Please see attached document.
Download (603.71 KB)Mr David Thodey AO
Chair
Independent Review of the Australian Public Service
C/- Department of the Prime Minister and Cabinet
PO Box 6500
CANBERRA ACT 2600
By email: apsreview@pmc.gov.au
Dear Mr Thodey,
Independent Review of the Australian Public Service
The Tax Institute welcomes the opportunity to make a submission to the Department of
the Prime Minister and Cabinet in relation to the Independent Review of the Australian
Public Service (APS Review).
Through its work in relation to tax policy and administration, The Tax Institute liaises with
a number of Departments of State and government entities that engage staff under the
Public Service Act 1999 (Cth) including:
• The Treasury;
• The Australian Taxation Office;
• The Inspector General of Taxation; and
• The Board of Taxation.
The focus of our submission is on the two key agencies involved in policy, law design
and administration in the Australian tax and superannuation systems – being the
Treasury and the Australian Taxation Office (ATO). The matters raised in our submission
are directly relevant to these aspects of the APS review:
• delivering high quality policy advice, regulatory oversight, programs and services;
• tackling complex, multi-sectoral challenges in collaboration with the community,
business and citizens;
• improving citizens’ experience of government and delivering fair outcomes for
them; and
• acquiring and maintaining the necessary skills and expertise to fulfil its
responsibilities.
Level 10, 175 Pitt Street Tel: 02 8223 0000 info@taxinstitute.com.au
Sydney NSW 2000 Fax: 02 8223 0077 taxinstitute.com.au
ABN 45 008 392 37
Summary
The Tax Institute considers that improvements to the policy development and
consultation phases of tax and superannuation law formation would result in better law.
For Treasury and the ATO to properly fulfil their policy and regulatory roles respectively,
they need sufficient resources, including both the requisite skill sets and experience and
time to properly consider issues arising upon formation and interpretation of tax and
superannuation law. This also includes addressing deficiencies in the consultation
process. In the absence of this, policy advice and regulatory oversight will be of a lesser
standard than what is demanded of such a complex area of law to develop and
administer. Another concern of members is when the ATO changes a longstanding view
on how it interprets a particular area of the law and the uncertainty, cost and
inconvenience this means for taxpayers.
Discussion
- Overview
One of the greatest challenges facing the Australian Public Service (APS) in the tax and
superannuation policy and law space is providing sound tax and superannuation policy
to support well designed law. The better the tax and superannuation policy and law
design, the easier the ensuing law is to administer. Necessary skills are required in the
APS to ensure that ‘good law’ is formulated and put in place. The skills required include
not only solid technical expertise in the areas of taxation and superannuation, but also a
practical and commercial understanding of how tax and superannuation laws impact on
a variety of taxpayers and participants in the system.
In the absence of these necessary skills, poor quality law may be designed and
implemented. Where policy is rushed and not properly consulted on, poor law can also
arise creating uncertainty and unintended results. This makes it difficult for a regulator,
such as the ATO, to administer given that the ATO can only interpret the law as enacted.
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Formation of Tax Policy and Law Design
a) Improving policy development and law design
Many of the issues that give rise to complexity in the tax and superannuation system
could be resolved at the early stages of policy development and law design. The Tax
Institute is of the view that a framework to involve the relevant parties as part of the policy
development stage should be developed.
The ‘relevant parties’ include the policy arm of Treasury, the administrator (ATO), the
drafters, and relevant tax practitioner and business representatives. Each of these
stakeholders has a valuable contribution to make at the embryonic stage of policy
development.
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While steps have been taken over the last few years to improve consultation in the
development of tax policy and the design of the law, the Institute is of the view that more
needs to be done to reduce complexity in the tax and superannuation system and
improve the quality of the tax and superannuation law being developed. Complexity will
be reduced through having better resourced teams with relevant skills and knowledge
and sufficient capacity to properly focus on issues during the policy development and
law design stage and gain an understanding of the pragmatic implications of new
policies. These issues include interactions between different parts of the law, the need
for concessions and exemptions to the main rules and the need for integrity rules.
A change to policy development and law design of this nature would reduce complexity
and improve the quality of new law as a lot of the issues that traditionally come up at
later stages of consultation would be addressed much earlier in the process within the
context of the broader scheme of the law change.
b) Improving the consultation process
The Government should develop an agreed procedure around consultation with all
relevant stakeholders on matters of significant tax and superannuation policy change to
be followed in all cases but extremely rare situations.
A major contributing factor to complexity in Australia’s tax system is the recent history of
developing tax policy ‘on the run’ where a media announcement is made about a new
tax policy, with a relatively short timeframe to enact it or a Budget announcement is made
and the scope of the announcement has not been fully developed1. In the case of tax law
measures, often they are announced to address specific issues only2 and are not
necessarily thoroughly considered, particularly in terms of the context of the whole
system. There is a sense that law change is constant, and it is difficult to keep up with
all potential changes. The tax legislation continues to grow and there does not appear to
be time or appetite for whether a reduction or simplification of certain tax measures can
occur.
New Zealand could serve as a good model for Australia. Since the 1990s, New Zealand
has operated a tax policy process called the ‘generic tax policy process’ that applies to
tax law changes. This process sets a clear expectation around, and provides a sufficient
amount of time for, thorough consultation. It ensures that well-considered tax legislation
is introduced into the New Zealand parliament and that New Zealand tax policy is well-
developed, and has involved the right stakeholders, prior to reaching the draft law stage.
The result is a positive and increased level of engagement in the policy process, and a
greater level of understanding of tax policy intent. Retrospective law changes are also
extremely rare, and this reduces uncertainty and complexity.
1
For example, the 2017-18 Budget measure ‘Tax Integrity Package – improving the small business capital gains tax
concessions’ (announced in May 2017) where the scope and effect (of a policy change) was not apparent until the
exposure draft was released in the following February 2018.
2 For example, the diverted profits tax measure (which has since been implemented).
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In its review of the tax consultation process3 the Board of Taxation made a number of
recommendations to improve Australia’s tax consultation processes based on the New
Zealand experience.
Subsequently, a further review was conducted by the Tax Design Review Panel. In its
report4, the Panel also recommended a number of changes to Australia's tax law design.
Those changes were in broad terms consistent with the generic tax policy process
advocated by the Board of Taxation, although not completely. This was noted by the
Board of Taxation in its subsequent report in 20115.
A number of changes have been implemented following the Tax Design Review Panel
report which have improved the system (such as the publication of a forward tax policy
program for a period of time though this has since ceased). However, as the Board of
Taxation noted in 2011, there is still an inconsistent process of consultation and a lack
of quality in consultation6, a degree of lack of engagement from taxpayers, and there are
still problems in the system. The Board of Taxation recommended a clear and consistent
generic tax policy process be adopted and announced openly.
Other problems that have arisen include situations where the Government has rushed to
move from policy development stage to tabling the measure in a Bill in Parliament and
not allowing Treasury sufficient time to prepare (and consult on) draft law and
Explanatory Memoranda explaining the Government’s intention on how the measure
should apply.
Consequently, interpretation of the law is left to the administrator/regulator, the ATO, and
in a number of cases has resulted in a disconnect between the Government’s intention
and the interpretation and application of the measure. However, this is problematic as a
court is only able to consider extraneous material such as the explanatory memorandum
relevant to a Bill to assist with interpreting a provision of an Act7. Guidance material
issued by the administrator, the ATO, is not acceptable for this purpose. In the absence
of sufficiently prepared explanatory memoranda, there is little other relevant guidance
available to a Court to consider from which to source the Government’s or Parliament’s
intended application of a particular provision.
c) Changes in views
There are instances that members have identified where the ATO has changed its
longstanding view on how it is interpreting the law. These changes have a far-reaching
impact on taxpayers, particularly where taxpayers have acted consistently with the ATO’s
3
Board of Taxation Improving Australia’s Tax Consultation System Report, February 2007
4
Better Tax Design and Implementation: A Report To The Assistant Treasurer And Minister For Competition Policy
And Consumer Affairs, 30 April 2008
5
Board of Taxation Post-Implementation Review of the Tax Design Review Panel Recommendations December 2011.
6
For example, the Superannuation Reform Package announced in the 2016-17 Federal Budget was announced
largely by media release. Following that, industry was given two weeks to consult on over 600 pages of draft
legislation. This made for very rushed consultation on a significant suite of measures.
7 Section 15AB(2)(e) of the Acts Interpretation Act 1901 (Cth)
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previous position. It can be quite costly for taxpayers to unwind arrangements they have
in place to comply with the new ATO view. It also creates uncertainty as to whether
further changes will occur.
While the ATO may provide concessional relief in the form of a Practical Compliance
Guideline, this does not provide a long-term solution.
d) Recent examples
The issues described above have arisen in a number and variety of situations. The
following examples are included for illustration purposes.
Examples of issues arising from the consultation process
i) Corporate and international taxation – the hybrid rules – during the consultation
process, stakeholders sought comfort from Treasury on the extent to which Part
IVA of the Income Tax Assessment Act 1936 (Cth) would apply if taxpayers were
to restructure to remove the Australian impact of the anti-hybrid rules.
Stakeholders had asked for more broad ranging and helpful comments to be
inserted into the Explanatory Memorandum (EM) as they did not feel the example
included was sufficient for this purpose (even though Treasury sought to improve
the example during the consultation process in response to stakeholder
comments). Stakeholders were advised by Treasury that the EM would not
contain extensive guidance as the ATO would release guidance on this issue
when the legislation was enacted. While the ATO have since released draft
Practical Compliance Guideline PCG 2018/D4: Part IVA of the Income Tax
Assessment Act 1936 and restructures of hybrid mismatch arrangements, such
guidance does not have the same value as guidance in an EM for interpreting the
law (as noted above).
ii) GST – 2017-18 Budget measure ‘GST withholding on property transactions’ –
numerous issues were raised with Treasury during the consultation process. As
Treasury was required to have the measure ready for tabling in Parliament within
a certain time, members felt it was then left to the ATO to deal with a number of
these issues after the measure was enacted. This included some issues that
cannot be addressed administratively, thus making the role of the ATO even more
difficult. The draft guidance that the ATO has issued (Law Companion Ruling
LCR 2018/D1) is not able to resolve the outstanding issues with the legislation.
iii) Superannuation – whether a ‘transition to retirement income stream’ (TRIS) can
be converted into an account-based pension (ABP) – there is a significant
difference between the understanding (and long-standing practice) of industry
that a TRIS can be converted to an ABP (subject to the governing rules of the
relevant superannuation fund) and Treasury and the ATO’s interpretation of the
law which suggests this is not possible. There is no express provision in the
legislation that precludes the effective conversion of a TRIS to an ABP and
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therefore the interpretation provided by Treasury and the ATO is, in our opinion,
not consistent with the law. Later amendments were required to be made to the
legislation for issues that were raised in consultation prior to when the provisions
were first enacted. These issues could have been resolved during the initial
consultation phase. A detailed explanation of this issue is contained in
submissions we have made to Treasury8 and the ATO9.
Examples of changes in views
i) Corporate and international taxation – revised guidance on the corporate
residency test relying on the place of central management and control – there
were differing views between the ATO and stakeholders regarding the decision
in the Bywater10 case and whether the case had enough impact to cause the ATO
to revise its long-held views in relation to this residency test. The ATO has relied
on the Bywater case to support revising its views on the central management and
control test.
ii) Superannuation - The ATO has taken a couple of differing views on when a self-
managed superannuation fund (SMSF) is required to obtain an Actuarial
Certificate in order to determine the exempt pension income (ECPI) percentage
in an income year in accordance with section 295-385 and section 295-390 of the
1997 Act.
On 9 April 2014, the ATO issued Taxation Determination TD 2014/7 to provide
its interpretation of what constitutes segregated pension assets for the purposes
of calculating the ECPI for a SMSF. An Addendum was then issued 21 October
2015 that relaxed the view somewhat and brought it into line with industry
practice.
In 2017, the ATO again reversed its position with regard to the requirements for
claiming ECPI by a SMSF with effect from 1 July 2018. The ATO stated that it
has been incorrectly interpreting the law and will now administer this provision in
line with the revised view.
The last change necessitated a major change to the support systems the
Actuarial industry use to produce SMSF Actuarial Certificates. In addition, the
industry has been left with the nonsensical position that, even if an SMSF is 100%
in the retirement phase (this results in an ECPI of 100%), but is excluded from
segregating fund assets for tax purposes in accordance with section 295-385(7)
of the 1997 Act, they must still obtain an Actuarial Certificate. This is an
unnecessary cost and administrative burden that is caused by strict legislative
interpretation.
8
https://www.taxinstitute.com.au/tisubmission/reversionary-transition-to-retirement-income-streams
9
https://www.taxinstitute.com.au/tisubmission/superannuation-treatment-of-a-reversionary-tris
10 Bywater Investments Ltd v Commissioner of Taxation and Hua Wang Bank Berhad v Commissioner of Taxation
[2016] HCA 45
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3. Possible directions
a) Policy development, law design and consultation
We recommend that the Government revisit the recommendations made by the Board
of Taxation and the Tax Design Review Panel, and in particular draw on the New Zealand
experience, to design a similar tax and superannuation consultation framework for
Australia to apply when tax and superannuation policy changes are being considered.
Such a framework should include an agreed timeframe for consultation applied in all but
extremely rare situations and set procedures for thorough development of tax and
superannuation policy.
There should be a commitment to avoid retrospective law change. This framework
should alleviate some of the issues that add complexity to the tax and superannuation
law, such as making multiple amendments to new laws subsequent to their enactment
to address unintended consequences that are not considered prior to enactment, or
resulting in situations where the ATO is required to try to administratively manage flaws
in the law.
b) Ensuring the requisite skill sets are available in Treasury and ATO
The Treasury, the ATO and the Office of Parliamentary Counsel (OPC) will always
benefit from drawing on the technical expertise and practical experience of members of
the tax and superannuation professions to ensure sound policy and well-designed laws
are formed. We note there continues to be a shortage of skills, particularly within
Treasury, of industry experience and suggest Treasury be provided with further funding
to acquire the skills it needs to ensure it can deliver the highest quality tax and
superannuation policy advice and law design and fulfil its responsibilities in the future.
OPC would also require additional resources to enable them to participate in the
consultation process prior to drafting new law.
We note the ATO has recently been given funding (in the 2018-19 Federal Budget) to
gain additional resources in the areas of enforcement against the Black Economy,
increase debt collections (including their timeliness) and to ensure individual taxpayers
meet their tax obligations. This funding will support the ATO to fulfil its responsibilities as
the tax and superannuation regulator. However, this does not address the upfront
challenge of contributing to the tax policy and design process.
If you would like to discuss any of the above, please contact either myself or Tax
Counsel, Stephanie Caredes, on 02 8223 0059.
Yours faithfully,
Tracey Rens
President
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APPENDIX
ABOUT THE TAX INSTITUTE
The Tax Institute is the leading forum for the tax community in Australia. We are
committed to representing our members, shaping the future of the tax profession and
continuous improvement of the tax system for the benefit of all, through the advancement
of knowledge, member support and advocacy.
Our membership of almost 12,000 includes tax professionals from commerce and
industry, academia, government and public practice throughout Australia. Our tax
community reach extends to over 40,000 Australian business leaders, tax professionals,
government employees and students through the provision of specialist, practical and
accurate knowledge and learning.
We are committed to propelling members onto the global stage, with over 7,000 of our
members holding the Chartered Tax Adviser designation which represents the
internationally recognised mark of expertise.
The Tax Institute was established in 1943 with the aim of improving the position of tax
agents, tax law and administration. More than seven decades later, our values,
friendships and members' unselfish desire to learn from each other are central to our
success.
Australia’s tax system has evolved and The Tax Institute has become increasingly
respected, dynamic and responsive, having contributed to shaping the changes that
benefit our members and taxpayers today. We are known for our committed volunteers
and the altruistic sharing of knowledge. Members are actively involved, ensuring that the
technical products and services on offer meet the varied needs of Australia’s tax
professionals.
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