A2.1 On 7 December 2003, the Inspector-General of Taxation released five issues papers that outlined about 60 systemic tax administration issues of concern which were raised by taxpayers and their representatives during the course of his scoping review. Paragraphs 34 to 37 of Issues Paper 4 outlined the issues of concern about the Tax Office imposing penalties equitably:
34. The penalty regime that applies to all tax laws administered by the Commissioner of Taxation is defined in Schedule 1 of the TAA 1953. The penalty regime consists of three distinctive components: penalties relating to statements and schemes, penalties for failure to lodge returns and other documents on time, and penalties for failing to meet other taxation obligations.
35. Tax practitioners and industry representatives have expressed concern at the ATO's attitude to the administration of some of these penalty arrangements, in that the ATO automatically applies penalties in a 'speeding infringement' or 'bulk' fashion without asking questions, including where the ATO may have contributed to the taxpayer's failure to meet his or her obligations.
36. The ATO's approach to the administration of penalties is highlighted in the ATO Receivables Policy and ATO Compliance Model, which states that:
The individual circumstances of a taxpayer contribute to his or her underlying attitudes to compliance and to the subsequent behaviour. Accordingly, the Tax Office's strategies, including its approach to the imposition of penalties, are designed to improve that behaviour and in the long term, the underlying attitude to compliance.
37. Any review into this issue could examine the ATO's administrative systems for the application of penalties, including reviewing the ATO Receivables Policy and ATO Compliance Model.
A2.2 On 27 July 2004, the Inspector-General consulted representatives from selected industry, business, accounting, legal practitioner and tax organisations about the prioritisation of his work programme for the next six months. Key issues discussed during this consultation were tax audits and penalties, compliance costs, tax agent support and litigation management. However, the most significant theme emerging related to the Tax Office's conduct in dealing with taxpayers subject to a tax audit and the consequences arising from those audits.
A2.3 Following this meeting the Inspector-General placed the issue of the Tax Office's approach to imposition of penalties and interest resulting from audit activity on his forward work programme for 2004-05.
A2.4 The Inspector-General announced the review into the consistency of the Tax Office's application of penalties and interest to businesses during active compliance activities on his website, www.igt.gov.au, on 23 November 2004. The review was also reported in the press and in specialist accounting and taxation law publications.
A2.5 Written submissions to the review were taken from professional organisations representing accountants and tax practitioners, business and the general public.
A2.6 The Commissioner of Taxation was asked to provide information and documents relevant to the review. Visits were made to the Tax Office's National, Sydney, Hurstville, Casselden Place and Moonee Ponds offices to examine relevant files and interview relevant Tax Office staff.