tax tracker

Tax is universal. It touches everyone. So who watches the tax office? And when things don’t go well, what avenues do directors, accounting professionals and other taxpayers have to sort things out? That task falls to the Inspector General of Taxation and Taxation Ombudsman (IGTO), Karen Payne GAICD, who is as keen for directors to become as aware of the role of the office as they are of the Australian Taxation Office (ATO).

Payne, a former board member and CEO of the Board of Taxation, spent 12 years as a tax partner at law firm MinterEllison, worked as a tax accountant at Ernst & Young (now EY) and was also a part-time university lecturer on the subject. She says the dual roles are part of good governance of the tax administration system.

Payne wants to minimise the disputes taxpayers have with the ATO and help them better understand their interactions with the tax system, with an eye to strengthening taxpayer rights. “The ATO performs an important and sometimes very difficult role in the tax system,” she says. “Taxation is not a choice. We are an important part of the accountability framework. Having somebody independent in the system is quite important to provide the assurance that then goes on to feed that voluntary compliance. Taxpayers need to have confidence they can freely engage with the system. Voluntary compliance is critical in a self-assessment tax system.”

Taxpayer rights

Since the 1990s, Australia has had a Taxpayer’s Charter created by the ATO, which sets out mutual obligations of trust and respect between the ATO and taxpayers, although is not legally enforceable.

The Inspector-General of Taxation was set up in 2003, with endorsement from the Board of Taxation. It is an independent statutory agency that represents members of the community and interacts with the ATO on their behalf, acting typically on matters of fairness, efficiency or transparency.

In 2015, the agency absorbed the role of Taxation Ombudsman, introducing what was essentially a taxation complaint service, combined with ministerial advisory. As the Tax Ombudsman, it can investigate individual complaints about tax administration decisions and actions, and keeps those findings private.

The IGT also conducts more systemic investigations into tax administration and these findings are made public. These can be informed by its individual investigations, by the IGT’s own observations or requested by a parliamentary committee.

“Complexity in the tax rules may be necessary at times, but the complexity itself shouldn’t be a cause for unfairness,” says Payne. “It doesn’t mean that the experience of every taxpayer needs to be something they can’t comprehend. There are obviously practical ways in which you can administer laws and administer the system so that somebody’s experience in the system isn’t always too hard.” Among three recent reviews, the IGT investigated the interaction of the tax system with death, in particular the problem accountants have in completing the deceased’s taxes because ATO privacy provisions stop it from engaging with their accountant without evidence they are the executor or appointed by the executor. The investigation revealed disconnects between state laws for wills and estates and federal tax laws. Following the IGT recommendations, the ATO simplified its procedures.

The IGT also recently investigated the effectiveness of ATO communications of taxpayers’ rights to complain, review and appeal, and investigated issues around undisputed tax debts in Australia. Taxpayers can lodge complaints with the ATO or with the Tax Ombudsman and also pursue alternative dispute resolutions. The IGT recommended an upgrade to the Taxpayers’ Charter to include informing taxpayers of this as a formal obligation.

Complaints department

Half way through her five-year term, Payne is in the midst of several investigations concerned with reducing tax disputes. One investigation is looking at how the ATO administers objections. The second is looking at the ATO’s general powers of administration, in particular how the ATO manages tax settlements. A third is considering how the ATO administers its discretion to modify the operation of laws if they’re not operating as intended, provided it doesn’t come at a large cost to revenue and is only dealing with small policy. “I want to minimise people having unnecessary disputes about the tax system and, particularly if you haven’t got deep pockets, [having to] run off to court,” she says.

Payne says the IGT also receives direct complaints from directors about director penalty notices, which demand the director pays monies that the company hasn’t, such as PAYG withholding tax, GST or superannuation. “The director penalty notice regime is designed in a way that puts the liability for various unpaid company tax at the feet of the director,” she says. “There can be times when people have difficulty engaging with the tax office, trying to get information they need. Those are areas where we can help to resolve complaints.”

Payne says the Taxpayers’ Charter may not provide legally enforceable rights, but it does provide a useful framework to encourage trust and engagement with the tax system. The IGT recently published a paper on the charter (igt.gov.au/satl-reports/a- brief-history-of-the-taxpayers-charter) to provide stakeholders with the historical context of the charter to inform future engagements with the ATO on the issue.