1.1 During public consultation for the Inspector-General of Taxation's (IGT) work program, a range of taxpayers, tax practitioners and their representative bodies raised concerns about the increasing role of valuations in tax law and the potential for increased uncertainty, disputation and costs. The IGT commenced this review in response to these concerns.1
1.2 The IGT received a number of submissions and also met with taxpayers, tax practitioners and their representative bodies as well as valuers and members of the judiciary to gain a better understanding of the issues and identify areas requiring improvements.
1.3 A range of concerns were raised which may be grouped as follows:
- inherent difficulties associated with valuations such as:
- lack of uniform requirements for performing valuations;
- subjective nature of valuations and use of ranges; and
- potentially prohibitive costs for obtaining professional valuations.
- the importance placed on valuations in tax legislation such as:
- the increasing reliance on market value in a wide range of provisions in tax laws and the compliance costs it imposes on taxpayers and Australian Taxation Office (ATO) alike; and
- minor changes in valuation amounts having a disproportionate effect on taxation outcomes where certain thresholds are exceeded.
- the ATO's administration of valuation requirements and risk management such as:
- the need for greater use of administrative safe harbours;
- the compliance costs arising from the ATO's approach to assessing valuations;
- lack of discussion between the ATO and taxpayers on valuation issues before tax returns are lodged;
- lack of guidance on the application of penalties with respect to positions based on valuations;
- the valuation capability of the ATO and its officers including the instruction of valuers;
- taxpayer difficulties in accessing the ATO valuer's instructions;
- the effect of the taxpayer's burden of proof and use of valuation ranges; and
- the underutilisation of the private rulings process.
- the need for more efficient and effective processes to resolve valuation disputes.
1.4 The above concerns are discussed in the following chapters of the report.
1.5 Chapter 2 addresses concerns regarding the nature of valuations generally whilst Chapter 3 considers those specifically relating to tax laws. Concerns relating to ATO's compliance approaches and dispute resolution are examined in Chapters 4 and 5 respectively.
1.6 The IGT established a working group of key stakeholders to assist in exploring the issues raised and developing recommendations for improvements. These key stakeholders were Susan Cantamessa (Chartered Accountants Australia and New Zealand), Michael Clough (King & Wood Mallesons), Lance Cunningham (BDO Australia), Simon Dalgarno (Leadenhall Corporate Advisory), David Fox (Corporate Tax Association), Frank Hinoporos (Hall & Wilcox), Wayne Lonergan (Lonergan Edwards & Associates), Paul McNab (PwC), Peter Poulos (Maddocks), Tony Slater QC and senior ATO officials.
1.7 The IGT greatly appreciates the generosity of the members of this working group for freely giving their time and expertise. Their involvement has significantly enhanced the outcomes of this review. It should be noted, however, that the views expressed in this report are not necessarily those of individual members of the working group.
1.8 The IGT also worked progressively with ATO senior management to identify the areas for improvement and to distil specific recommendations.
1.9 In accordance with section 25 of the Inspector-General of Taxation Act 2003 (IGT Act), the Commissioner of Taxation (Commissioner) was provided with an opportunity to make submissions on any implied or actual criticisms contained in this report. The Commissioner's response is included in full at Appendix 5. The Commissioner's response to each IGT recommendation is extracted and reproduced directly thereunder as they appear in the report. This report is produced pursuant to section 10 of the IGT Act.
1 The review was commenced pursuant to section 8(1) of the Inspector-General of Taxation Act 2003. The terms of reference for this review issued on 19 November 2013, which are reproduced in Appendix 1.