On 9 December 2021, the Office of the Inspector-General and Taxation Ombudsman ("IGTO") announced the commencement of three new review investigations on the following areas:
- the Australian Taxation Office's ("ATO") administration and management of objections;
- the exercise of the Commissioner of Taxation's ("the Commissioner") General Powers of Administration ("GPA"); and
- the exercise of the Commissioner's Remedial Powers ("CRP").
The IGTO, Ms Karen Payne, indicated that her office will progress with these three new review investigations throughout 2022.
The ATO's administration and management of objections
Taxpayers who lodge objections because they are dissatisfied with a decision made by the ATO expect that their objection would be properly considered in a timely manner, impartially and independent of the original ATO decision maker.
The IGTO will focus on these aspects and will examine whether the ATO's systems and processes for the handling and finalising of objections:
- keep undue delays to a minimum;
- provide for an independent and impartial review of audit decisions;
- provide for sufficient engagement with taxpayers and their representatives to achieve a common understanding of, and to narrow, issues in dispute; and
- minimise disputes, including through early identification of cases that are suitable for alternative dispute resolution and/or settlement.
The exercise of the Commissioner's GPA and CRP
The Commissioner has certain discretionary powers to administer tax laws, which are commonly referred to as the GPA. Exercises of GPA may include decisions to: (i) settle tax disputes; (ii) suspend active debt recovery action; and (iii) determining that a tax debt is uneconomical to pursue. The scope and breadth of the GPA is extremely broad, but there are limits to the exercise of this power. In particular, the GPA does not permit the Commissioner to dispense with the operation of the law or modify the liability to tax imposed by the statute.1
Section 370-5 of Schedule 1 of the Taxation Administration Act 1953 (Cth) provides that the Commissioner may modify the operation of enacted legislation that is not operating as intended by Parliament. This is commonly referred to as the CRP. Since 2017, the CRP has been exercised five times in relation to: (i) foreign resident capital gains withholding; (ii) small business restructure roll-over; (iii) disclosure of protected information by taxation officers; (iv) certificate for GST-free supplies of cars for disabled people; and (v) seasonable labour mobility program.
Amongst others, the IGTO will investigate:
- the frequency of the use of the GPA and CRP and their regulatory and compliance impact;
- the efficiency and transparency of the operation of the ATO's systems and processes for the consideration and determination of matters for the exercise of the GPA and CRP; and
- the extent to which the tax practitioner community, as well as the ATO's own staff are aware of and understand the ATO's GPA and CRP processes.
In relation to the GPA, the IGTO will draw from case studies in its complaints investigation service and stakeholder submissions to identify and investigate particular areas such as how broad-based GPA decisions (i.e. those affecting large groups of taxpayers) are identified and determined.
In relation to the CRP, there appears to be a lack of clarity about how issues are raised for CRP consideration and whether the processes are sufficiently robust to take into account consideration of relevant factors and expert stakeholder views.
Our views of the IGTO reviews
The IGTO is an independent office appointed by the Governor-General of the Commonwealth of Australia to assist the Australian community with the tax system. It operates independently from the ATO. Its objective is to improve taxation administration.
The objection process is a key step in the tax dispute lifecycle and provides a way for taxpayers to resolve disputes with the ATO through appointment of another ATO officer to consider the initial decision made by the ATO. A review of the objection process to ensure that it facilitates an independent and impartial review of audit decisions is welcomed. In some instances, the objection process has been undertaken in manner that replicates a second audit and this gives the taxpayer the impression that an impartial review is not being undertaken. The taxpayer may also be pressed by the ATO to respond according to an internal timetable and this can limit the taxpayer's ability to respond.
Given the broad scope of the GPA and importance of the CRP, a review of the Commissioner's exercise of these powers is also welcomed. An independent investigation of this nature is important to ensure that due process is followed and that the powers are being exercised in the right circumstances or are not being forgotten.
We would love to learn of your experience. Do you have a story that should be told and put to the IGTO? Let us know your story, perhaps we can combine your experience with our own and add to the opportunity of making the review a success.
Submissions for the IGTO's review on the GPA and CRP will close on 28 February 2022. Submissions for the IGTO's review of objections process will close on 28 March 2022.
We will monitor the progression of the reviews and provide updates as they arise.
1Macquarie Bank Limited v Commissioner of Taxation  FCAFC 119.
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