisted the Ombudsman in his investigation regarding the Child Support Agency’s approach to amended income tax assessments. We have also consulted with the ANAO on our respective work programs and we have shared views on specific areas, for example, on the ANAO’s audit into the ATO’s use of settlements.40
We also work closely with the Treasury, who provides us with a number of services and is a partner in many aspects of our core functions, as well as the Minister and her staff.
Engagement with the ATO and the TPB is a central part of our role. The professional assistance of both organisations and their staff is crucial to our work. The independence of the IGT as a consulting scrutineer is essential but it is also important to ensure that constructive relationships with the ATO and the TPB are maintained.
Our collaboration with revenue agencies, our counterparts and other relevant bodies overseas is continuing and expanding. We now exchange knowledge and experience with more jurisdictions than before. This is of great assistance in our review work as well as the complaints handling service.
Furthermore, we have extended our international networks by becoming a voting member of the International Ombudsman Institute and are providing regular updates on taxpayer rights in Australia to the International Bureau of Fiscal Documentation (IBFD).
New office location
Moving to a new office location was a major undertaking this year. It required significant planning and management to establish the necessary environment and facilities for our team to continue to provide uninterrupted service to the community.
We are pleased that our move took place smoothly in June 2017, prior to Tax Time 2017, with no disruption to our services.
Moving forward, we will focus on meeting the challenge of progressing the four reviews that were commenced this financial year whilst also managing an expected increase in the demand for our complaints handling service as well as dealing with other requests as they arise.
In order to maintain the successful delivery of these services, our office will continue with its innovation focus as we fine-tune our systems, processes and interactions. Indeed it is a credit to the IGT that for a second year in a row, we have achieved strong results in the annual Australian Public Service (APS) employee survey including continuing to lead the entire APS on innovation.
Our role is to improve tax administration through investigation of tax complaints, conducting broader reviews, public reporting and independent advice to Government and its relevant agencies.
Our objectives are to:
- maintain an effective and efficient complaints handling function;
- identify and prioritise areas of tax administration for improvement; and
- conduct reviews and make recommendations for improvement to Government, the ATO and the TPB.
Figure 1: Inspector-General of Taxation executive structure
Outcome and program structure
Figure 2: Outcome and program structure
Appendix 1 - Expenses for outcomes
Table A1: Expenses for Inspector-General of Taxation outcomes
Appendix 2 - Agency resource statement
Table A2: Inspector-General of Taxation resource statement for 2016–17 as at Budget May 2016
11 Above n 1.
14 Above n 2.
15 Australian Government, 'Australian Government response to the Inspector-General of Taxation report: Review into the Australian Taxation Office's employer obligations compliance activities' (22 May 2017) <www.igt.gov.au>.
16 Treasury, Budget Measures 2017–18, Budget Paper No. 2 (2017) p 35.
17 Senate Economics References Committee, Superbad – Wage theft and non-compliance of the Superannuation Guarantee (2017), recommendations 6, 12 and 31 (in part) pp 42, 62 and 93, respectively.
18 IGT, Review into the ATO's administration of the Superannuation Guarantee Charge (2009), recommendation 11, p 93 which is echoed in above n 17, recommendation 24, p 82.
19 For example, above n 18, recommendations 3 and 4, p 10 and above, n 2, recommendation 2.1(a) which are echoed by Working Group recommendation 2, Working Group agency action 12 and 8, respectively, in the Superannuation Guarantee Cross Agency Working Group, Superannuation Guarantee Non-compliance – a report to the Minister for Revenue and Financial Services (2017) Treasury (Cth).
21 Above n 3.
22 Above n 4.
23 Above n 5.
24 Above n 7.
26 Section 8 of the IGT Act.
27 Above n 16 pp 32 and 59.
28 Above n 9.
30 Above n 18.
31 Above n 2.
32 Commonwealth, Parliamentary Debates (Proof), Senate Economics References Committee, 3 March 2017.
33 Above n 17.
34 Above n 17 and 18.
35 Above n 10.
37 Commonwealth, Parliamentary Debates, House of Representatives Standing Committee on Tax and Revenue, 10 May 2017.
38 House of Representatives Standing Committee on Tax and Revenue, 2016 Annual Report of the Australian Taxation Office: Performance Review 2015–16 (March 2017).