24 November 2010

Inspector-General's Report on Administration of Private Binding Rulings and Consultation on Oral Rulings System

Minister Bill Shorten, the Assistant Treasurer and Minister for Financial Services and Superannuation, today released the Inspector‑General of Taxation's (Inspector-General) Review of aspects of the Australian Taxation Office's administration of private binding rulings.

The Review examined how private binding rulings are administered by the Australian Taxation Office (ATO). It looked at issues including the timeliness and accessibility of private rulings and the purpose and ongoing relevance of the public register of edited private rulings.

A private binding ruling is where the ATO gives binding advice to a taxpayer about their specific issues that assists the taxpayer to make a self-assessment of their tax liabilities more accurately.

In his report, the Inspector‑General makes six recommendations (please see the attached list of recommendations). Of these, five were administrative matters and the responsibility of the ATO. On those recommendations, the ATO agreed with two in full, one in principle and two in part.

One recommendation was legislative in nature. This recommendation suggested the Government consider abolishing the oral rulings system, given its continuing low level of usage.

The oral rulings system is similar to a private binding ruling, except the advice given is oral, not written.

"With regard to this recommendation, I have asked Treasury to assess the current suite of advice products available to individual taxpayers that have simple affairs and prepare their own tax returns before the Government makes a decision. I have also asked Treasury to seek the views of taxpayers," the Assistant Treasurer said.

"It is important that we continue to look for options to simplify the tax system where possible."

In addition, the Inspector-General found that the ATO had also implemented all the agreed recommendations from the early 2008 Inspector‑General report.

"I would like to thank the Inspector-General for his comprehensive report and thank the ATO for its ongoing commitment to improving taxpayers interaction's with the tax system"

The IGT's report, which also contains the full ATO's response, is available at www.igt.gov.au.

24 November 2010

Table Outlining Recommendations of the Inspector-General of Taxation's Review and the Tax Office's Response to the Review

# Key Recommendations ATO Response To Recommendation
1

Key Recommendation 1

The Inspector-General recommends that the ATO should:

  • to better manage its resources for the production of private rulings, improve its existing management systems to identify, track and report, on a Tax Office wide basis, the most frequently requested private ruling topics; and
  • to facilitate the process of providing useful information to the ATO about high demand private ruling topics that may benefit from alternative ATO approaches and also to tax policy makers about areas of the tax law that may require amendment, publish the top five or ten (or whatever number is the most appropriate) of the most frequently requested private rulings topics.
The ATO agrees with the recommendation.
2

Key Recommendation 2

The ATO should address perceptions that it may have topics on which it will refuse to make private rulings by adopting measures such as:

  • notifying applicants for private rulings on particular topics of any key issue escalation arrangements put in place for private rulings on those topics and what impact those arrangements may have on the timeliness of rulings on those particular topics; and
  • also notifying (where appropriate) the public of the nature of any such arrangements and what impact these arrangements may have on the timeliness of rulings on those particular topics.
 The ATO agrees with this recommendation.
3

Key Recommendation 3

To address delays and productivity issues that may arise from having large teams from different areas of the Tax Office working on private rulings, the Tax Office should:

  • implement measures to ensure that only the minimum number of Tax Office personnel necessary to produce a timely and high quality product are employed on any private ruling;
  • introduce and develop productivity benchmarking, exploring both internal and external criteria for Tax Office personnel engaged in the private ruling decision-making process; and
  • ensure that the minimum necessary number of personnel on a private ruling case includes the ultimate case decision-maker from the time when this ultimate decision-maker has been identified.

The ATO agrees with this recommendation in principle.

In its response the ATO noted that:

  • its approach is to ensure that staff with the appropriate expertise are engaged early in the process of preparing a private ruling (and as such, a one size fits all approach does not necessarily suit all circumstances where a private ruling is sought);
  • it is concerned about the delays that do occur in responding to some requests for private rulings (though often cases involve complex or novel issues); and
  • that when preparing a ruling, it is not so much about the number of staff involved but having the appropriate staff involved.
4

Key Recommendation 4

To address possible concerns that the new Siebel computer system for handling private rulings may have led to a deterioration in the Tax Office's previous strong performance in the delivery of timely, high quality and consistent private rulings, the Inspector-General recommends:

  • [4.1] that a review which addresses the timeliness, quality, consistency and integrity of private rulings being produced by the Tax Office under the Siebel computer system be conducted after the Tax Office has fully completed its phasing–in work for this new system; and
  • [4.2] that the ATO takes steps, as soon as possible, to ensure that ATO staff can conduct effective searches across the ATO's internal databases for any private rulings on a particular topic.

The ATO agrees with recommendation 4.1 and agrees in part with recommendation 4.2.

Concerning recommendation 4.2, the ATO noted in its response to the Inspector-General that:

  • there were some issues with the introduction of the new computer system for rulings (the Siebel system) but these issues are being resolved; and
  • as such, the design and delivery of the specific functionality recommended by the Inspector‑General for the Siebel system, is not a priority in the current climate.
5

Key Recommendation 5

In view of the continuing low level of usage of the oral rulings system, the Inspector-General recommends that the Government should consider abolishing the oral rulings system and removing the relevant provisions dealing with oral rulings from the Taxation Administration Act 1953.

 The ATO noted this is a matter for Government.
6

Key Recommendation 6

The Inspector-General recommends that the Tax Office should:

  • [6.1] retain its practice of publishing on its website edited and searchable versions of binding private rulings;
  • [6.2] further enhance this register by introducing a process of noting which rulings on the register have been withdrawn;
  • [6.3] work towards introducing a process of grouping rulings which are of a standardised nature and publishing only the details of the relevant ruling which differ from the standard version;
  • [6.4] work towards introducing a better search engine for the register and the removal or notation of rulings known to be incorrect or out of date; and
  • [6.5] work towards ensuring that all private rulings are published on the register within 49 days after the provision of the ruling to a taxpayer.

The ATO agrees with recommendations 6.1 and 6.5, and disagrees with recommendations 6.2 to 6.4.

With regard to the sub-recommendations the ATO disagrees with [6.2 to 6.4]:

  • it considers the proposed enhancements outlined in these sub-recommendations would significantly increase the risk of users misunderstanding the intent and purpose of the register.