CRP not suitable for tax administration
The Commissioner of Taxation has limited powers to modify the operation of tax law in circumstances where entities will benefit, or at least be no worse off, as a result of the modification. This power is known as the Commissioner's remedial power (CRP).
The following information describes situations where the Commissioner was unable to use the CRP to modify the operation of the law to assist with tax administration.
Interest on overpayments of withholding tax
Issue description
Where the Commissioner amends the rate of withholding tax (WHT) for non-residents after an internal review, there is no ‘decision to which this Act applies’ and therefore no entitlement to interest on overpayment (IOP).
It was suggested that the CRP could be used to modify the law to create an entitlement to IOP.
However, it is clear from clause 3 of the Explanatory Memorandum to the Taxation (Interest on Overpayments) Bill 1983 that it was not intended that IOP be paid in these circumstances.
CRP suitability
This is unsuitable as it is inconsistent with the intended purpose or object of the relevant provision.
GST and amended indirect tax assessments
Issue description
The Taxation (Interest on Overpayments and Early Payments) Act 1983 (TIOEP Act) provides that interest is payable where early payments are made on specified tax liabilities, and on overpayments of income tax and other specified tax liabilities arising from an assessment or other decision to which the TIOEP Act applies. For an entitlement of interest on an overpayment to arise, it must be in relation to a relevant tax (which includes GST and indirect tax). Decisions to which the TIOEP Act applies include objections and court or tribunal decisions.
Use of the CRP was sought to create an entitlement to interest on overpayments of GST and indirect tax assessments that arise from non-litigious methods, such as alternative dispute resolution, ATO internal review or settlement entered into under a court or tribunal order.
The policy intent of the TIOEP Act is clear from the Act and the Explanatory Memorandum to the TIOEP Bill, which provides ‘authority for the Commissioner of Taxation to pay interest on certain refunds of tax made as a result of a successful objection or appeal by a taxpayer against an assessment or other decision of the Commissioner’.
Since interest on overpayments was only designed to be available in certain, specific circumstances, the modification was deemed unsuitable for the CRP as the law was operating as intended.
CRP suitability
This is unsuitable as it is inconsistent with the intended purpose or object of the relevant provision.
Expanding rules for offsetting tax debts
Issue description
Under the payment and crediting provisions in Division 3 of Part IIB of the Taxation Administration Act 1953 (TAA), the Commissioner must treat certain payments, credits and running balance account (RBA) surpluses by either:
- allocating them to a running balance account (RBA) of the entity, or
- applying them against a non-RBA tax debt of the entity.
Some limited exceptions to this are provided in subsections 8AAZL(3) and 8AAZL(4) of the TAA.
Use of the CRP was proposed to expand these exceptions so that a tax refund would not have to be offset against an entity’s tax debt. This was proposed with the view to assist taxpayers who might be experiencing financial hardship.
However, the relevant provisions in the TAA establish a mandatory regime for the offsetting of tax debts against payments, credits and RBA surpluses. There is no discretion under these provisions for the Commissioner not to offset a credit or other relevant amount against particular debts, except in the limited circumstances that are prescribed in subsections 8AAZL(3) and 8AAZL(4).
Allowing the Commissioner to not offset tax debts with credits in additional circumstances, as proposed, would be inconsistent with the policy intent of the provisions. The parliament has specifically legislated limited exceptions to the offsetting requirement and outlined the policy basis for them in relevant explanatory memoranda.
CRP suitability
This proposal is unsuitable as it is inconsistent with the intended purpose or object of the relevant provisions.
Release of debts in cases of serious hardship
Issue description
Division 340 of Schedule 1 to the TAA confers power on the Commissioner to release certain entities from some liabilities in circumstances where satisfying those liabilities would cause ‘serious hardship’.
Use of the CRP was proposed to alter the conditions under which the Commissioner could release an entity from a liability – including to allow the Commissioner to provide a release contingent on the entity not later entering bankruptcy. This was proposed to address a perceived adverse interaction between Division 340 and bankruptcy laws, namely that the Commissioner might resist releasing an entity experiencing serious hardship from a liability if it would prejudice the Commissioner’s ability to participate as a creditor should the entity later enter bankruptcy.
However, the text of Division 340 and relevant explanatory materials indicate these provisions were intended to enable the Commissioner to provide a permanent and final release from certain liabilities in circumstances where this would avert serious hardship from occurring.
Allowing the Commissioner to release an entity from a liability on the condition they don't later enter bankruptcy would undermine the finality that comes with having a debt extinguished and would be inconsistent with the policy intent of the provisions. Further, as there would likely be difficulties in administering a contingent release and what was occur in the event of bankruptcy, it would also not be reasonable to proceed.
CRP suitability
This proposal is unsuitable as it is inconsistent with the intended purpose or object of the relevant provisions, and it is also not reasonable.