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A report to the Minister for Revenue and Assistant Treasurer

24 January 2007


Telephone: (02) 8239 2111
Facsimile: (02) 8239 2100

Australian Government - Inspector-General of Taxation crest

Level 19, 50 Bridge Street
Sydney NSW 2000
GPO Box 551
Sydney NSW 2001

24 January 2007

The Hon Peter Dutton MP
Minister for Revenue and Assistant Treasurer
Parliament House
CANBERRA ACT 2600

Dear Minister

I am pleased to present to you my report on findings and recommendations in respect of the review of the Tax Office’s ability to identify and deal with issues concerning service entity arrangements. This review was announced as one of the three case studies which I would examine pursuant to my review into the Tax Office’s ability to identify and deal with major, complex issues within reasonable timeframes. This report has been prepared under section 10 of the Inspector-General of Taxation Act 2003 (the Act).

I have provided the Commissioner of Taxation with the opportunity to respond to the report’s findings and recommendations. The Tax Office’s response, including the relevant covering letters, is in Appendix 2 to the report. In finalising the report, I have fully considered the Tax Office’s response.

The Tax Office agrees with the majority of my recommendations. There are, however, some recommendations where the Tax Office has disagreed completely and others where it has indicated a less than full endorsement of implementation.

The Tax Office in its principal covering letter to the report has indicated that it has disagreed with many of the recommendations and that it could not find a lot to agree with in the report. These dismissive comments do not take into account the following:

  • The Tax Office has fully agreed with seven of the 12 recommendations, including five of the nine key recommendations and has partly agreed with three of the remaining five recommendations.
  • During the course of this review, the Tax Office implemented a number of changes to address concerns raised during this review. These include the following:
    • The Tax Office issued final guidance on service entities which addressed a number of the concerns raised by the community on previous drafts of this guidance.
    • The Tax Office issued some public guidance on the meaning and effect of the term ‘general administrative practice’. Previously there had been no such guidance material.
    • The Tax Office recommenced a process for monitoring the time it was taking to issue public rulings and determinations. This process was recommenced as a result of the Inspector-General finding that the Tax Office had halted this monitoring for a two year period.
    • The Tax Office introduced a feedback process for public rulings.
    • The Tax Office announced changes to its consultation processes which were in line with the Inspector-General’s recommendations.
    • The Tax Office modified its conduct in relation to a number of ongoing audits of service entity arrangements.

I propose to engage in a process of further dialogue with the Commissioner in relation to the two key recommendations the Commissioner does not agree with and the remaining recommendations which the Tax Office agrees with only in part. This process would, I expect, consider alternative approaches to achieving the remaining improvements sought by the review. The Tax Office was not prepared to discuss within a reasonable timeframe the recommendations from the review before the report was finalised.

One of the key recommendations that the Tax Office has expressed disagreement with relates to my view that in relation to service entities the Tax Office has changed a previous general administrative practice.

Further dialogue on this and other recommendations should be undertaken as part of the process leading up to the finalisation of my final and overall report on the Tax Office’s ability to deal with major complex issues within reasonable timeframes. This report will be finalised once all case studies which form part of this overall review are completed.

I offer my thanks for the support and contribution of many government bodies, professional bodies, business groups and individuals to this review. The willingness of many to provide their time in preparing submissions and discussing issues with myself and my staff is greatly appreciated.

Yours sincerely

[SIGNED]

David Vos AM
Inspector-General of Taxation


Reviewer:

Helen Warner


© Commonwealth of Australia 2007

ISBN 0 642 74385 1

This work is copyright. Apart from any use as permitted under the Copyright Act 1968, no part may be reproduced by any process without prior written permission from the Commonwealth.