The Inspector-General of Taxation (IGT) work program sets out the areas of tax administration that will be reviewed with the aim of identifying improvements for the benefit of all Australians. As in prior years, the 2017 work program has been developed following extensive consultation with taxpayers, tax professionals and their representative bodies as well as government agencies such as the Australian National Audit Office (ANAO), the Commonwealth Ombudsman, the Australian Taxation Office (ATO), the Tax Practitioners Board (TPB) and the Treasury. The Minister for Revenue and Financial Services and some Parliamentary Committees were also invited to provide input.
In addition to the above consultation, the 2017 work program has also drawn on themes arising from the complaints handling service which the IGT has been providing since 1 May 2015. The primary purpose of this service is the provision of specialist assistance to taxpayers and independent investigation of their complaints about the ATO or the TPB. In addition, it provides real time insights into emerging tax administration issues affecting the community. Future work programs may increasingly rely on such insights.
The combination of public consultation and complaints handling data has led to a work program which reflects the issues of greatest community concern or significance in achieving a fairer, more efficient and transparent tax administration system. The IGT intends to commence at least three reviews in the 2017 calendar year.
Reviews to commence in 2017
Goods and Services Tax Refunds
Since 2012, the ATO's discretion to withhold Goods and Services Tax (GST) refunds for verification has been governed by section 8AAZLGA of the Taxation Administration Act 1953. The provision allows the ATO to retain a refund until it is no longer reasonable to require verification. Complaints data and submissions to the work program have indicated that the ATO's administration of this provision may, in some instances, result in inappropriate and unfair delays in GST refunds being issued. This review will examine the ATO's administrative approaches, the impact on taxpayers and the need for any administrative or policy improvements.
Pay As You Go Instalments System
The Pay As You Go Instalments (PAYGI) system requires taxpayers with business and/or investment income to make regular payments towards their expected income tax liability. Submissions and complaints received suggest that the system is generating confusion and misunderstanding for certain taxpayers who are required to make these payments. The interactions between the PAYGI and income tax systems as well as the related correspondence will be explored to identify potential opportunities for improvement.
Future of the Tax Profession
The IGT is conducting this review in response to a request from the Commissioner of Taxation (Commissioner).1 The IGT has, in recent years, examined the state of the ATO's services and support for tax practitioners.2 This review will be forward-looking and will examine the future role of tax professionals in the tax system particularly in light of increased use of digital technology and ATO service delivery initiatives. In doing so, the IGT will also examine concerns raised by tax practitioners with the IGT on issues affecting their industry. The IGT will consult extensively with the tax profession, the ATO and the TPB to identify opportunities to improve the tax system as a whole.
The IGT has also identified four additional reviews which may also commence in the 2017 calendar year depending on time and resourcing considerations as well as competing priorities which may emerge such as the need for the IGT to respond to risks identified through the complaints handling service, Ministerial directions or Parliamentary requests for the IGT to undertake certain investigations.
Influencing Willing Participation in the Tax and Superannuation Systems
The Commissioner has also requested that the IGT undertake a review to identify strategies and opportunities for the ATO to work with others to encourage willing participation in the tax and superannuation systems. The review would focus particularly on youth and school programs as well as strategies to engage with new arrivals to Australia. New entrants into the tax system are often amongst the most vulnerable and strategies to support and encourage their early participation and compliance will likely yield significant benefits for them and the community.
ATO Advice and Guidance
Stakeholders have raised concerns regarding the ATO's approach to providing advice and guidance. In particular, they have noted fewer public rulings being issued and the ATO's use of practical compliance guidelines and website materials both of which provide less certainty for taxpayers. The ATO's use of Taxpayer Alerts was also identified as another area of concern, especially when and how these will be issued and the uncertainty they create when there is no subsequent ATO guidance or action. In relation to private rulings, the concerns related to timeliness, the ATO's unwillingness to rule on certain issues and, in some instances, issuing 'letters of comfort', which do not provide the same level of certainty. The ATO has informed the IGT that it has more recently undertaken an internal review of its public advice and guidance processes. The IGT will monitor these issues and if concerns persist, a review in this area may be conducted.
Fraud or Evasion Opinions
Stakeholders have raised concerns with the ATO's use of fraud or evasion opinions based on which the ATO may examine and amend assessments outside of standard periods of review (typically 4 years). Significant compliance and evidentiary burdens may be imposed on taxpayers wishing to dispute such amended assessments because of the considerable time that may have elapsed since those assessments were initially made. Complaints and concerns raised with the IGT have claimed that the ATO's processes for forming fraud or evasion opinions are not sufficiently robust and may lead to unfair outcomes. The review would examine the ATO's administrative processes, evidence gathering and engagement with taxpayers. The IGT has been advised that the ATO is currently undertaking an internal review of its use of fraud or evasion opinions across all business lines. The IGT will consider any improvements resulting from such a review and determine whether to commence his own investigation.
Research & Development
Stakeholders have raised concerns about the ATO's approach to Research & Development (R&D) Tax Incentive claims. The major concerns relate to the interactions between the ATO and AusIndustry and, in particular, the eligibility of R&D activities being questioned during ATO compliance activities where the taxpayer believed that AusIndustry had, at least, tacitly approved such eligibility in the past. The IGT notes that there has been a recent review of the R&D Tax Incentive which was completed in 2016.3 Moreover, in considering these issues, the IGT would only be empowered to examine the relevant actions of the ATO and not that of AusIndustry. Accordingly, to the extent that concerns persist, the IGT may either consider the issue within the constraints of his jurisdiction or, alternatively, may engage with other agencies, such as the Commonwealth Ombudsman, to examine the issue holistically.
Notable areas not included on the 2017 Work Program
Submissions to the work program as well as complaints cases have also surfaced a number of other potential review topics. For the reasons set out below, the IGT will not conduct reviews into these areas as part of this work program:
- Debt collection and superannuation guarantee – Although these areas form a large portion of complaints made to the IGT and have been raised in submissions to the work program, the IGT has recently conducted broad-based reviews into them4 and there are other relevant reviews5 on foot. Accordingly, the IGT does not believe further broad reviews in these areas are presently warranted. However, the IGT will continue to monitor the relevant issues through its complaints handling service and, where appropriate, may undertake targeted reviews into discrete areas generating the highest levels of concern.
- Settlements and litigation – The IGT has undertaken a number of reviews over the years on these areas6 and continues to maintain a watching brief on issues which may emerge. A further review by the IGT at this point in time is unlikely to yield different insights or outcomes. The IGT also notes that the ANAO has listed Negotiated Settlements as a potential review.7
- Transfer pricing – The IGT undertook a wide-ranging review into the ATO's approach to transfer pricing in 2014.8 Moreover, the main concerns raised seem to relate to measures that are announced but not yet legislated (e.g., diverted profits tax (DPT)) or those that have recently been enacted (e.g., Multinational Anti-Avoidance Law (MAAL)). In both cases, it seems appropriate to allow the ATO some time to consult and implement its administrative approach before any IGT review is conducted.
- Compliance approach to large businesses – Concerns have been raised about the ATO's compliance approach to large business which have canvassed a range of issues including compliance costs resulting from various initiatives such as 'justified trust', reportable tax positons, key taxpayer engagements and annual compliance agreements as well as measures relating to combating Base Erosion and Profit Shifting. The IGT has previously examined the ATO's approach to large businesses9 and as the issues raised in this area relate largely to newly implemented or announced initiatives, the IGT believes that further time should be allowed to pass before their effectiveness is reviewed.
- Digital by default and electronic engagement with taxpayers – The IGT continues to receive concerns from taxpayers who experience difficulties in interacting digitally with the ATO and has sought to assist these taxpayers through the complaints handling service. The IGT also notes that the House of Representatives Standing Committee on Tax and Revenue is inquiring into how taxpayers engage with the tax systems10 and the ANAO is currently finalising its report into the effectiveness of the myGov platform.11 Furthermore, some of the concerns may be addressed in other IGT reviews such as the above-mentioned review into the future of the tax profession.
Inspector General of Taxation
27 January 2017
1 - Inspector-General of Taxation Act 2003, para 8(3)(b).
2 - Inspector-General of Taxation (IGT), The Australian Taxation Office's services and support for tax practitioners (2015).
4 - See for example: IGT, Debt Collection (2015); IGT, Review into the ATO compliance approach to employer obligations (2016 – not yet released); IGT, Review into the ATO's administration of the superannuation guarantee charge (2010).
5 - Senate Economics References Committee, Superannuation Guarantee Non-Payment (1 December 2016 – in progress).
6 - See for example: IGT, The Management of Tax Disputes (2015); IGT, The ATO's use of early and alternative dispute resolution (2012); IGT, Review into aspects of the Tax Office's settlement of active compliance activities (2009).
8 - IGT, Review into the ATO's management of transfer pricing matters (2014).
9 - IGT, Report into the Australian Taxation Office's large business risk review and audit policies, procedures and practices (2011).
10 - House of Representatives Standing Committee on Tax and Revenue, Inquiry into taxpayer engagement (25 November 2016 – in progress).