Outcome of the Review of Aspects of Income Tax Self Assessment

Recommendation

Implementation

1

Taxpayers who reasonably rely on Tax Office advice should receive a level of protection as follows:

• For all legally binding advice, taxpayers will be protected from amendments raising additional primary tax, penalties and interest charges.
• For all other written advice (unless that advice is clearly labelled non-binding), and oral advice provided by formal enquiry centres, taxpayers will be protected from penalty and interest charges.
• No penalties or interest will apply where taxpayers follow long standing Tax Office administrative practice.

Legislative

2

The category of legally binding public rulings should be expanded to cover matters of administration, procedure, collection, and ultimate conclusions of fact involved in the application of a tax law.

Legislative

3

The Commissioner should be empowered to declare that advice provided for the general information of non-business individual self preparers (for example, TaxPack) is legally binding upon the Tax Office.

Legislative

4

All aspects of a public ruling that are capable of binding the Tax Office (including for example, worked examples) should be collected together and clearly labelled as binding.

In public rulings, alternative views need not be addressed if these are likely to confuse the reader. Where competing views are raised in consultation and not addressed in the ruling, the Tax Office should provide feedback directly to people contributing those views.

Administrative

5

The Tax Office should take all steps necessary to ensure that an appropriate instruction or product replaces any public ruling as soon as practicable after it is withdrawn.

Administrative

6

Where the Tax Office changes a public interpretation or long standing practice to the detriment of taxpayers, that change should become effective prospectively and, where necessary, from a future date that allows affected taxpayers reasonable time to become aware of, and act upon, that new interpretation.

Legislative

7

Where taxpayers rely on public rulings while they are in draft form they should be protected from penalties and receive full remission of any interest charges in the event that the final ruling is issued in different terms, to their detriment.

Legislative

8

Wherever possible, Tax Office general written advice, including public rulings, should be written in plain language, with a minimum of qualifying statements so that it is accessible to the general public.

Administrative

9

The Tax Office should continue to replace large ‘mail-outs’ to tax agents with more targeted electronic contacts, and a ‘whole-of-agency’ view should be applied to volumes of information distributed.

Administrative

10

The Tax Office should update and consolidate its guidance on the way it interprets and administers Part IVA of the Income Tax Assessment Act 1936 into a single comprehensive Ruling or Practice Statement.

Administrative

11

The category of private binding rulings (PBRs) should be expanded to cover matters of administration, procedure, collection, and ultimate conclusions of fact involved in the application of a tax law. However, the Commissioner should not be obliged to rule where to do so would prejudice or unduly restrict the administration of the tax law.

Legislative

12

In PBRs where Part IVA could apply having regard to the facts provided in the PBR application, the Tax Office should indicate whether Part IVA has been considered. This indication may be by way of substantive comment on Part IVA’s application, or by disclaimer. Where Part IVA has been substantively addressed and there has been a full and true disclosure of all material facts, the Tax Office should be prevented from reopening an assessment.

Taxpayers can advise in their PBR application that Part IVA need not be considered.

Administrative

13

The Government should request the Inspector-General of Taxation to evaluate whether the pattern of PBRs indicates a pro-revenue bias.

Administrative

14

The Tax Office should enhance its published performance reporting on PBRs to distinguish response times to individuals and very small business from those for larger businesses, and separately report agent and non-agent case statistics.

Administrative

15

For PBR applications that are older than 60 days, taxpayers who have supplied all information required by the Tax Office should be able to request that the Tax Office determine their application within 30 days. If the Tax Office does not make a determination within 30 days, the taxpayer will be taken to have received a negative response to their application, thus triggering their objection and appeal rights.

Legislative

16

The Tax Office should refrain from ruling on issues not directly raised in PBR applications without the taxpayer’s agreement. In cases where other aspects of the tax law could impact on the accuracy of the Tax Office’s response, the response should contain appropriate caveats or statements that the advice is issued subject to certain assumptions or limitations.

Administrative

17

When making a PBR, the Commissioner should be empowered to consider information other than that supplied by the applicant, provided that such information is made known to the applicant before being used.

Legislative

18

The Tax Office should continue to modify its PBR application forms and processes to reduce the need for taxpayers to conform to complex procedures, or for the Tax Office to seek additional information from taxpayers.

Administrative

19

If neither the transaction nor the income year to which a PBR relates has begun, the PBR may be withdrawn by either:

• notifying the affected taxpayer directly through a revised PBR; or
• issuing a public ruling, provided that ruling applies to the taxpayer as if it was issued immediately before the taxpayer’s next income year.

Legislative

20

PBRs should contain an answer written in plain language, with a minimum of qualifying statements.

In addition to the plain explanation, the Tax Office may provide a more detailed or technical statement of its position, where it is necessary to do so.

Administrative

21

In responding to a request for a private ruling, or determining an objection to a PBR request, the Commissioner, Tribunal or Court (as the case may be) should be able to take into account additional facts and particulars provided by taxpayers after they have lodged their PBR application.

Where the additional facts mean that the arrangement is materially different from that in the original PBR request, a taxpayer must make a fresh PBR application.

Legislative

22

Where the Tax Office has provided a PBR to a trustee of a trust estate, the PBR should be able to be relied upon by future trustees of the trust estate for the same income years on the same terms as the original PBR.

Legislative

23

The eligibility for oral rulings should be expanded to cover all non-business individual taxpayers who are self preparers unless, in the opinion of the Commissioner of Taxation, the question being asked is complex and would require the question to be set out and answered in writing.

Legislative

24

The Tax Office should explore ways to record oral advice as suggested by the Ombudsman.

Administrative

25

The Tax Office should work with tax agents to identify improved ways or new systems to assist tax agents with responsive and timely advice on low risk enquiries.

Administrative

26

The amendment period for increasing the liability of individuals and very small businesses should be reduced from four years to two years, subject to certain exclusions dealt with in Recommendation 28.

Legislative

27

For the purposes of the proposed two year amendment rule, a business should be treated as a very small business if it has elected to participate in the Simplified Tax System.

Legislative

28

The two year amendment period for individuals and very small businesses should exclude:

• partners in partnerships and beneficiaries or trustees of trusts where the partnership or trust has not elected into the Simplified Tax System;
• taxpayers who get a tax benefit from a scheme entered into or carried out with the dominant purpose that they (or someone else) get a tax benefit.

The two year amendment period may also exclude other high-risk cases by regulation.

Legislative

29

From the 2004-05 income year, the period of review for loss and nil liability cases should be equivalent to the period for the Tax Office to amend assessments creating liabilities.

Legislative

30

Where a taxpayer’s 2004-05 return discloses relevant loss information about any earlier loss years, the Tax Office should have six years from lodgment of that return to issue an assessment for those prior loss years. For other (non-loss) nil liability returns for years ended 30 June 2004 and earlier, the Tax Office should have until 31 October 2008 (or four years from the date of lodgment, whichever is later) to issue an assessment.

Legislative

31

The present six year period for the Tax Office to amend using the anti-avoidance provisions should be abolished, so that a four year amendment period applies to arrangements entered into or carried out to obtain a tax benefit.

Legislative

32

Treasury should conduct a detailed review of the specific provisions with unlimited amendment periods to identify those that could have a set amendment period. Such set periods could be in line with the current general rules, or longer with good reason.

This Review should identify appropriate transitional arrangements so that the issues from earlier income years (for which there is currently an unlimited amendment period) become final where a finite amendment period is adopted.

Legislative

33

The unlimited amendment periods should be abolished for the substantiation and car expenses provisions, so that the normal amendment limits apply.

Legislative

34

The Tax Office should generally accept a request for an extension of time to lodge an objection from individual or very small business taxpayers where the request is received within four years of the original assessment and the taxpayer has at least an arguable case for the objection to be allowed in whole or in part. However, such extensions would not usually be granted where the Commissioner is out of time to amend an assessment of an associated taxpayer to include income which was incorrectly included in the first taxpayer’s assessment.

Legislative

35

The Tax Office should extend its practice of entering into pre-assessment agreements to a wider range of transactions or circumstances, wherever it is cost effective to do so.

Administrative

36

The Tax Office should revise its rulings on reasonable care and reasonably arguable position, with a view to providing clearer guidance and further examples as to what conduct will, or will not, attract a penalty.

Administrative

37

The definition of when a matter is ‘reasonably arguable’ should be amended to confirm that the relevant standard is about as likely to be correct as incorrect (or more likely to be correct than incorrect) — not as likely to be correct as incorrect.

Legislative

38

The penalty for a tax shortfall resulting from a failure to follow a private ruling should be abolished.

Legislative

39

The Tax Office should explain more fully, for example in a Ruling or Practice Statement, how it exercises the discretion to remit tax shortfall penalties, including in Part IVA cases.

Administrative

40

Where the Tax Office decides that a tax penalty applies and should not be remitted in full, the Tax Office should provide an explanation of why the penalty has been imposed (for example, why the taxpayer has not taken reasonable care or does not have a reasonably arguable position) and why the penalty has not been remitted in full.

Legislative

41

The Tax Office should further explain in a Ruling or Practice Statement what understatements of liability it regards as immaterial for tax shortfall purposes.

Administrative

42

From the 2004-05 income year, the standard interest charge applying to income tax shortfalls (that is, the tax difference between the original and amended assessment) should be lower than the GIC rate, reflecting the benchmark cost of finance for a business.

Legislative

43

The new lower uplift factor should be implemented by a separate pre-amendment shortfall interest charge, in lieu of the GIC. GIC will continue to apply to crystallised debts from the new due date.

Legislative

44

The Commissioner should have a broad discretion to remit the new shortfall interest charge, where he considers it fair and reasonable.

Without limiting the generality of the above:

• Remission should have regard to the broad intention that shortfall interest be imposed at a uniform rate, rather than being tailored to the circumstances of particular taxpayers.
• Remission should generally occur where circumstances justify the revenue-bearing part of the cost of delayed receipt of taxes.

Legislative

45

Where unremitted shortfall interest exceeds 20% of the tax shortfall, the taxpayer should be entitled to object to the decision not to remit. Objection decisions should be subject to review and appeal where the shortfall interest remaining after determination of the objection exceeds 20% of the tax shortfall.

Legislative

46

When notifying taxpayers of a shortfall interest liability, the Tax Office should advise taxpayers on how to seek remission.

Administrative

47

The Tax Office should provide reasons for rejecting requests for remission of shortfall interest.

Legislative

48

The Tax Office should take further steps to make it clear that a notice of assessment can be reviewed and amended. These steps could include:

• changing the notice of assessment title or description to reflect that it is an assessment based on the face value of the return;
• requiring tax agents to inform their clients of the applicable review periods that apply to their returns.

Legislative

49

The government should request the Inspector-General of Taxation to evaluate the operation of the Tax Office’s Test Case Litigation Program, with particular focus on:

• the suitability and application of the criteria used to select test cases;
• the transparency of reasons given to applicants where funding is rejected.

Administrative

50

Treasury should conduct a detailed review of discretions that go to the determination of a taxpayer’s liability and recommend replacement tests, wherever practical, that a taxpayer can apply at the time of lodgment.

Administrative

51

Treasury should conduct a review of the design of elections in the law and establish guidelines for framing those elections in the future.

Administrative

52

The Board of Taxation (in conjunction with Treasury) should review international consultation processes with a view to identifying any improvements to the Australian system, especially in respect of non-controversial minor policy or technical amendments, and report to Government.

Administrative

53

Treasury should review the possible application of the recommendations contained in this report to all federal taxes.

Administrative

54

Treasury should examine the possibility of reducing the volume of law that needs to be accessed by individuals and small businesses with very simple affairs.

Administrative