On 10 March 2009, the Assistant Treasurer directed the Inspector-General of Taxation (IGT) to review and report on concerns in relation to any perceived Australian Taxation Office (ATO) delayed or changed approaches — so called 'U-turns' — on significant interpretative matters or on past administrative practices. In accordance with this direction and in response to submissions from concerned taxpayers and their representatives, the IGT conducted this review.
Perceived delayed or changed ATO views or practices on significant interpretative matters are one of the main reasons for some private sector dissatisfaction with ATO governance arrangements. Where the ATO is perceived to be changing or clarifying its existing views with retrospective effect, taxpayers can incur significants costs. In some quarters, this has resulted in substantial erosion of confidence in the ATO as a fair administrator and driven a reluctance to work with the ATO on technical issues.
In the absence of binding advice, the law as currently applied, allows the ATO to apply its views retrospectively without protection against primary tax for taxpayers. The examples that were raised in submissions to the Inspector-General of Taxation (IGT) show that the main problem is not that one binding ATO advice clearly changes another binding advice, but that there are disagreements over whether a previous ATO view or practice existed or the ATO rejects having accepted an industry view of which taxpayers and their representatives believe the ATO to have been aware and which they believe the ATO had accepted. The situation is further compounded by ATO delays in firstly identifying its compliance concerns and, secondly, finalising its position in relation to those concerns. On this basis, the IGT has concluded that taxpayers' perceptions of ATO changes in views or practices are justified in certain circumstances.
In relation to binding ATO advice, legislative protection exists to protect the taxpayer against primary tax, penalties and interest if that binding advice is subsequently changed. However, if the Government's intention was to provide similar certainty in relation to the ATO's General Administrative Practices (unless involving tax avoidance, fraud or evasion), then it should consider whether the current arrangements clearly achieve this aim and, if not, what legislative changes should be made.
In the meantime, working within the existing legislative framework, the IGT has worked with the ATO, with input from industry and tax practitioners, to develop a mechanism that should reduce the adverse impacts of changed and delayed ATO advice. This mechanism should strike a balance between:
- protection for taxpayers where the ATO has facilitated or contributed to formation of taxpayer views which are inconsistent with subsequent ATO views; and
- preventing a laissez-faire situation where any position could be arguably justified on a particular area of uncertainty before the ATO releases its formal view.
The mechanism ensures that in determining the date of effect of its advice products, the ATO is guided by a clearly stated set of principles and criteria and that the decision-making process is transparent and instils public confidence.
The IGT also found that underlying some of the above concerns is the manner in which the ATO engages with the taxpaying community while developing its views on technical issues. Whilst there are many positive aspects of the ATO consultation processes, there is significant scope for improvement in certain areas, including:
- reducing ATO delays in identifying its compliance concerns and finalising its position in relation to those concerns;
- improving the tone and manner of technical discussion papers on issues of compliance concern; and
- providing interim guidance (to both taxpayers and ATO compliance officers), to the extent it can, for those issues that will not be resolved quickly.
The IGT believes that the recommendations contained in this report will deliver significant improvements to the tax administration system in this country when they are appropriately implemented. Accordingly, the IGT will maintain a watching brief over the implementation of these recommendations.