The ATO handles most disputes satisfactorily; however some disputes go off the rails, according to a report tabled [on 26.3.15] by Chair of the House Tax Committee, Bert van Manen MP.
The committee inquiry found that some disputes can go awry because of the ATO’s strong powers, the fact that the ATO does not engage with taxpayers, and that the ATO’s investigators and reviewers, for the great majority of disputes, are located in the compliance area of the ATO.
The committee Chair said poorly managed disputes had severe consequences for taxpayers.
“The committee received evidence that taxpayers suffer enormous emotional stress. Disputes can contribute to marriages breaking-up.”
The report, which focuses on small taxpayers and individuals, acknowledges the improvements that the ATO has made over the last few years. However, the committee believes that the ATO can build on these reforms with further actions.
A key recommendation is that the Government should create a new Second Commissioner to manage objections and litigation independently from the compliance and legal areas of the ATO.
Further, the ATO should:
- have more robust protocols on communication between auditors and objections officers
- have more robust processes for making allegations or findings of fraud or evasion
- have the burden of proof in relation to fraud or evasion after the statutory record-keeping period has expired
- be more reasonable in terms of deadlines and volumes when making information requests of taxpayers
- consider having a direct discussion with taxpayers at the various stages of a dispute.
… there is scope for improvement and full implementation of the committee’s recommendations will produce a fairer tax system, leading to better outcomes for taxpayers and also for the ATO.”
For media comment: please contact Nathan Kucks on 02 6277 4719.
[For information about the inquiry: please contact the committee secretariat by telephone (02) 6277 4821, e-mail email@example.com, or visit the committee website
[Report issued 26 March 2015, Standing Committee Chair: Mr Bert van Manen MP; Deputy Chair: Dr Jim Chalmers MP; Telephone: 02 6277 4821 Parliament House Facsimile: 02 6277 2220 PO Box 6021 E-mail: firstname.lastname@example.org CANBERRA ACT 2600]
[Standing Committee’s media alert] [IT 26.3.15] [LTN 58, 26.3.15]
Standing Committee Recommendations
The House of Representatives’ Standing Committee on Tax and Revenue has tabled its report arising from the inquiry into tax disputes.
The report makes twenty recommendations. To the extent that the Government accepts these recommendations (some of which may require legislative change), the ATO will implement them. The recommendations are:
Recommendation 1 – tax fairness in disputes (KPI)
The Committee recommends that the Australian Taxation Office review its performance reporting measures and:
- develop a measureable key performance indicator of taxpayer perceptions of fairness in tax disputes;
- that this key performance indicator be monitored and reviewed by the Australian Taxation Office executive on a regular basis (at least half-yearly); and
- that the outcomes against such a key performance indicator be reported in the Australian Taxation Office Annual Report.
*Recommendation 2 – moderate interest penalties
The Committee recommends that the Government amend the tax laws and the Australian Taxation Office consider other administrative means by which interest charges would not act as leverage against a taxpayer during a tax dispute.
Recommendation 3 – remit interest penalties more often
The Committee recommends that the Australian Taxation Office amend its internal and external guidance so that it remits interest where:
- the Australian Taxation Office takes longer than the 60 days available to it to finalise an objection and the taxpayer has acted in good faith; and
- the Australian Taxation Office changes arguments after assessments have been made (such as during an objection or litigation).
Recommendation 4 – ‘fraud or evasion’ findings only at senior level
The Committee recommends that the Australian Taxation Office amend its internal guidance so that only an officer from the Senior Executive Service can make findings of, or suspicion of, fraud or evasion.
Recommendation 5 – ‘fraud or evasion’ findings on clear evidence
The Committee recommends that the Australian Taxation Office only make allegations of fraud against taxpayers when evidence of fraud clearly exists.
Recommendation 6 – ‘fraud or evasion’ addressed ASAP in audit
The Committee recommends the Australian Taxation Office should ensure that allegations of fraud or evasion are addressed as soon as practicable in an audit or review.
*Recommendation 7 – ATO onus to establish ‘fraud or evasion’ after 5 years
The Committee recommends that the Government introduce legislation to place the burden of proof on the Australian Taxation Office in relation to allegations of fraud and evasion after a certain period has elapsed. The change should be harmonised with the record keeping requirements. These periods could be extended, subject to concerns of regulatory costs on business and individuals.
Recommendation 8 – judicial approval to issue a DPO
The Committee recommends that the Government introduce legislation to require judicial approval for the Commissioner of Taxation to issue a departure prohibition order.
Recommendation 9 – tell taxpayers of model litigant requirements early
The Committee recommends the Australian Taxation Office better engage with taxpayers prior to litigation so that they are aware of what the model litigant rules require, and do not require, of the Australian Taxation Office.
Recommendation 10 – AGS to advise on model litigant best practice
The Committee recommends the Australian Taxation Office approach the Australian Government Solicitor to determine if they can provide advice and assistance to the Australian Taxation Office in terms of best practice in complying with the model litigant rules.
Recommendation 11 – Small Claims Tribunal: double threshold or cease?
The Committee recommends that the Government review the Small Taxation Claims Tribunal and determine whether it should continue. If so, there should be a one-off increase to the $5,000 limit to take account of inflation since 1997 and a system introduced so the threshold increases incrementally in future to keep pace with inflation.
Recommendation 12 – implement direct taxpayer conferences often
The Committee recommends that the Australian Taxation Office implement recommendation 3.5.2 from the Inspector-General’s report on alternative dispute resolution for all taxpayers (i.e. considering whether to engage in direct conferences with taxpayers at multiple points in a dispute).
Recommendation 13 – requests for information more realistic
The Committee recommends that the Australian Taxation Office give more consideration to taxpayers when making information requests, with priority given to:
- setting timeframes in practice statements, with a minimum of 28 days for all requests;
- giving taxpayers the opportunity to seek an extended timeframe upon receipt of a request; and
- giving reasons for an information request, typically based on a risk hypothesis.
Recommendation 14 – triage disputes for escalation to best staff
The Committee recommends the Australian Taxation Office introduce a triage system for disputes so that, early in a dispute, matters can be escalated to ATO staff sufficiently senior or with the appropriate technical skills to resolve the dispute quickly and effectively. Such decisions should consider taxpayer fairness, among other criteria.
Recommendation 15 – written notice of issues/topics in s264 interview
The Committee recommends that, as much as practicable, the Australian Taxation Office should give taxpayers written notice of issues and topics to be raised in section 264 interviews.
Recommendation 16 – Ombudsman recommend better ATO compensation
The Committee recommends that the Australian Taxation Office invite the Commonwealth Ombudsman to advise on improving its compensation processes, including compensation liability and amounts.
Recommendation 17 – no audit commentary to objections officer
The Committee recommends that the Australian Taxation Office ensure that the information passed between an auditor and an objection officer surrounding a dispute only consist of the factual case documents, and the audit conclusion provided to the taxpayer. Any internal auditor commentary on the dispute should remain with the audit team.
Recommendation 18 – TCN only provide advice at audit or objection stage
The Committee recommends that the Australian Taxation Office develop protocols to ensure that an individual Tax Counsel Network officer only be allowed to provide advice or contribute to the provision of advice at the audit or objection stage of a dispute.
*Recommendation 19 – separate Appeals Area under new 2nd Commissioner
The Committee recommends that the Australian Taxation Office establish a separate Appeals area under the leadership of a new Second Commissioner – Appeals to:
- carry out the objection and litigation function for all cases;
- establish and publicly articulate clear protocols regarding communication between Appeal officers and compliance officers, including a general prohibition against ex-parte communication, save where all parties are informed of, and consent to, such communication taking place; and
- empower the appeals function to independently assess and determine whether matters should be settled, litigated or otherwise resolved (for example, Alternative Dispute Resolution).
Recommendation 20 – appoint new Second Commissioner – Appeals
The Committee recommends that the Government establish a new position of Second Commissioner – Appeals, reporting to the Commissioner of Taxation to head up the new Appeals area within the Australian Taxation Office.
Other – During the tax disputes inquiry, the Standing Committee asked the Inspector-General of Taxation to assist by conducting a review into the management of tax disputes in relation to the large business and high wealth individual (HWI) themes of the inquiry. The link to the Inspector-General report is here.
[Source: ATO Legal Professional Relationships email 26/3/15]
The report into tax disputes by the House of Representatives Standing Committee on Tax and Revenue was tabled in Parliament [on Thur 26.3.2015]. According to the Committee, the ATO handles most disputes satisfactorily; however, it found room for improvement. A key recommendation is that the Government create a new Second Commissioner to manage objections and litigation independently from the compliance and legal areas of the ATO. Further, the Committee said the ATO should:
- have more robust protocols on communication between auditors and objections officers;
- have more robust processes for making allegations or findings of fraud or evasion;
- have the burden of proof in relation to fraud or evasion after the statutory record-keeping period has expired;
- be more reasonable in terms of deadlines and volumes when making information requests of taxpayers; and
- consider having a direct discussion with taxpayers at the various stages of a dispute.
[LTN 58, 26/3/15]
ATO supports tax disputes recommendations – including appeals being separated from from audit
The ATO has issued a media release in response to the House of Representatives Standing Committee on Tax and Revenue’s report into Tax Disputes released [on Thur 26.3.2015]. The Commissioner said many of the recommendations of the report reinforce the strategies the ATO already has in place or is putting in place to improve dispute resolution. He said these new approaches are already having a positive impact and have been acknowledged by the community and key stakeholders alike.
“We support managing disputes separately from audit and this is consistent with our newly established Review and Dispute Resolution area. It is independent from our Compliance and our Tax Counsel areas and we have robust systems in place to ensure independence and fairness for taxpayers,” Mr Jordan said. “Historically, a very small number of disputes have been dealt with poorly. The positive feedback and reports of change that were presented to the Committee are evidence the ATO’s improvement strategies for effective and fair dispute resolution are working,” he added. The Commissioner said the ATO will “be examining the report in detail and making a formal response”.
[LTN 59, 27/3/15] [IT 27/6/15]