5.1 A former Commissioner, Michael Carmody, has observed:

In a dynamic business environment it is difficult for any law, let alone one as expansive as tax law, to contemplate fully the practicality of administration for all types of taxpayers — from large international corporations to small home-based businesses (Michael Carmody, former Commissioner of Taxation, 2004).268

5.2 The complexity that taxpayers face is not just due to tax legislation, but also the way that legislation is interpreted and enforced by the administrator. It is therefore clear that the administrator has a crucial role in designing tax policy and developing the legislation that gives effect to that policy.

Complexity in the tax system

5.3 Complexity in the tax system is an issue that is neither unique to Australia nor new.269 Complexity in the tax system has been identified as arising from the coherence, detail and volume of rules and exceptions. However, more recently,270 greater focus has been given to complexity arising as a function of policy and design process and the administrative approach:

[A] major source of complexity in the current system is the way policies are designed. Over time, policy objectives have tended to become more sophisticated.

Policies have also tended to be changed in isolation, and without a coherent framework for the whole system. This has complicated the tax laws and made tax compliance and administration more difficult.

While policy design needs to place a premium on reducing complexity, this alone is not enough to ensure that taxpayers will experience a more certain system. The way in which the laws are designed, and the administrative approach taken to implementing those laws, also influence the level of complexity experienced by taxpayers.271

5.4 The impacts of complexity are substantial and varied and include the increased uncertainty of taxpayers’ obligations and increased costs:

[Complexity] generates uncertainty about the way the system operates and the way it should operate. This uncertainty tends to reduce trust between stakeholders in the system. At worst, this can undermine confidence in the integrity and legitimacy of the system.

Complexity reduces the system’s transparency, makes it harder for taxpayers to understand their obligations, increases the risk of non-compliance and hinders the making of properly informed decisions. It creates uncertainty and risk, which taxpayers spend time and money dealing with. Some taxpayers arrange their affairs to take advantage of the complexity and its unintended consequences.

... The complexity of the current system imposes considerable costs on the community. It has exposed both taxpayers and government to higher levels of risk and uncertainty.272

5.5 Although uncertainty and costs are undesirable in the tax system, striving for certainty can paradoxically result in increased uncertainty and costs, depending on the methods used. This is because, taxpayers may seek comfort on the tax treatment of arrangements through even more prescriptive rules and binding advice:

As factual circumstances vary greatly, covering a wide range of circumstances in detail is likely to result in law that is long and complicated. Complex circumstances are not easily clarified through elaboration in the law, at least not without generating legislation of inordinate length. Indeed, by introducing more boundaries between the legal concepts, potentially there is increased scope for ambiguity and uncertainty. Long and detailed law can also make it harder to find the underlying policy intent and thus increase the risk that the courts will interpret the legislation in a way unintended by Parliament. When a statute is cast in a very specific way, new circumstances can generate loopholes or inequities, requiring further specific legislation and so on.273

5.6 Additionally, the ATO itself also may seek comprehensive laws and advice aimed at addressing potential tax avoidance.

Tax law policy design

5.7 The recent improvements to tax law policy design can be traced back to Federal Parliament’s Joint Committee of Public Accounts (JCPA) 1993 review. At that time, proposals for change were developed by the Treasury. The ATO had a limited role in providing advice to the Treasury on the technical validity of proposals and how they may be administered. Once a government decision was made to change the laws, the ATO’s role was then to implement it, often by fleshing out the details of broad decisions. The Office of Parliamentary Counsel (OPC) then drafted laws according to ATO instructions.274

5.8 At that time private sector involvement in policy design was limited. However, it was recognised that there were limits to what the ATO, Treasury and the OPC knew about how the policies, as expressed in legislation, may apply to various business arrangements. Broader consultation was seen to be an approach that would assist the understanding of the potential implementation of the laws in the self assessment environment and improve their effectiveness in achieving their policy objectives.

5.9 The JCPA considered the suggestions for improvement, which were mainly focussed on the structural arrangements for legislative drafting and the involvement of community in the policy and administration of the tax system.275 The JCPA recommended, amongst other things, that economic and administrative policy be integrated.276

5.10 The 1998 Ralph report provided a practical articulation of this objective, by recommending a more systemic and integrated tax design process between the Treasury, ATO and OPC, drawing on external expertise to consider the practical application at the same time as developing the policy intent.277

5.11 These proposed arrangements were seen as reforming the administrative interface between business and the ATO which would, in turn, reduce compliance costs and the time taken to resolve disputes over the interpretation of the law.278 One of the intended results would be the substantial reduction in the incidence of unintended consequences of the law, such as those involving perceptions of unnecessary complexity and uncertainty in the application of the law, inconsistency with commercial practice and difficulties in compliance or inconsistency with the policy.279

5.12 By 2002, the newly formed Board of Taxation recommended that both structural and consultative changes could be made to improve the policy design of tax laws. Amongst other things, this included the transfer of the legislative drafting function to the Treasury and greater consultation.280 On 2 May 2002, the government announced that it would act on the Board of Taxation’s recommendations:

The new arrangements will [provide] maximum opportunity for legislation to be developed in a manner consistent with the policy intent set by Government. Working arrangements between the ATO and the Treasury will ensure that the administrative, compliance and interpretive experience of the ATO fully contributes to policy and legislation processes.281

5.13 Such benefits were also recognised in the 2009 Henry review:

A consultative approach to developing policy and legislation can help ensure the system responds to the needs and expectations of the community. It provides stakeholders with an opportunity to inform policy-makers about the impact of the tax system on their different circumstances. It allows governments to benefit from the practical experience, skills and knowledge of stakeholders and incorporate this into policy design. This helps generate better targeted and more practical solutions. It also gives governments more information about the range of options available and the benefits, costs and risks associated with those options.282

5.14 A review of the tax design process was undertaken by a Tax Design Review Panel (the Review Panel) established by the Assistant Treasurer in 2008. It made a number of recommendations aimed at improving the policy design of new law. Broadly, these recommendations were aimed at a number of objectives, including:

  • improving the quality of law through consultation, and
  • increasing community input into the prioritisation of changes to tax law.

5.15 From at least 2002, the ATO also recognised the benefits of increased consultation, such as in the capital allowances context:

Whatever view one takes on the approaches adopted to date, there is a growing acknowledgment that effective consultation is a necessary ingredient for good tax design - from policy design to implementation, service delivery and the development of regulatory systems and approaches.283

5.16 What constitutes ‘effective consultation’ has been a matter of ongoing inquiry that has been refined by successive reviews and implementation of changes. However, two main characteristics are emerging from this work:

  • involvement of relevant private sector experts, not distracted by commercial pressures or interests; and
  • detailed ATO advice on how it would implement the policy and law.

5.17 To the extent that these characteristics are relevant, they are discussed below.

Private sector experts and tri-partite tax law design teams

5.18 Private sector experts with relevant skills and experience are well-placed to contribute to the consultation process.284 Such experts should be able to inform the policy and legislation design process by bringing practical knowledge of the tax law, industry structures and commercial practices.285

5.19 In determining the identification of such experts, the Review Panel reported that the Board of Taxation had been considering a ‘Consultation Centre’ that comprised tax experts nominated by tax professional bodies.286 However, the Review Panel later considered that Treasury was well placed to do this without establishing a new body:

The Review Panel considered a proposal previously advanced by the Board of Taxation for a Consultation Centre, comprising tax experts nominated by tax professional bodies, to provide advice to Treasury and to identify private sector experts to be engaged by Treasury on specific projects. The Panel concluded that Treasury, with the support of the Tax Office and the Board of Taxation, was already well placed to identify experts it could engage for professional advice. Rather than establish a new body, the Board of Taxation’s Advisory Panel could assist with identifying experts if required. (The Board of Taxation’s Advisory Panel draws together some of Australia’s leading tax professionals who have volunteered their knowledge and expertise to help the Board with its work. Panel members are appointed on the basis of their individual capabilities and expertise, rather than as representatives of particular interest groups).287

5.20 The Government largely relies on private sector experts providing their time and expertise on a pro bono basis. In this respect, both the Board of Taxation and the Review Panel recommended that such experts be paid for their involvement in the policy and legislation design consultation processes.288 The Panel considered that engaging private sector experts on a confidential fee-paying basis would impose fiduciary obligations to ensure that advice was provided in the national interest and a commercial focus was given to the experts.289 However, it considered that such experts be engaged for smaller policy changes, as major policy changes would still involve broader public consultation.290

5.21 Although the relevant recommendations were accepted by the Government, data published in the Board of Taxation’s discussion paper in its post implementation review suggest that these recommendations were not materially implemented during the review period.291 The discussion paper for the review noted that statistically, external consultants were only engaged on 7 out of the 90 measures enacted over the review period.292 The report of the Board of Taxation’s review has not yet been released.

5.22 The Review Panel also recommended that private sector involvement should continue throughout the tax design process and, for substantive measures (i.e. those not of a very limited impact involving straightforward drafting), the monitoring of its implementation:

Recommendation 2: Tri-partite design teams

Substantive tax changes should be developed by a tri-partite team led by the Treasury, which includes tax officers and private sector experts. The team should have carriage of the measure throughout the design phase and should also monitor its implementation. Where appropriate, the Office of Parliamentary Counsel (OPC) should also be involved at the policy design stage.293

5.23 Ultimately, all parties agree that such issues are best dealt with where there is an existing consultative forum with a pre-existing focus on the technical areas — that is, a consultative forum being populated with practitioners who apply the law in practice (both from the ATO as well as private sector) who were also involved in the new law’s development process. Such a process ensures a well-considered approach to issues of concern, as well as, a forum in which to bring together the various views.

5.24 In the IGT’s view, there is merit in the existing public consultation process to be augmented by a tripartite tax law design team consisting of paid external tax experts as well as ATO and Treasury senior officials. Such a team can consider matters arising from public consultation, determine what needs to be in the legislation, the explanatory memorandum as well as any synchronised ATO advice and advise the Government accordingly prior to the passage of the relevant legislation through Parliament.

Explanatory memoranda and the text of the law

5.25 One particular issue raised during the IGT’s review involved certain instances where the text of the law and the explanatory memorandum were not considered to be consistent. Submissions raised a number of examples where the policy intent of the law was clear, however, the ATO claimed that the drafting of the statue was inconsistent with this policy. As a result the ATO’s interpretation and administration of the law was not consistent with, in some cases, a reading of the law,294 or in other cases, the explanatory memorandum.

5.26 For example, in relation to foreign income tax offsets and the medicare levy, submissions noted that the ATO had recently reconsidered its administrative approach, adopting a stance that was more consistent with the relevant explanatory memorandum as well as external opinion. This was only after taxpayers had made lengthy submissions, convincing the ATO to take a more practical, purposive approach.

5.27 The ATO has explained that the principles of statutory construction limit the extent to which the ATO can give effect to the policy evidenced in the explanatory memorandum. This limit is reached where additional words would be required to be inserted into the text of the law to give effect to that policy intent:

The conclusion of Spiegelman J. in R v. Young ((1999) 46 NSWLR 681) is relevant here: it is not appropriate to take 'an expression of intention' in the extrinsic materials to justify inserting words, 'when the result cannot be reasonably deducted from the words actually used by a recognised technique of construction' (at p.690). As Logan J. observed, it is for Parliament to give effect to the intention by amending the law (cf: Cooper Brookes (Wollongong) Pty Ltd v FCT (1981) 147 CLR 297; [1981] HCA 26).295

5.28 Where these limits are reached, seeking legislative amendment is seen as more appropriate.

5.29 The Henry Review voiced suggestions that transferring the role of policy and legislative design from the ATO to Treasury in 2002 has reduced the ATO’s ability to administer the law purposively. However, it observed that formalising the ATO’s involvement in tri-partite teams in 2008 allows the ATO to contribute to, and understand, the policy objectives of new law.296

5.30 As stated earlier, the IGT is of the view that there is merit in augmenting the existing public consultation processes with tripartite tax law design teams, comprising ATO and Treasury senior officials as well as paid external tax experts, who are engaged to provide advice on the proposed law, relevant explanatory memoranda and the nature and timing of ATO advice. The timing of ATO advice to synchronise with the enactment of substantial new law is discussed in more detail in relation to recommendation 2.2 in chapter 2.

5.31 It should also be noted that the Board of Taxation was tasked to review the implementation of the Review Panel’s recommendations on tax law design.297 The report of this review may shed further light on this issue when it is released.

Recommendation 5.1

To improve taxpayer and administrative certainty, the Government should consider improving tax law design by:

  1. augmenting existing public consultation processes with tri-partite design teams to determine, for significant proposed tax law, what detail should be provided in the law, explanatory memorandum and the nature and timing of ATO public binding advice;
  2. where the ATO is required to synchronise its public binding advice with the enactment of the law (see recommendation 2.3), ensuring the ATO is appropriately engaged to do so; and
  3. on presentation of the proposed legislation in Parliament, requiring the ATO to provide public confirmation on the nature and timing of the advice to be provided).

ATO response:

Matter for Government.

Care and maintenance of the tax laws

5.32 It is also important to recognise that notwithstanding an ideal process being followed in developing tax laws, unforeseen outcomes may arise that require legislative amendments.

5.33 In this respect, the Review Panel counselled against the ‘quest for perfect legislation’ and that greater post-enactment monitoring of implementation should take place.298

5.34 The Review Panel considered that the need for refinements and advice is a necessary and healthy part of maintaining a complex system. It recommended that tri-partite design teams should monitor new law to ensure it is operating as intended by identifying any legislative refinements that are needed and ensuring that administrative products and guidance material are in place.299 The IGT also considers that refinements in ATO advice, so long as changes are applied prospectively, are also healthy and reflect an acknowledgement that unknown issues may arise in the reporting and lodgement cycle.

5.35 During the IGT review, the ATO and private sector members commented that ongoing monitoring of newly enacted legislation is beneficial where it is conducted by those who were involved in the policy and legislation design of the new laws. The ATO’s consultative forums and the Tax Issues Entry System have provided forums for externals to raise these issues and for them to be considered.

5.36 For example, the ATO supported such a process in the implementation of the Taxation of Financial Arrangements legislation (although participants were not paid for their involvement). Under the National Tax Liaison Group (NTLG) Finance and Investments Sub Group a specially formed sub-committee — the NTLG TOFA Working Group — was established on 13 November 2008 to assist the ATO in implementing the Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2000 (TOFA Bill). The working group comprised engagement with key private sector, Treasury and ATO representatives for the purpose of ‘early identification of significant issues so that, if they can be appropriately addressed by interpretative means, the Tax Office may provide timely responses when the bills become law.’ The Working Group also interacted with other specialist sub groups whose purpose was to take financial arrangement specific complex issues off line to a smaller group of experts, for example, the Treasury led specific consultations on interactions between TOFA and consolidations regimes.300

5.37 For new, major law, the ATO should ensure that it establishes an expert consultative forum to consider and expedite the resolution of uncertainty arising from the enactment of new law and maintain this forum for a reasonable period of time thereafter. As set out above, the ATO does this to a certain extent. However, in the event that recommendations 2.3 and 5.1 are implemented, there will be a need to monitor more closely its synchronised public binding advice. As noted earlier, in these circumstances, advice is being issued without the benefit of any private ruling requests or compliance activities and, therefore, it is more likely that scenarios will emerge which may not have anticipated.

Recommendation 5.2

In the event that recommendation 5.1 is implemented, the ATO should monitor more closely the need for updated ATO advice through its consultative forums following the enactment of significant new law and for a reasonable period after that enactment.

ATO response:

Matter for Government.

The ATO will consider this recommendation should the Government agree to recommendation 5.1.

Positive discretion to act in taxpayers’ favour

5.38 Once an unintended anomaly, impracticality or consequence is identified after a new law is enacted, the question arises as to how it should be addressed. Timely legislative change is not always possible and, hence, an administrative solution needs to be explored.

5.39 A positive discretion to act in the taxpayers’ favour provides the administrator with a power to relax the strict interpretation of the law for the purpose of making administration easier or to provide relief from hardship at the margins of the law.301

5.40 Such a power was considered by the Treasury in 2005 in its ROSA Report. It rejected the proposal and concluded that the Australian system achieved the same result through the use of the Commissioner’s general powers of administration and binding ATO advice. The ATO only needed to provide a binding statement of interpretation or intended compliance practice.302 However, the ATO’s view is that it cannot bind itself to a view of the law that it considers to be wrong, even if it produces inconvenient outcomes for the community or an individual taxpayer.303

5.41 The issue was raised again during the Tax Design Review Panel in 2008. The Review Panel did not examine the issue, but recommended the Government further consider the issue.304 In this regard, in 2009, Treasury released a discussion paper305 but has not to date published a final report. However, the submissions to that review are publicly available. In summary, there are differing perspectives on the appropriateness or desirability for the Commissioner to have such a power and how that power should operate in practice.

5.42 Some submissions noted that although such a discretion would improve the flexibility of administration, this would potentially be at the expense of weakening of taxpayer certainty and the rule of law. As a consequence, it was considered that such a power would, if affected, have to be subject to strict conditions for use. That is, it should:

  • only be exercised for the benefit of taxpayers in order to provide relief (including through the reduction of compliance and administrative costs);
  • only be used where it would achieve better and timelier results than changes to legislation could effect;
  • be used where the law results in unfair treatment in particular circumstances;
  • be used to address minor as opposed to major issues; and
  • to give effect to the underlying policy of the legislation where it is consistent with the earlier objectives outlined above.

5.43 However, where the policy intent of legislation is not clear, problems may arise in determining how such a discretion should apply. Frequently, in areas of the law which contain anomalies, or where unintended outcomes arise, Parliament will not have considered the issue or expressed their intention.

5.44 Submissions to the discussion paper also noted the need for transparency and a strong governance structure to support the implementation of a positive discretion to act in the taxpayers’ favour. Some felt that governance and consultation would be necessary because taxpayers and tax professionals perceive that the ATO is not culturally minded to provide taxpayer concessions.

5.45 However, it was noted that the rigours of transparency and good governance might see deterioration in the timeliness of any administrative response. In this way, one of the main advantages of such a discretion over simply changing the law would be negated.

5.46 Moreover, it was also noted that the same resource constraints which delay the drafting and enactment of amending laws may also affect the timeframes for exercise of such a discretion.

5.47 As a result, it was observed that there would not likely be any relief to Treasury from its role in formulating tax policy and drafting laws gained because of a positive discretion to act in the taxpayers’ favour. Notwithstanding this view, submissions expressed a fear, however, that the existence of such a discretion would reduce the impetus for high quality drafting, or for speedy amendment to the law itself.

5.48 Problems may also arise regarding consistency between taxpayers. There may be situations where a concession provides relief and advantage to one taxpayer while it may disadvantage other taxpayers. In this way a positive discretion to act in one taxpayers’ favour might be perceived to undermine the objective of equity in the eyes of another taxpayer.

5.49 Even when such a discretion was seen as appropriate, it was emphasised that it should only be used as an intermediary step (that is, a ‘stop gap’).

5.50 Accordingly, where such a discretion was supported, the model often suggested was one where the resulting concession would be suspended until parliament had considered the matter.

5.51 Submissions to the IGT review reiterated the views expressed in the Treasury review. Moreover, some stakeholders perceive that the impacts of anomalous or impractical outcomes are already within the Commissioner’s existing powers to address through adjusting compliance activity while the law is in the process of being changed. They asserted that the granting of any additional power might cause the judiciary to read down the scope of existing powers.

5.52 The IGT considers that there is a need for a mechanism to provide flexibility in circumstances involving unintended anomalies, impracticalities or consequences. However, it should be noted that the ATO considers it currently does not have such power.306

5.53 More broadly, recent emerging thinking on such a mechanism indicates that such a power could serve the needs of raising revenue in a responsive and cooperative manner and enables enforcement consistent with a taxpayer’s behaviour.307 Reconfiguring the Commissioner’s discretionary powers in line with recent developments in the field of responsive regulation could potentially foster better compliance, as well as address the difficulties faced by taxpayers. In this respect, the IGT notes that Treasury’s report on the Review Panel’s recommendation has not been released and may shed further light on this matter.

5.54 Pending the release of this report, it remains to be considered what action could be taken in the short term.

Commissioner’s general powers of administration

5.55 Currently, the Commissioner’s general powers of administration give the tax administrator a degree of flexibility for the good management of the tax system. The purpose of these powers is intended to ensure that the tax laws are administered effectively and efficiently.

5.56 Many suggest that the general powers of administration can be exercised to address unintended anomalies, impracticalities and consequences arising from the tax laws. Many also agree that such an exercise should be consistent with the policy objectives of the relevant law in question. A general discretion to ignore the law without regard to the policy objectives would not be consistent with using such powers to ameliorate the impacts of unintended anomalies, impracticalities or consequences of the tax laws.

5.57 Action that required an exercise of these powers inconsistent with the policy objectives of the law, such as alleviating the effects of changing accounting treatments from one year to the next, would be more appropriately addressed through a change in the law itself. In these circumstances, quick and effective consultation between the ATO, the Treasury and relevant private sector representatives will be critical to the successful resolution of resulting adverse impacts.

5.58 There are also circumstances where the policy intent is not clear, causing difficulties in determining whether law change or administrative response, if at all, is needed. In these circumstances also, quick and effective consultation between the ATO, the Treasury and relevant private sector representatives will be critical.

5.59 In April 2004, the former Commissioner announced (the 2004 announcement) that the general powers of administration would be exercised in circumstances where relaxing the formalities of the law would achieve practical compliance without onerous compliance costs:

At times [the difficulty in the law fully contemplating the practicality of administration for all types of taxpayers] can lead to potentially disproportionate costs because the detailed evidentiary requirements for compliance are out of step with what is reasonably practical for business. At other times a failure to meet the formalities of compliance, can have severe consequences notwithstanding that there has been substantive compliance with the law.

This has raised the question of the extent to which my power of general administration of the law - which embodies the good management rule - can be utilised to address these issues.

Also relevant are my responsibilities under the Financial Management and Accountability Act to apply resources in an efficient, effective and ethical way and the generally purposive approach to interpretation of the law reflected in section 15AA of the Acts Interpretation Act.

Over the years we have provided guidance on achieving sensible outcomes, for example, in substantiation of a range of expenses such as laundry and home-office expenses.

More recently, our practice statement on the treatment of low cost assets was designed to enable businesses to substantively meet the requirements of the law without onerous costs.

The point of this discussion is that I believe more can be done in the interests of reducing compliance costs.

… Criteria for considering candidate areas of application of the law are being established. They include:

For example:

  • the approach should be consistent with achievement of the policy intent of the legislation;
  • the approach adopted should result in achieving substantive compliance at reduced cost;
  • as far as practical the approach should reflect industry practice;
  • any resulting risks to the revenue need to be appropriately managed;
  • material adverse impacts on third parties are to be avoided;
  • taxpayers should retain the choice as to whether to adopt the approach or not.

Transparency is to be achieved by publishing agreed approaches through a dedicated series of Practice Statements.308

5.60 Since that announcement, the ATO produced 18 Practice Statements Law Administration (General Administration) (PSLA(GA)), providing details on the Commissioner’s exercise of his general powers of administration to waive of the formalities of the law to reduce compliance costs.309 This program was received well by members of the taxpaying community.310 The last PSLA(GA) released before this review was started was on 19 November 2008.

5.61 The above ATO approach appears consistent with the Treasury’s conclusion in its ROSA report — that is, the Commissioner will exercise its general powers of administration so long as such exercise gives effect to the object and purpose of the legislative provision being applied, improves the smooth running of the tax laws and assists taxpayers to more easily comply with the tax law.311

5.62 In May 2009, the ATO released practice statement, PSLA 2009/4 — Escalating a proposal requiring the exercise of the Commissioner's powers of general administration (PSLA 2009/4). According to this practice statement, ATO employees are allowed to exercise the general powers of administration in relation to matters which are routine. Examples of a routine matters are, decisions or acts made in accordance with established staff instructions, such as, the selection of taxpayers for audit or the decision not to pursue compliance action for prior years in relation to a particular taxpayer.312

5.63 Non-routine matters, on the other hand, require the Commissioner himself to exercise the powers of general administration. According to PSLA 2009/4:

An example of a non-routine matter involving the exercise of the Commissioner's powers of general administration would be the decision not to undertake active compliance action in relation to a particular class of taxpayers or an industry group in respect of prior years or periods, where the ATO identifies that the particular class of taxpayers or industry group have not been complying with the law.313

5.64 Any recommendation for a practical compliance solution, including the publication of a General Administration Law Administration Practice Statement (LAPS (GA)), must also be escalated for the Commissioner’s decision.314

5.65 PSLA 2009/4 sets out a prescribed process by which matters are raised to the Commissioner’s attention for his decision. Fundamentally, no proposal can be made to the Commissioner without obtaining written advice from the relevant ATO’s internal technical specialists, the Personal Tax and Administration Centre of Expertise (Admin COE). However, the final decision on whether the powers can be exercised lie with the Commissioner himself.

5.66 There have been 21 matters in which such written advice was obtained from the COEs. Eight related to income tax, six related to indirect taxes, five related to superannuation and two related to ATO operational work. However, only eleven matters (three involving income tax) were escalated by the business lines to the Commissioner for approval. Of the matters that were not escalated, five presented a low risk to revenue and were treated as a ‘routine’ matter, one was referred to Treasury and three are under consideration by the business lines. Overall, since the release of PSLA 2009/4, the Commissioner has personally exercised his general powers of administration in 10 matters (3 in relation to income tax).315

5.67 In comparing the 2004 announcement to PSLA 2009/4, there are similarities and differences. This ATO practice statement reiterates the criteria set out in the 2004 announcement.316 However, it is different to the 2004 announcement in three material ways.

5.68 First, the 2004 announcement states that transparency will be achieved by explaining the exercise of the powers in a PSLA(GA). However, PSLA 2009/4 does not require publication as it may not be ‘an appropriate response to a particular issue in administration’. Until 28 March 2012, no PSLAs (GA) had been published since PSLA 2009/4 came into effect notwithstanding the general powers of administration being exercised personally by the Commissioner. Instead, some have been published on ATO webpages. See for example, administrative arrangements in recognition of the late enactment of law arising as a result of Bamford published on an ATO webpage ‘Improving the taxation of trust income’ and the relaxation of substantiation provisions in the context of the Anstis decision317 published on an ATO webpage ‘Study expense changes for students receiving Austudy, ABSTUDY and Youth Allowance’.

5.69 This reduction in transparency appears to feed perceptions of inconsistency, as evidenced in submissions to the review.

5.70 Second, the 2004 announcement appears to contemplate that the general power of administration may be exercised where the result is open on a plain reading of the tax law. For example, the exercise of the general power of administration in PSLA 2004/1 (GA) allowed taxpayers to lodge family trust and interposed entity elections after the statutory timeframe had expired.

5.71 PSLA 2009/4, however, states that these powers are narrow in scope and must be exercised consistent with the plain meaning of the tax laws:

3. The powers of general administration assist the Commissioner to administer the taxation laws in accordance with Parliament's legislative intent. The Commissioner's powers of general administration are narrow in scope [emphasis in original] in that they can only be exercised in relation to management and administrative decisions. They do not authorise the Commissioner to administer the taxation laws inconsistently with their purpose or object, whether express or implied, or their plain meaning. They support the principle that the Commissioner must interpret and administer each Act to give effect to its intention as discerned from it as a whole, not, for example, by interpreting a particular section in isolation from the rest of the Act. The provisions must be interpreted having regard to the context in which they appear. The Commissioner's powers of general administration also cannot remedy defects or omissions in the law. In addition, where the law is open to more than one interpretation the alternative interpretations of the law should be explored before considering reliance on the powers of general administration.318

5.72 Third, the 2004 announcement is clearly aimed at minimising compliance costs for taxpayers in circumstances where the formalities of the law could be relaxed without affecting substantial compliance. However, PSLA 2009/4 clearly indicates that the exercise of the powers of general administration is inappropriate in these areas and that the ATO’s role is to advise Treasury:

5. The principles of administrative law and statutory interpretation require the Commissioner to operate within the bounds of the powers conferred on him by Parliament and to use them to give effect to Parliament's legislative intent as discerned by the application of those principles. As such, the powers of general administration cannot be used to extend, confine or undermine Parliament's intentions.

6. Furthermore, the Commissioner's role is to apply the law not the policy, and the powers can not be used to remedy defects or omissions in the law. Instead, the Commissioner has a responsibility to advise Treasury where the tax and superannuation laws do not give effect to their underlying policy, for example, where they produce unintended consequences, anomalies, or significant compliance costs inconsistent with the policy intent, or where a legislative solution may be needed to address an emerging compliance issue.319

5.73 This approach was amplified in the Second Commissioner’s speech heralding the release of PSLA 2009/4:

Furthermore, the Commissioner's role is to apply the law not the policy. The powers cannot be used to remedy defects or omissions in the law. Where the law is clear, the Commissioner has a duty to apply that law, even if it produces inconvenient outcomes for the community or for an individual taxpayer. Instead, the Commissioner has a responsibility to advise Treasury where the tax and superannuation laws do not give effect to their underlying policy, for example, where they produce unintended consequences, anomalies, or significant compliance costs inconsistent with the policy intent, or where a legislative solution may be needed to address an emerging compliance issue.320

5.74 In this sense the ATO’s public statements on the exercise of the powers have narrowed the scope for the exercise of those powers. This view is also reflected in submissions to the review based on their observations in their dealings with the ATO.

5.75 In the IGT’s view, the additional requirement in paragraph 3 of the PSLA 2009/4 that the exercise of the power be consistent with a plain reading of the law precludes the purpose for which the 2004 announcement was made — that is, to waive the formal requirements of the law where the policy objectives were achieved and compliance costs reduced. Arguably, the exercise of the general power of administration PSLA 2004/1 (GA) would not have occurred under the criteria for PSLA 2009/4.

5.76 As a matter of principle, the Commissioner should have the flexibility to administer the tax laws such that the policy objectives of the law are substantially achieved in a manner that minimises taxpayers’ compliance costs. Precision can come at a high cost of compliance. This, in itself, can make the tax system less robust. However, transparency is key to minimising adverse perceptions of the ATO’s exercise of such powers.

5.77 It should also be noted that, under the current arrangements, exercising the powers for these purposes may cause difficulties in later years. It is clearly preferable that powers exercised in relation to controversial or ambiguous matters should be reflected in later legislative change. This indicates that the exercise of these powers should be temporary, pending a reasonable time for Government and Parliament to consider legislative change. A period of three years may be sufficient in most cases to provide such as opportunity.

5.78 It is essential that the ATO co-operate with the Treasury (as the policy adviser to Government) and private sector stakeholders to assist in considering an amendment to the law, if required, such as where there is a need for policy clarification. Here the ATO’s consultative forums and the Tax Issues Entry System provide a forum for raising such issues. The augmentation of existing tax law design consultation processes with the tri-partite design teams (as discussed above), may also have a role to play.

5.79 The question arises, however, as to what if the law change does not address all of the undesirable consequences or takes longer than anticipated to fix? Where it is not evident that those consequences were considered by the law change, then it may tend to indicate that the process was not complete and that there is further need for considering law change. In these circumstances taxpayers may be in the same position as before, however, they would have received a reprieve for a period of time.

5.80 Circumstances may also arise where the law is in the process of being changed but the period for the general power of administration elapses. In these situations, taxpayers could be provided a ‘safe harbour’ by the Commissioner exercising his general powers of administration not to seek compliance until the laws are passed. A similar exercise of these powers was made in relation to the ATO’s approach on service trusts.321

5.81 Where the law itself gives rise to an inequity, there may be scope for the ATO to extend the general powers not to seek compliance where the risk to the revenue is not material. However, issues of potential impacts on the competitors and the rule of law would need to be closely considered.

5.82 In making the following recommendation the IGT is in no way intending to restrict the operation of the good management rule that is currently effected through the Commissioner’s current general power of administration.

Recommendation 5.3

  1. The Government should consider providing the Commissioner of Taxation with the power to not take compliance action with respect to identified unintended, anomalous, inequitable or, impractical consequences of the tax laws for a period of three years whilst the Government takes any corrective action.
  2. In the longer term, the Government should consider whether the Commissioner should be provided with broader powers in line with recent developments in the field of responsive regulation that may foster better compliance, whilst also addressing the difficulties faced by taxpayers.

ATO response:

Matter for Government.

Liability discretions

5.83 Whilst, as described above, there are circumstances where the Commissioner should have some discretion to alleviate adverse consequences of strict adherence to law, there are other instances in our tax laws where Commissioner’s discretions are not so desirable.

5.84 One such area is where the calculation of taxpayers’ liabilities relies upon the Commissioner exercising a discretion. These discretions may involve forming an opinion, attaining a state of mind, making a determination, exercising a power or refusing to do any of these actions.322

5.85 Although discretions are desirable in that they can provide flexibility in the system, discretions also hinder taxpayers from ascertaining the consequences of their transactions at the time they are undertaken. Additionally, such provisions may not allow taxpayers to exercise objective reasonableness to determine their liability and not be penalised if that determination is subsequently disputed by the ATO with the benefit of hindsight.323

5.86 These types of discretions were identified as a source of concern as early as 1991,324 and work was undertaken to remove many of them, such as through the Tax Law Improvement Project.325 Notwithstanding this action, however, such discretions in the tax laws still remain.

5.87 More recently, Treasury’s 2004 ROSA review reinvigorated the resolve to replace those discretions with objective tests.326 The ROSA report recommended that action be taken:

Recommendation 6.3

Treasury should conduct a detailed review of discretions that go to the determination of a taxpayer’s liability and, wherever practical, recommend replacement tests that a taxpayer can apply at the time of lodgement.327

5.88 As part of Treasury’s subsequent detailed review, Treasury released a discussion paper that, among other things, provides distinctions between different types of discretions in the lax laws:

  • liability discretions — discretions that ‘authorise the Commissioner to make decisions affecting assessable income’, either containing a ‘choice for the Commissioner about certain facts [or] requiring the Commissioner to determine what is reasonable in the circumstances’;328
  • administrative discretions — discretions that allow the Commissioner ‘to modify rules which might be harsh for certain taxpayers if they were given a very strict legal application’;329 and
  • anti-avoidance discretions — discretions that ‘enable the Commissioner to protect the revenue against aggressive tax planning’.330

5.89 The Treasury review identified 825 discretions falling within these three categories:

  • 114 liability discretions;
  • 499 administrative discretions; and
  • 212 anti-avoidance discretions.331

5.90 Treasury proposed a principle based approach in examining whether and how a liability discretion could be replaced, by considering three practical questions:

Is there any reason why the provision should depend on the Commissioner’s discretion?

Can the taxpayer either: a. apply a reasonableness test; or, b. demonstrate that certain facts exist where currently the Commissioner must be satisfied?

Would changing the legislation introduce extra legislative complexity or additional compliance costs?332

5.91 In relation to the discretions concerning administrative matters, Treasury proposed their retention as they provided flexibility and, in appropriate cases, allowed the Commissioner ‘to focus on practical compliance rather than the letter of the law’. However, Treasury suggested that it could be possible to replace a number of specific discretions about particular topics with a broader principle (such as ‘that wherever the law requires things to be done by a certain time, the Commissioner may extend the time for doing those things’).

5.92 Treasury also concluded that there was no compelling reason to replace discretions to prevent avoidance as they were considered necessary to enable the Commissioner to protect the revenue against aggressive tax planning. Relevantly, Treasury also questioned whether all of the specific anti-avoidance provisions were necessary, given the effectiveness of the general anti-avoidance provision. It undertook to conduct a separate project to determine whether these specific anti-avoidance provisions could be consolidated or removed.333

5.93 As Treasury has not concluded this review of discretions, an examination of the published submissions to that Treasury review is instructive in understanding the particular concerns with these types of discretions.

5.94 In these submissions there was some debate over whether certain provisions were correctly classified as liability, administrative or anti-avoidance discretions. Overall, however, submissions supported the replacement of liability discretions with objective tests — that is, tests that a taxpayer can objectively apply at the time of lodgement. Objective tests of fact were preferred over tests of reasonableness (i.e. replacing the Commissioner's discretion to determine what is reasonable with an objective test that incorporates an element of reasonableness into the taxpayer's decisions) because a reasonableness test may not operate to reduce uncertainty or compliance costs.

5.95 It was noted that objective tests of fact may not be straightforward and there may be an ongoing need for the ATO to issue binding rulings to assist taxpayers with these tests, if at a somewhat reduced compliance burden than exists with liability discretions. However, this need could be mitigated if the legislation and supporting materials explained the objective behind the provision and set out the criteria to be taken into account. Additionally, submissions supported transitional arrangements that would help to minimise the increased compliance costs in becoming familiar with the new replacement tests.

5.96 Some caution was expressed that, unless replacement tests explained the underlying policy objective and clear criteria, there may be harsh, impractical or unintended consequences. One example of this was provided by the ICAA:

Under the alternative continuity of ownership test (COT) contained in the former section 80(2) a loss could be taken into account by a company if ‘the Commissioner [was] satisfied, or [considered] that it [was] reasonable to assume’ that there had been the requisite continuity. When those provisions were rewritten into the ITAA97 the discretion was removed and replaced with an objective test of reasonableness (see section 165-155(2)). That change lead to significant compliance difficulties for taxpayers which the Commissioner could not alleviate administratively. It was also one reason for the introduction in Taxation Laws Amendment Act (No 5) 2003 of the ‘default’ same business test time to address circumstances where a company failed the COT but was unable to identify the precise date on which that failure occurred.

As a consequence, the objective test should ideally contain a safe harbour provision and/or there should be a remedial or fall back Commissioner’s discretion to alleviate taxpayers from any unintended harshness or compliance difficulties.334

5.97 It should also be noted that some commentators suggest that there may be practical problems in rewriting longstanding provisions. For example, there may be a risk that a rewritten objective test will not be consistent with the original policy:

This could result in a narrowing of the practical scope of the discretion without a review of the validity of the original policy position. This can occur where the Commissioner applies a discretion in circumstances not expressly contemplated at the time the discretion was enacted. This variation may have occurred due to the courts having adopted an alternative interpretation. For example, the scope of discretion in the domicile test in s 6(1) of the ITAA36 definition of a ‘resident’ or ‘resident of Australia’ has been widened due to the Federal Court’s interpretation of ‘permanent place of abode’ in Applegate v Federal Commissioner of Taxation. As a result the domicile test also fails to meet its legislative intention of capturing government workers (i.e., the purpose of the domicile test was to extend the scope of the Act to ensure that ‘. . . Agent-Generals for the Australian States together with members of their staffs, to be treated as residents’).335

5.98 Comments were also made on the potential for discretions in future provisions. Some perceived a move in legislation affecting the business community (not just tax) towards increasing the number of discretions in the law and making the regulator’s power in relation to these quite broad. These submissions argued that any discretions should be narrow and any perceived avoidance should be dealt with under the general anti-avoidance rules. Although they acknowledged that there may be circumstances where a liability discretion is the preferred option, they considered that this should only be seen as a viable option after carefully considering whether clear self-executing criteria was an appropriate option.

5.99 In submissions to this IGT review, the above views were restated. In addition to these views, concerns were raised with suggestions that certainty in relation to the exercise of the Commissioner’s liability discretions could easily be obtained through obtaining ATO binding advice. In this respect, the difficulties in obtaining ATO binding advice also compound the degree of uncertainty experienced by the relevant taxpayers and the resulting costs.

5.100 In its submission published on its website, the ICAA provided an example of how the difficulty in obtaining binding ATO advice has contributed to the continuing uncertainty faced in resolving issues of liability discretions and an unwilling reliance on non-binding ATO material:

[I]n 2007 when the Institute sought to have the ATO provide guidance on the effect of the share capital tainting rules, the ATO agreed to issue a fact sheet on the issue. One particularly important issue identified at the time upon which we sought ATO guidance was the application of these rules to equity based remuneration arrangements. The ATO’s response to the Institute was that:

[The rights and obligations arising under these arrangements] may vary from case to case and would, in particular, require a thorough analysis of the vesting conditions, if any, which feature in particular arrangements. Because of the wide range of circumstances that may arise commercially and such diversity in facts, it is more appropriate to deal with questions of this nature by way of the private rulings process.

Almost four years later, this issue has now been escalated by the Public Rulings Steering Committee to the NTLG. At its June 2011 meeting the ATO agreed to issue a public binding ruling providing that external members provide detailed information on the transactions and accounting entries arising in some common employee share scheme structures. This issue is now identified as a ‘Top Strategic Issue’.

More recently, the ATO has responded that it is not prepared to issue a public ruling or other guidance on whether it would exercise its discretion in section 152-152(4) of the ITAA 1997 to extend the two year period for payments by a company or trust to a CGT concession stakeholder to be treated as exempt under the small business 15 year exemption rules (See minutes of NTLG Losses and CGT meeting of June 2011, agenda item 6). The fact that general guidance is provided in the CGT Tax Guide is not sufficient for taxpayers to self assess. So taxpayers must resort to requesting private binding rulings.

The problem with the length of time it takes to obtain a public ruling and the increasing tendency to ‘make do’ with other non-binding products is most likely to manifest itself in relation to new legislation. So, for example, to deal with the recent Corporations Act changes to the circumstances in which dividends may be paid (section 254T) and the consequential tax amendments, the Institute was happy to proceed via ATO fact sheets which are in the process of being prepared.336

5.101 Another example raised by a number of stakeholders (including tax practitioners servicing small and medium sized enterprises) was the ATO’s apparent reluctance to issue ATO binding advice in relation to demergers for private companies.

5.102 In the IGT’s view, this example indicates great scope for increased administrative efficiencies and taxpayer certainty by replacing liability discretions with objective tests. It also indicates a greater need for the ATO and tax practitioners to engage more effectively in dialogue to resolve technical issues of concern to numbers of taxpayers (an issue discussed further below).

5.103 Overall, taxpayer certainty could be improved and compliance costs reduced by a combination of the Treasury progressing its review of the replacement of the tax law discretions and the ATO releasing public binding advice in relation to any liability discretions remaining after that replacement work.337 During the IGT’s review, widespread support for Treasury’s completion of its review was voiced. However, given the potential number of discretions remaining in the tax laws and the need to examine the replacement of those discretions on a case by case basis, there would be considerable benefit in the ATO and the taxpaying community identifying the immediate priorities.

Recommendation 5.4

  1. The ATO should consult with taxpayers, tax practitioners and their representative bodies to identify discretions that should be replaced with an objective test and advise the Government of these discretions.
  2. In consultation with taxpayers, tax practitioners and their representative bodies, the Government should consider:
    1. replacing liability discretions in tax laws with objective tests; and
    2. replacing specific administrative discretions in relation to particular topics with a broader principle.
  3. The ATO should periodically consult on whether further ATO advice should be provided with respect to any liability discretions and where such advice is provided, what factors the Commissioner would consider as relevant and his reasoning in exercising his discretion.

ATO response:

5.4(a) Matter for Treasury.

The Treasury is the agency with primary responsibility for public consultations and advising Government on potential law design. The ATO will work closely with Treasury through any such consultation and advice process.

5.4(b) Matter for Government.

5.4(c) Agree.

Identification and prioritisation of potential topics for rulings and determinations is largely a demand-driven consultative and collaborative process involving representatives from the tax profession, such as the technical sub-committees of the National Tax Liaison Group (NTLG) and the NTLG Public Rulings Steering Committee, and the ATO continues to actively encourage the engagement of the tax professions in these processes.

The ATO will work with our various consultative groups to identify and prioritise any areas of uncertainty or significant concern in relation to tax law discretions that affect, either directly or indirectly, a taxpayer’s liability and which could benefit from possible tax rulings or determinations. The ATO will also implement a process with relevant consultative groups to ensure that we regularly focus on identifying any potential areas of uncertainty or significant concern in relation to tax law discretions that affect, either directly or indirectly, a taxpayer’s liability.


268 Michael Carmody, ‘The Art of Tax Administration — Two Years on’ (Speech delivered at the 6th International Conference on Tax Administration, Sydney, 15 April 2004).

269 See for example, Sir Robert Garran, Prosper the Commonwealth (Angus and Robertson, Sydney, 1958) in The Treasury, above n 1, p 65; ATO, Commissioner of Taxation: Annual Report 1990–1991 (1991) p 10.

270 See for example, Joint Committee of Public Accounts, above n 49, pp 80–81.

271 Australia’s Future Tax System, above n 6, Part 2 vol 2 p 655.

272 Australia’s Future Tax System, above n 6, Part 2 vol 2 pp 651–652; see also McKerchar, above n 166.

273 The Treasury, above n 1, p 66.

274 Joint Committee of Public Accounts, above n 49, pp 85-86.

275 Ibid p 88.

276 Ibid.

277 Review of Business Taxation, above n 28, p 95, Recommendation 1.1.

278 Ibid p 97.

279 Ibid p 134.

280 Board of Taxation, Government Consultation with the Community on the Development of Taxation Legislation: A Report to the Treasurer and the Minister for Revenue and Assistant Treasurer (2002).

281 Peter Costello, ‘Reforms to Community Consultation Processes and Agency Accountabilities in Tax Design’ (Media Release, 2 May 2002).

282 Australia’s Future Tax System, above n 6, Part 2 vol 2 pp 648–649.

283 D’Ascenzo, above n 75, p 59.

284 Board of Taxation, Improving Australia’s Tax Consultation System: A Report to the Treasurer (2007) Recommendation 3.

285 Tax Design Review Panel, Better Tax Design and Implementation — A Report to the Assistant Treasurer and Minister for Competition Policy and Consumer Affairs (2008) pp 32–33, Recommendation 12.

286 Ibid p 10.

287 Ibid p 24.

288 Ibid Recommendation 1; Board of Taxation, above n 284, Recommendation 3.

289 Tax Design Review Panel, above n 285, pp 23–24.

290 Ibid Recommendation 1.

291 Board of Taxation, ‘Post-Implementation Review of the Tax Design Review Panel Recommendations’ (Discussion Paper, 2011) p 24.

292 Ibid p 23.

293 Tax Design Review Panel, above n 285, p 25.

294 See for example, Deputy Commissioner of Taxation v PM Developments Pty Ltd [2008] FCA 1886.

295 D’Ascenzo, above n 20.

296 Australia’s Future Tax System, above n 6, Part 2, vol 2, pp 652–653.

297 Tax Design Review Panel, above n 285, p 38.

298 Ibid.

299 Ibid.

300 Australian Taxation Office, Communication to the Inspector-General of Taxation, 26 November 2011.

301 The Treasury, above n 1, p 72.

302 Ibid p 73.

303 See Bruce Quigley, ‘The Commissioner’s Powers of General Administration: How Far Can He Go?’ (Paper presented at the 24th National Convention (Tax Institute of Australia), Sydney, 12 March 2009).

304 Tax Design Review Panel, above n 285, Recommendation 24.

305 The Treasury, ‘An ‘Extra Statutory Concession’ Power for the Commissioner of Taxation?’ (Discussion paper, 12 May 2009).

306 See, ATO, Escalating a Proposal Requiring the Exercise of the Commissioner's Powers of General Administration, PSLA 2009/4, 19 May 2009.

307 Judith Freedman, ‘Responsive Regulation, Risk, and Rules: Applying the Theory to Tax Practice’ (2012) 44(3) UBC Law Review 627; Chris Evans, Judith Freedman and Richard Krever (eds), The Delicate Balance: Tax, Discretion and the Rule of Law (IBFD, 2011).

308 Carmody, above n 268.

309 Practice Statements Law Administration (General Administration) are used to explain the exercise of the Commissioner’s general powers of administration in relation to particular areas of the law: ATO, Law Administration Practice Statements, PS LA 1998/1, 2011, para [25].

310 For example, Taxpayers Australia, Administrative Concessions (10 May 2004).

311 The Treasury, above n 1, p 72.

312 ATO, above n 306, paras [14]–[19].

313 Ibid para [19].

314 Ibid para [6].

315 Australian Taxation Office, Communication with the Inspector-General of Taxation, 16 March 2012.

316 ATO, above n 306, para [12(g)].

317 Commissioner of Taxation v Anstis [2010] HCA 40.

318 Australian Taxation Office, above n 306.

319 Ibid Appendix B paras [5]–[6].

320 Quigley, above n 303.

321 Australian Taxation Office, Your Service Entity Arrangements (2006) pp 3-4.

322 The Treasury, ‘Review of Discretions in the Income Tax Laws’ (Discussion Paper, 2007) p 1.

323 Dirkis and Bondfield, above n 15, p 214.

324 John Kerin (Treasurer), Improvements to Self Assessment: Priority Tasks – An Information Paper (1991) pp 10-11; see also JCPA, above n 49, p 81.

325 The TLIP was a government-funded a three year project with the aim to simplify the income tax law by rewriting the law with a better structure and make it easier to understand. From 1994, the TLIP worked to rewrite many tax law provisions, culminating in the Income Tax Assessment Act 1997 and innovations in legislation design, such as its architecture, and legislative expression.

326 The Treasury, above n 1, p 62.

327 Ibid p 63.

328 The Treasury, above n 322, pp 7, 10.

329 Ibid p 8.

330 Ibid p 10.

331 Ibid p 4.

332 Ibid p 14.

333 Ibid.

334 Institute of Chartered Accountants in Australia, Communication to the Inspector-General of Taxation, 1 August 2011, p 3.

335 Dirkis and Bondfield, above n 15, p 214.

336 Institute of Chartered Accountants in Australia, Communication to the Inspector-General of Taxation, 1 August 2011, p 3.

337 It has been noted that as a matter of law the Commissioner may not bind himself to the future exercise of a discretion. However, public binding guidance on the potential relevant criteria and process that he may use in exercising a discretion would not operate to bind the Commissioner and would assist to reduce some taxpayer uncertainty and compliance costs.