What the CRP is
The Commissioner of Taxation has limited powers to resolve certain unintended and unforeseen outcomes in the operation of the tax and super laws provided taxpayers will benefit, or at least be no worse off, as a result of the changes.
The Commissioner's remedial power (CRP) is a discretionary power. The Commissioner can use this power in limited circumstances where law change would otherwise be required to remedy an issue with the law that was not intended by parliament. The CRP is generally only used when other non-legislative options, such as administrative or interpretive approaches, can't resolve an issue.
The CRP may only be used to resolve general issues that arise for all taxpayers, or issues that impact a particular class of taxpayers. It can't be used to resolve specific issues affecting a particular individual. Further, the CRP is not an alternative to objecting to a decision made by the Commissioner.
The Commissioner exercises the CRP by making a disallowable legislative instrument that modifies the operation of a tax or super law to ensure it can be administered as intended. This allows for a more timely resolution of the issue relative to legislative amendments by parliament. This also allows legislative resources to be prioritised towards more significant work.
The CRP can only be validly exercised where:
- the modification is not inconsistent with the intended purpose or object of the provision
- the Commissioner considers the modification to be reasonable, having regard to
- the intended purpose or object of the provision
- whether the costs of complying with the provision are disproportionate to achieving the intended purpose or object
- any impact on the Commonwealth budget would be negligible.
See a summary of the CRP process and how to make a CRP submission.
Limitations on exercising the CRP
The Commissioner can only exercise the power where the following legislative criteria have been satisfied.
The modification must not be inconsistent with the intended purpose or object of the provision
It is unavoidable that there will be a range of circumstances, arrangements or transactions that were not known to exist, or did not exist at the time of drafting the law. However, had the circumstances, arrangement or transaction been considered at the time of drafting, the law would have been different. In these circumstances, exercising the CRP to apply the law in a modified way would not be inconsistent with the intended purpose or object of the law.
This criterion allows the Commissioner to consider the broader context of the particular taxation law being examined. The Commissioner is able to focus beyond interpreting only the words of the law. To determine the intended purpose or object of the provision, the Commissioner may consider a variety of materials, such as the explanatory memorandum for the Bill, the second reading speech and relevant government announcements.
Example: consistency with intended purpose
Under the tax law, it is an offence for taxation officers to disclose taxpayer information unless the disclosure is permitted by law. For instance, taxation officers are able to disclose taxpayer information to a taxpayer’s ‘legal personal representative’, which includes ‘an executor or administrator of an estate of an individual who has died.’
An applicant requested the CRP be exercised to expand the definition of 'legal personal representative' to include persons entitled to be a taxpayer’s legal personal representative in circumstances when it would otherwise be uneconomical to obtain a grant of probate or letters of administration.
However, the explanatory material that accompanied the offence provisions clearly indicate parliament's intention that only those entities listed in the legislation can access information on behalf of a taxpayer.
The requested CRP modification would require the Commissioner to presuppose and determine who is entitled to be a legal personal representative (and depart from the exhaustive list of entities determined by Parliament). Accordingly, the modification is inconsistent with the intended purpose of the disclosure provisions, meaning the CRP can't be used.
End of exampleThe Commissioner must consider the modification to be reasonable
The Commissioner must consider the modification to be reasonable, having regard to:
- the intended purpose or object of the relevant provision, and
- whether the cost of complying with the provision is disproportionate to achieving that intended purpose or object.
Both factors should be considered. However, in some cases, one may be a more relevant consideration than the other. For example, whether compliance costs are disproportionate may not be relevant if the provision being considered does not impose compliance costs on a taxpayer.
When considering whether a modification is reasonable, the Commissioner may consider a range of matters, for example the:
- extent to which the modification is favourable to taxpayers
- extent to which the modification has any adverse direct impact on the tax liability of a third party
- impacts on any current judicial interpretation of the relevant law.
Example: reasonable modification
Under the tax law, contracts entered on or after 1 July 2016 require purchasers of certain Australian assets to pay 10% of the purchase price to the Commissioner where they believe the vendor is a foreign resident. The vendor will claim a credit for the amount withheld when they lodge their tax return.
However, certain tax crediting provisions prevent the vendor from claiming that credit where the capital gains tax (CGT) event occurs in one income year and settlement occurs in a later income year. This is because the vendor is only entitled to the credit when the amount withheld is paid to the Commissioner, which normally occurs at settlement.
An applicant requested the CRP be exercised to change the operation of these tax crediting provisions so the entitlement to the credit arises in the same income year the CGT event occurs in.
The requested CRP modification would operate in a similar manner to other tax law provisions that treat a credit entitlement arising in a preceding income year where payment and withholding takes place in a later income year. Further, this modification would avoid a crediting mismatch which can result in unintended compliance costs and adverse cash flow impacts for affected entities. Accordingly, the Commissioner considered the modification to be reasonable, meaning the CRP may be used (subject to satisfying all other criteria).
End of exampleThe proposed modification must have a negligible impact on the Commonwealth budget
The CRP can only be exercised if the impact of the modification on the Commonwealth budget would be negligible. The Commissioner must receive advice from the Treasury, or the Department of Finance, that the impact on the Commonwealth budget would be negligible.
Impacts on the Commonwealth budget will be determined through the ordinary processes and budget rules. The guidelines issued under the Charter of Budget Honesty Act 1998 by the Secretaries to the Treasury and the Department of Finance provide further information on the considerations used when undertaking costings.
This means that any CRP costing must focus on the financial impact on the Australian Government’s key budget aggregates. The costings measure the difference in expected budgetary financial impact under the proposed modification and the expected impacts already included in the ‘forward estimates’. A variety of information sources, modelling and data analysis is used to estimate the budget impact of a CRP modification.
Application of CRP legislative instruments
The CRP can't be used to modify the operation of a tax or super law for a particular taxpayer. This includes exercising the power in relation to a class that is so narrowly defined that it could practically only cover one taxpayer.
To ensure that particular taxpayers are not adversely impacted by the Commissioner exercising the CRP, the modified law will only apply where it is no less favourable to the taxpayers than under the existing law.
The taxpayer will need to self-assess whether a modification is less favourable to it. If a taxpayer is required to treat a modification as not applying to them, then the Commissioner must also treat the modification as not affecting that particular taxpayer. This ensures that a modification which is less favourable to a taxpayer can still be valid and apply to taxpayers who do not have a less favourable outcome from the modification.
External consultation on CRP matters
We consult with representatives from the CRP Advisory Panel and the Board of Taxation on all CRP candidates.
The CRP Advisory Board is a group of private sector specialists, along with representatives from the ATO and the Department of the Treasury, whose primary function is to assess whether a CRP candidate is suitable for the CRP or not.
We may also undertake targeted consultation with relevant professional, industry or government stakeholders to further assist the CRP Advisory Panel in its assessment. Where targeted consultation is undertaken, high level information will be published in the candidate summary on When the Commissioner's remedial power has been used.
The Commissioner also releases a draft CRP legislative instrument and explanatory statement for public consultation prior to any proposed exercise of the CRP. Open consultation provides access to all matters we are currently consulting on. All feedback from public consultation is considered prior to the CRP legislative instrument being made.
Once made and registered, a CRP legislative instrument is also subject to parliamentary oversight and will not apply until a 15-sitting-day disallowance period (in each House of Parliament) has concluded.
To provide feedback on CRP legislative instruments currently open for consultation, go to the Consultation Hub.