External body tax dispute reflections
Members shared general insights regarding Australian Taxation Office (ATO) objections, settlements and alternative dispute resolution. The ATO noted an uptick in objections from small businesses and individuals, particularly in late 2023 to early 2024. To address this, the ATO increased efficiency by clustering cases and increasing staffing levels.
Members shared a sentiment that the ATO appears more reluctant to settle cases and engage in alternative dispute resolution. The ATO confirmed there have been no policy changes in these areas and noted the number of settlements and cases managed via alternative dispute resolution remain consistent with historical levels.
Inspector-General of Taxation and Taxation Ombudsman
The Inspector-General of Taxation and Taxation Ombudsman (IGTO) reflected on their first 3 months in office. Looking ahead, the IGTO aims to increase awareness of their role and impact and will focus on the issues of financial abuse, hardship, identity fraud, and missing superannuation. A finalised work plan will be released in October 2024.
The IGTO shared insights from an upcoming report on the management of objections. Key recommendations to the ATO include ensuring accessibility and transparency in managing objections, streamlining processes, enhancing engagement before the objection stage, and viewing objections as learning opportunities. The group discussed the various themes and complexities of IGTO complaints, with the IGTO highlighting that refunds and superannuation are significant areas of complaint.
Members were encouraged to engage with the IGTO and to keep raising issues, even if they fall outside the scope of the work plan.
Dispute resolution and taxpayers experiencing vulnerability
The ATO discussed practical considerations and existing initiatives for supporting taxpayers experiencing vulnerability. It was recognised that the interaction between vulnerability and the ability to meet tax obligations is not one-size-fits-all and that experiencing vulnerability can be temporary or permanent. The ATO is committed to exploring several initiatives, including developing a vulnerability framework, by engaging with other government agencies, financial institutions, and private organisations with broad client bases. The group also discussed financial abuse cases and the role of advisers. Members noted tax professionals are not social workers and are not trained as such, but they can still be aware of certain red flags such as fake email accounts or clients who are unaware of their director status.
Disputes arising from automated programs
The ATO provided an overview of its resolution procedure and invited member views on the future design of dispute resolution. Discussion focused on best practices and risk management strategies, prioritising prevention over correction. Only high-confidence data is used to pre-fill tax returns. Risk-based automated models and data matching are used to make adjustments and notify taxpayers, ensuring compliance with standardised processes and consistent outcomes. Principles of natural justice and procedural fairness are embedded, and clients are provided with contact details to speak to an ATO officer and escalate any concerns. Discussions also covered third-party reporting and pre-filling sharing economy data in tax returns, with the ATO emphasising the importance of accurate data matching.
Prevention of unnecessary objections
The ATO highlighted instances where objections arise unnecessarily, explaining why this happens and suggesting alternative pathways for taxpayers. Many unnecessary objections stem from taxpayers trying to understand a decision or using the objection process as a first step to achieve a different outcome. There are alternative pathways for some decisions that are currently underutilised, and it is important to understand the reasons behind this and promote their use.
Additionally, the ATO aims to identify opportunities to reduce objections by providing clearer explanations to taxpayers about decisions and building on previous efforts to prevent issues from escalating to the objections stage.
ATO debt disputes and debt litigation trends and observations
The ATO outlined trends in debt disputes and litigation. As at 31 August 2024, total debt was $87.9 billion across 2.6 million accounts, with 591,000 accounts in a payment plan.
Most taxpayers are typically not required to pay a tax liability following an audit if they are disputing the assessment. However, large business and other high-risk taxpayers are expected to pay all or part of the liability owing, for example by entering into a 50:50 arrangement whereby they pay 50% of the tax liability. In 2023–24, $2.76 billion in total liabilities were raised and $533 million was not disputed and paid. The balance of $2.22 billion is disputed, and $1.09 billion of this disputed amount was also paid upfront under 50:50 arrangements in the same year.
The majority of the current litigation matters relate to winding up and creditors’ petitions. Debt referrals decreased during the COVID-19 pandemic but have increased since 2022, with more winding up and creditors' petition proceedings and defended debt matters. Insolvency numbers dipped during COVID-19 but are now back to pre-pandemic levels, especially in the construction sector. Other cases include voidable transaction claims, defended debt matters, set-aside applications, and freezing orders.
GAAR Panel update
From 1 December 2023 the GAAR Panel (the Panel) reviewed approximately 15 cases, with an expected total of 22 cases by 1 December 2024. Advice provided includes 9 preliminary, 11 full, and 2 general advice cases. Outcomes so far include 6 cases proceeding, 9 requiring further work, and 7 to return in the future. The cases span various markets.
Throughout 2023–24, some of the GAAR matters involved international issues. These included treaty shopping cases, cross-border financing arrangements, multiple entry consolidated groups, joint venture structuring via offshore associates, pricing methods in cross-border sales, and global group restructures for asset disposal to offshore entities.
The Panel also reviewed:
- Section 177E cases, some of which involved arrangements similar to those in Taxpayer Alert TA 2023/1 Interposition of a holding company to access company profits tax-free
- Section 177EA cases concerning the qualified person rule and franking credit refunds
- a case involving a joint venture termination
- a case involving the disposal of properties and the discharge of Division 7A liabilities.
Treasury update
Treasury is currently focused on supporting the government in passing key legislation, aiming to avoid retrospective laws by setting start dates of 1 July 2025 or 1 July 2026. Two foreign resident withholding bills are in progress, with changes to Division 855 effective from 1 July 2025. Division 296, passed by the House of Representatives, awaits Senate consideration. OECD Pillar One negotiations are continuing. Tax agent regulation reforms continue, with Treasury focused on effective consultation. Members also noted the consultation on changes to the deductibility of general interest charge and shortfall interest charge.
Attendees
|
Organisation |
Member |
|---|---|
|
ATO |
Kirsten Fish (Co-chair), Law Design and Practice |
|
ATO |
Jeremy Hirschhorn, Client Engagement Group |
|
Chartered Accountants Australia and New Zealand |
Susan Franks |
|
Corporate Tax Association |
Simon Staples |
|
CPA Australia |
Alexis Kokkinos |
|
CPA Australia |
Jenny Wong |
|
Institute of Public Accountants |
Tony Greco |
|
Law Council of Australia |
Justin Byrne |
|
Law Council of Australia |
Mia Clarebrough |
|
The Tax Institute |
Julie Abdalla |
|
The Tax Institute |
Jerome Tse (Co-chair) |
|
Treasury |
Diane Brown |
|
Treasury |
Laura Berger-Thomson |
Guest attendees
|
Organisation |
Attendee |
|---|---|
|
ATO |
Andrew Orme, Objections and Review |
|
ATO |
Carolynne McQuay, Individuals and Intermediaries |
|
ATO |
Dan Ralph, Small Business |
|
ATO |
Faith Harako, Office of the Chief Tax Counsel |
|
ATO |
Farisha Ali, Objections and Review |
|
ATO |
Lesley Attwell, Frontline Services |
|
ATO |
Marielle Delgado, Frontline Compliance |
|
ATO |
Peter Walmsley, Office of the Chief Tax Counsel |
|
ATO |
Rob Heferen, Commissioner of Taxation |
|
ATO |
Rob Thomson, Individuals and Intermediaries |
|
ATO |
Sonia Corsini, Individuals and Intermediaries |
|
ATO |
Tim Rowe, Objections and Review |
|
Inspector-General of Taxation and Taxation Ombudsman |
Ruth Owen, Inspector-General of Taxation and Taxation Ombudsman |
Apologies
|
Organisation |
Member |
|---|---|
|
Chartered Accountants Australia and New Zealand |
Michael Barbour |