The Inspector-General of Taxation (IGTO) and Taxation Ombudsman, Karen Payne, in a CCH Learning webinar, provided an update on who they are in the taxation system, what they are doing and how they can help.
Purpose of the Inspector-General of Taxation and Taxation Ombudsman
The webinar presentation kicked off with the purpose of the Inspector-General of Taxation and Taxation Ombudsman, being to:
1. Improve the administration of taxation laws for the benefit of the community
2. Provide advice to Government and Parliamentary Committees
3. Provide assurance (to individual taxpayers, agencies or the community in general) through investigation, review and reporting that Australian taxation administration laws are operating effectively and consistent with community expectations
Ms Payne reminded taxpayers and tax practitioners that as an agency and personally, she wears two hats. Firstly, as the Inspector-General of Taxation, a role that was established in 2003 and secondly, as the Taxation Ombudsman, a role inherited from the Commonwealth Ombudsman back in 2015.
Fundamentally, Ms Payne said she thinks of the role as Investigate, Report and Recommend (IRR). Investigations are undertaken of tax complaints by taxpayers and tax practitioners about the actions and decisions of tax officials in the capacity of the Taxation Ombudsman, as well as systemic review investigations in the capacity of the Inspector-General of Taxation. The investigation process results in providing a report, either privately to the taxpayer or publicly through the Inspector-General role, with recommendations.
Recommendations are non-binding, Ms Payne reminded, which is an ombudsman model, but with reasons provided which are hopefully compelling in and of themselves and publishing what the agency’s response is to those recommendations. Certainly, however, if anything is seen that truly represents maladministration in the system there is an obligation to report that to the Minister responsible or Parliament if complaint cases raise serious issues of conduct.
Why this is important, according to Ms Payne, is that because “Taxpayers who are aware of their rights and expect, and in fact receive, a fair and efficient treatment are more willing to comply” – OECD. She said this is really important in Australia’s case because we have a self-assessment system of taxation.
Taxpayer’s Charter
It is important also because when you think of the ATO’s Taxpayer’s Charter, it acknowledges that the taxpayer has rights, Ms Payne said. The Charter sets out how the ATO conducts itself when dealing with taxpayers and explains:
○ Taxpayers’ rights
○ Taxpayers’ obligations
○ What taxpayers can do if they are not satisfied with ATO decisions, actions or service
○ The standard of service taxpayers can expect from the ATO
Accordingly, Ms Payne said she also sees that part of the Inspector-General of Taxation’s role is to provide some kind of “independent umpire observation on how well the Tax Office is observing their obligations and taxpayer’s rights under the Charter”. There is going to be an ATO “refresh or review” of the Taxpayer’s Charter soon so Ms Payne is keen to make sure that people are tuned in to this document and the reasons behind it.
Overview of Inspector-General of Taxation review investigations
The completed, new and own motion investigations undertaken by the IGTO follow.
Completed review investigations
○ Death and Taxes – An investigation into ATO systems and processes for dealing with deceased estates
○ An investigation and exploration of undisputed tax debts in Australia
○ Review into the effectiveness of ATO communications of Taxpayers’ Rights to Complain, Review and Appeal
○ Jobkeeper eligibility and enrolment
3 new review investigations
○ The Australian Taxation Office’s administration and management of objections
○ The Exercise of the General Powers of Administration
○ The Exercise of the Commissioner’s Remedial Power
One own motion investigation
○ The release of tax debt on grounds of serious hardship
Update on new review investigations
The three new review investigations the Inspector-General of Taxation is undertaking relate to:
1. The ATO’s administration and management of objections
2. The exercise of the General Powers of Administration
3. The exercise of the Commissioner’s Remedial Power
ATO’s administration and management of objections
Providing an update on some of the themes that the Inspector-General of Taxation is seeing in submissions on these investigations, Ms Payne said that the ATO’s administration and management of objections matters the most to most people, with the largest number of submissions. An interim report will be the first step with this investigation, to “put the facts out there” and encourage further submissions.
So far, the submissions received relating to the ATO’s administration and management of objections have raised these issues:
○ Interaction of objection process with audit process – concern that when audit process is incomplete or unresolved is gets kicked along to objections so that objections become just another audit process
○ Independence and impartiality – of tax officials who are making the objection decisions
○ Quality and resourcing – of objections team, with implications for timeliness, and quality of objection reasons themselves.
Exercise of the General Powers of Administration
Ms Payne said the second current investigation, on the exercise of the General Powers of Administration, is of interest to her and is about making good decisions. She said there is possibly a question of what it is, its discretion and scope, with people not knowing this. There’s another concern that General Powers of Administration are not reviewable by the courts. Finally, the submissions have raised that there is a perception that the General Powers of Administration are used to achieve policy outcomes. She said all of these concerns will be investigated further.
Exercise of the Commissioner’s Remedial Power
As for the investigation into the exercise of the Commissioner’s Remedial Power, Ms Payne said this power is a “bit of a mystery”, having only ever been used 5 times. It was intended to address a concern around announcing legislation and then timeframes lagging between the announcement of the legislation and the enactment of the law, hence a way to eliminate ambiguity between announcement and enactment. The question is whether it is doing that and Ms Payne suspects not, but this will be investigated. There’s a lack of transparency around this power, with people not knowing that they can raise issues for the Commissioner’s consideration and if there is a process, how they engage with it. For those that are aware that the power is there, they’ve flagged that there is limited consultation as part of the process.
Update on past review investigations
The completed investigations undertaken by the IGTO are:
○ Death and Taxes – An investigation into ATO systems and processes for dealing with deceased estates
○ An investigation and exploration of undisputed tax debts in Australia
○ Review into the effectiveness of ATO communications of Taxpayers’ Rights to Complain, Review and Appeal
Death and taxes
This was an investigation that came to the IGTO from practitioners who were saying that they couldn’t engage with the Tax Office once somebody dies in the system. Others couldn’t find out if there was superannuation or if the deceased’s spouse had to lodge a tax return. So, it was all about improving the experience of those looking after the affairs of somebody who’s deceased. The key recommendation to the ATO from this investigation was to review, refresh and consolidate advice and guidance for deceased taxpayers, including binding guidance for lodgment of returns and Tax File Numbers (TFNs), following consultation with practitioners.
ATO’s communication of taxpayer’s rights to complain, review and appeal
This investigation established that the Commissioner of Taxation is not required to give a taxpayer reasons for ATO decisions. There is no principle at common law establishing an obligation to provide reasons or a right to receive reasons for administrative decisions generally. There are statutory rights to receive reasons but, in many cases, they are limited or not available unless and until a taxpayer commences litigation. That is, a taxpayer is required to commence a dispute in the tribunal or the courts in order to obtain reasons. Ms Payne said that is a little “back to front” sometimes. It’s fine if you have deep pockets and you are litigious but is does not create a good experience for everyone in the system.
Ms Payne said that good tax administration creates an expectation that taxpayers should receive reasons for decisions which affect them. A survey conducted as part of the investigation found that 96% of respondents said effective communication of taxpayers’ rights is important or very important. It found that the ATO may effectively communicate taxpayer rights to object and seek external review, but it does not effectively communicate less formal and alternate means of resolving disputes – including its own complaints unit and the Taxation Ombudsman.
Across most client groups (individuals, small businesses and high wealth individuals), consistent results were observed with:
○ About 60% being unaware of or having not used the ATO complaint function
○ Approximately 45% are not aware of or have not used the Taxation Ombudsman complaints
One of the key recommendations from this investigation was that the Taxpayer’s Charter shouldn’t just acknowledge that taxpayer’s have rights; it should place a formal obligation on tax officials to tell taxpayers what their rights are.
Similar to the survey, the investigation found that the ATO is great at telling people their rights under the law, their formal Pt IVC rights to object and appeal, but less effective at communicating informal rights to complain, whether to the ATO complaints unit or the Taxation Ombudsman.
The IGTO recommendations are aimed at improving practical implementation and governance of the ATO Executive instructions. The IGTO recommends that the ATO plays a pro-active role in informing taxpayers of their rights to review, complain and appeal decisions and develop strategies to discharge this role, including by:
a) Updating the Taxpayers’ Charter to include an express right to be informed of taxpayer rights to review, complain and appeal decisions and all relevant channels to do so
b) Requiring (encourages or instructs) its officers to communicate clearly and completely (i.e. comprehensively) information to taxpayers of their rights to review, complain and appeal the relevant administrative decisions
It also recommends that the ATO:
a) Ensure all ATO Officers whose responsibilities include making decisions about taxpayers’ tax affairs are aware of their obligations in this respect when engaging with taxpayers and tax practitioners
b) Support its officers to understand the range of available channels to question or challenge ATO decisions and actions, including by requiring all ATO Officers to undertake relevant training courses on these matters that are refreshed on a regular basis.
All of the recommendations were accepted in whole or in principle by the ATO.
Investigation and exploration of undisputed tax debts
The IGTO noticed that, curiously, the levels of collectable tax debt are going up (pre-COVID), so this investigation looked at why this is happening. The investigation found that, not surprisingly, most of these debts are in the income tax space and small business owed the largest amount of debt (over 60% of collectable debt).
The investigation then looked at the actual levels of debt in the system, finding that across all client groups a small percentage of accounts are responsible for a majority of the debt outstanding. This experience is the same regardless of which client group is examined. At an overall level, 5.09% were responsible for 63.41% of collectable debt.
Ms Payne said she can’t tell us why this is occurring, but it is important to put the data out there and somebody should be looking at why this is happening. She said the findings might be expected for multinationals, with even just one multinational accounting for a large amount of debt outstanding, but it’s not what you would expect for small business and individuals.
For small business, it was found that 6.43% of accounts held 57.13% of small business collectable debt, with an average of $135,695 per account. Looking at two debt levels specifically, 1,987 accounts owed $2.51 billion – an average of $1,263,422. Ms Payne said these results deserve a closer look and analysis.
Another point that was noticed in this investigation was that debts that were released on grounds of serious hardship were going down and down. The IGTO is going to take a closer look at this because a number of academics have raised concerns about how the serious hardship provisions work.
Another finding as part of this investigation was that across all taxpayer segments, payment arrangements have consistently been in decline. This is so, despite automated systems to make it easier to enter payment arrangements. Ms Payne said that further investigation is necessary to understand these trends.
The IGTO recommends that the ATO consult with key stakeholders and relevant participants in the tax system to co-design enhanced reporting in relation to its debt book and debt recovery activities throughout the year. This enhanced reporting may be shared publicly or with discrete stakeholders, as appropriate.
An overview of IGTO complaints
As the Taxation Ombudsman, Ms Payne’s office can help investigate taxation complaints about the Australian Taxation Office (ATO) or the Tax Practitioners Board (TPB). A taxation complaint may be formally investigated and resolved in two stages:
Stage 1 – the complainant should first try to resolve their concerns directly with the ATO (or TPB) – by lodging a formal complaint.
Stage 2 – if the complainant remains unsatisfied, they may lodge a taxation complaint with the Taxation Ombudsman for an independent investigation.
Case Study 1 – JobKeeper enrolment
The complainant, an 81-year-old who operated a travel agency with his elderly wife did not enrol for JobKeeper until July 2020, as they were initially unaware that JobKeeper payments were available to business without employees. But for their late enrolment, the complainant had satisfied all of the other eligibility criteria for JobKeeper. The ATO did not grant an extension to time to enrol because it did not consider the business to be affected by ‘exceptional circumstances.’ This meant that the ATO would commence paying JobKeeper to the complainant from July 2020 and not for any of the earlier periods.
The IGTO considered that the ATO had not applied the correct test in deciding whether to grant an extension of time. The IGTO observed that the relevant test outlined in the PS LA 2011/15 was not whether there were ‘exceptional circumstances’ but whether it was ‘fair and reasonable’ to grant an extension having considered a list of factors outlined in paragraphs 45 and 46 of the PS LA. As a result of this investigation, the ATO reconsidered and reversed its initial decision and allowed JobKeeper payments to be backdated to the start of the scheme. The IGTO noticed a pattern in the ATO’s decision making process and issued a public report on this issue.
Case Study 2 - JobKeeper eligibility
A company was incorporated in July 2019 to fit out and run a café. From August 2019 to December 2019 the company applied for the required council approvals to operate as a café and spent considerable funds fitting out the café premises. The café opened in January 2020 with 5 employees. It made approximately $13,000 per week in sales until it was forced to shut in March 2020 due to a State Government lock-down that was implemented in response to the pandemic. At the time of the lock-down, the café employed 11 staff. The company reported GST on a quarterly basis and therefore reported its first sales in the tax period that ended on 31 March 2020.
The ATO decided that the taxpayer was ineligible for the payment on the following grounds:
“We have reviewed your GST registration and you report GST on a quarterly basis. The last quarter that ended prior to 12 March 2020 was the quarter ended 31 December 2019. You commenced business after 1 January 2020 and could not lodge a GST return for the quarter ended 31 December 2019.”
Following the ATO’s informal review, it reversed its decision and determined that the café was eligible to receive the payments on the following grounds:
“You were registered for GST from 1 July 2019, reporting quarterly. [In] November 2019, you opened a bank account with an ADI. It is therefore considered that you were carrying on an enterprise and have made a taxable acquisition-supply in the December 2019 quarter. There is no requirement to report the supply in a BAS, as such Commissioner’s discretion may be considered. …Therefore, you are eligible to receive the initial credits and the additional credits if you are granted Commissioner’s discretion in relation to the acquisition-supply of the relevant interest in a bank account. …We have determined that discretion will be applied in your circumstances as, while you were registered for GST and reporting on a quarterly basis, you were not required to report the opening of your bank account [in] November 2019 in your BAS for the quarter as it was an input-taxed supply.”
Case Study 3 – Audit process
A small business was concerned that the ATO’s audit decision to determine that their contractors were employees was wrong and based on an insufficient consideration of the facts and evidence relevant to the common law definition of an employee.
The IGTO encouraged the complainant to object to the decision. Separately, it independently examined the ATO’s audit process and determined that the relevant procedures outlined a decision-making process that was more simplistic than the approach adopted by the courts. The ATO agreed with the IGTO, explaining that it was updating its procedures and provided a draft of the new procedures to the IGTO for review. The IGTO worked directly with senior ATO officers to provide feedback on how the administration of taxation laws in this regard could be improved.
Case Study 4 – GIC remission
The complainant had sought a remission of General Interest Charge (GIC) which was approved by the ATO in full. However, in reviewing his records, the complainant identified that GIC that had been offset against other credits (approximately $4,000) was not included in the remission.
Prior to the complainant contacting the IGTO, the ATO refused to remit the GIC which had already been paid. Through the IGTO investigation process, the ATO agreed to remit the GIC that had been offset against other credits which resulted in a refund of approximately $4,000 to the complainant.
Case Study 5 – Delay
The complainant was waiting for the rollover of his unclaimed superannuation money from the ATO to a complying superannuation fund so he could fund his knee surgery. The complainant first contacted the ATO approximately 7 weeks prior to lodging a complaint with the IGTO. He also contacted the ATO on multiple occasions to expedite the rollover but without success.
As a result of the IGTO investigation, the ATO expeditiously rolled over the complainant’s unclaimed superannuation to his nominated superannuation account and he was able to access it in time to pay for his knee surgery. The complainant was thankful for this assistance.
Karen Payne, Inspector-General of Taxation (IGTO) and Taxation Ombudsman ran the webinar “The latest news from the IGTO - the Inspector-General of Taxation and Taxation Ombudsman” with CCH Learning on Monday 27 June 2022.
